Real estate prices tend to rise over the years, but except for inflation, why? Especially why on condo units in high-rise buildings. If the typical lifespan of such a building is say 80-100 years, by the time its 60 or 70 years old, why would someone pay $300,000 for a unit if they can get a similar unit in a 10 year old building? In the not too distant future, the building will have to be torn down and they would lose 90% of their money. Even if you make repairs, owners would be faced with huge bills, like over $100,000 as for the Miami example. And that’s still just putting off the inevitable.
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I was sort of getting at this in my post about condos and the financial implications of buying one.
The major repair bills on these 1970s-era high rise structures are “coming due”. High-rise office buildings from this era are usually owned by real estate behemoths (CBRE, etc) or large corporations and they have budgeted for repairs of this nature. They have massive actuarial teams to understand the risks and costs associated with their portfolios.
Your neighborhood HOA has none of this, and as I mentioned, these buildings tend to have owners that are on fixed incomes in retirement or live paycheck to paycheck. The reserve accounts for HOAs are often woefully underfunded. On top of that, it is rare to have someone that knows what they are doing in terms of maintenance on the board.
Caveat emptor - if you are looking at a high rise, it is almost always better to rent than to buy.
In most real estate like detached houses, a lot of the value is in the land. The value of the land under the condo has to be divided by the number of units. In a place like Manhattan the land is extremely valuable so it is significant even when divided by the number of units. But in a place like Florida it’s much less valuable.
And what happens to the owners of the Miami condos now if it gets demolished? If they have no insurance, their $300,000 investment (less maybe $30,000 land value) evaporates? If they have insurance, will it cover willful destruction of the premises?
If it’s an older building, almost always. I think, for newer buildngs, the financial prospects are more a product of the economy and market than a hard rule. I’m not sure of your definition of high rise, but I’ll assume taller than 7 stories. I’ve owned two high rise condos. The first was for living and the second was a short term (<24 months) investment.
The first was purchased in 1995 when the building was already 20+ years old (a conversion). The market was soft, the price was right, and the reserves were excellent (amazing, compared to a couple of other buildings I investigated). This building did not have a ton of amenities and the HOA fees were not exorbitant. After 15 years, I sold and realized a much greater than expected gain. This was primarily due to location and incredible demand.
The second was a new condo that I purchased in 2008 at a pre-construction price and sold in 2011 as a never lived in condo. It was a little on the posh side, and the developer set ultra low maintenance fees, so selling it was a breeze. However, it was doomed for a significant maintenance fee increase or a huge assessment within 5 years. Because most people don’t look at, or think about, the reserves, I was able to realize a greater profit than expected.
I agree with your caveat, but want to stress the “almost” qualifier.
The problem with renting an older building unit is you can get stuck with single pane windows in Phoenix, when you own you can make modifications to be more comfortable. Of course, it has it’s own risks…
First, I don’t think buildings hae a ‘lifespan’ of 100 years. There are millions of 100+ year old homes across America. My uncle lives in one built in like 1800. Thats nothing compared to Europe.
And yes of course people shouldn’t want to pay the same amount for a crumbled unmaintained old building IF they could get “a similar unit” thats only 10 years old for the same price. I don’t think people normally do that if there is a legit side by side option.
Option A : A 100 year old broken down house for $300k
Option B: The brand new identical size house next door thats also $300k
Nobody takes option A.
However people will overlook important problems with older buildings that aren’t readily visible. e.g. you wouldn’t want to buy my uncles house if you knew there was zero insulation in the walls and saw the heat bills in the winter. Or if you did buy it you’d figure in a discount on the price to cover insulating it or make it worth buying even with awful heat bills.
Any house will need some level of regular maintenance and upkeep over decades. I mean whether the house is 15 or 150 years old you still gota replace the roof every 20 years or whatever. THe ‘bones’ of the building might last for centuries.
Multi-unit Condos are a more unique situation since you’re depending on the HOA and its administration to handdle long term repairs and maintenance. So theres potentially more risk there that something will fall apart due to neglect in the long term if the HOA doesn’t handle it. OTOH without a HOA/ multi-unit condo as a single owner you’re looking at being responsible for all repairs and upkeep yourself. But with due dilligence when buying thats usually no more risk than buying a SFH as sole owner w/o HOA.
The roof on my parents’ house is over 120 years old. They sure don’t build things like they used to.
High rise multi story construction has only been around since maybe the 20’s?, so there is nothing to compare to. Many commercial buildings built in the 50’s and 60’s are now being torn down instead of being rehabbed. Wasn’t some dome football stadium from the 70’s demolished not long ago? And I thought I read than modern concrete will typically only last 300 years before crumbling due to it’s ingredients. Make that, 50-100 years according to this article. The problem with reinforced concrete
I don’t really disagree with comments, but the line I copied (and made bold) is the key to the whole thing. Most people are scared of a 75 year old house and will likely want all kinds of inspections, unless it’s been renovated and it looks like it been cared for. When it comes to high rises, I think people tend to put trust in the powers that be (HOA, city inspectors, govt in general) that preventative or remedial maintenance has been performed. When I sold our condos, none of the offers asked about the reserves. The buyer of the never lived in condo didn’t even do a home inspection, or ask to see the HOA covenants / bylaws.
You can build a slate roof today and it will last 100+ years. Its just very expensive vs shingles so people don’t use it much.
Well it all depends doesn’t it. I’m sure theres buildings that could start to fall apart in 30 years due to poor construction and materials and others that coculd last 300.
But no reason a building can’t last 100’s of years. And everything requires some level of maintenance.
The fact that some commercial buildings are torn down isn’t usually really due to the building being faulty or too old to be structurally sound. Its usually just a choice to build something else instead.
Wouldn’t stainless steel last even longer? And be cheaper to install?
Our lovely town agreed that Arthur Blank wasn’t making enough money and tore down the Georgia Dome, built in 1992, so he could have his palace a few years ago. Subsidized by taxpayers who had no say about this stupidity, of course. 25 freaking years old, and it was imploded. :smacks head:
Didn’t the city, county, or state approve it? If so, taxpayers and non-taxpayers voted them in. That presumes there are more taxpayers than taxtakers.
OTOH, the Georgia Dome was a dawg.
Was the Georgia Dome built in anticipation of the Atlanta Olympics ? Or am I mistaken. Seems it was built in preperation for and used at the Olympics.
Also it seems the Georgia World Congress Center at least has a plan to build and run facilities to attract events and tourism to benefit the city & state economy. Theoretically that should work and pay for itself. Its at least better in principal than the pro teams threatening to leave and blackmailing cities/state for handouts to build stadiums.
Of course I’m pretty sure that football would do fine financially by itself in GA without a cent from any government.
I would expect a well-designed and well-maintained concrete high-rise structure to last maybe 70 years before rust takes a toll on the rebar. For a poorly designed or poorly maintained building, it might only last 30-40 years.
Most concrete highway bridges from the 1970s - 1980s are being torn down and rebuilt by comparison.
You’d have to be crazy to pay market prices for any building like that IMO. The risk of huge assessments or structural failure is too large.