Own Your Owns are a form of real estate ownership that pre-dates the condominium form of ownership. They are usually 2 or 3 stories, typically in 8-12 unit buildings, tucked between newer and sometimes taller buildings. Own Your Owns were mostly built in the 1950’s. Many people find these types of units appealing because of their mid-century characteristics, with older tiled bathrooms, hardwood floors, and more intimate settings. I find them appealing because of their price. They are less expensive than condos and a lot easier to manage. I’m on my 6th one. They’re all on HOMOWNERSHIP’s Facebook page.
The major challenge with buying OYO’s is the financing. Here are the nuts and bolts of it: The Housing Act of 1961 made it easy to finance Condos, but not OYOs or Co-Ops. Few Lenders give mortgages on OYO because those mortgages are not INSURED by the government, say the FHA, the Federal Housing Admin. Also these OYO mortgages can’t be SOLD on the secondary market to Freddie Mac (Federal Home Loan Mortgage Corporation) or Fannie Mae (Federal National Mortgage Assoc) that BUYS mortgages from lenders. These two either hold the mortgages in their portfolio, or package the loans into mortgage-backed securities (MBS) that can be sold.
(Quick digression: when people stop paying (default) on their mortgages these MBS become worthless (and banks that carry these loans defaulted on THEIR debt) and the whole economy tanks, like it did in the Global Recession of 2008-2012. (see page 73 of Homownership for more)
Back to OYO financing: so IF Lenders can’t insure them, or sell them, they don’t want to WRITE them. The Lenders that DO write OYO mortgages hold them in their portfolio. The loans are at a higher interest. (than say a conventional 30 year mortgage) They require a 20% down payment, which means the bank owns 80% of the property’s value, AND they want the borrower to live in it, be “owner occupier”. They own most of it (80%) they have your deposit (20%) and you LIVE in it, so, all that spells manageable risk for them.
The same is true when you SELL it. You will need to find someone who can meet those financing needs. That may not be so easy to do, but don’t let that stop you. Provided you price it reasonably and leave some equity on the table for the next guy, it will sell. Don’t be greedy. Be measured.
In sum: Financing can be an expensive challenge. THIS is why OYO’s usually sell for CASH. This is why they are less expensive than condos and houses. They’re priced LESS to appeal those that have the cash on hand – often investors.
Even though it costs less than a condo, often the rental income can be nearly the same, therefore the return on your investment can be as good, if not better. They make a fine source of passive income. I’ve made as much as 12% on my monthly CAP (capitalization) rate and 83% ROI (return on investment) when I sold the place. I paid off our house with the sale of one of them.
One problem with OYO’s is – parking. Usually there isn’t enough, if any at all. Remember, they’re older buildings and don’t have subterranean parking that Condo buildings have. If you don’t mind that the building only has street parking, you can pick up a nice OYO for a fraction of the cost of a neighboring condo. Some people, some perspective tenants, may not need or care about parking. It is the UNIT that they’re going to call home, that interests them the most. That’s the part you control. Whether there is parking or not is out of your control. Your job is to provide a nice, comfortable and clean unit to rent. Such a place will earn you a good tenant.
If your OYO building, “Goes Condo,” is converted to condominiums, the value of the unit dramatically increases, and the owner/investor/you make a significant profit. That’s great, but that potential isn’t the only reason to invest in an OYO. There is the income potential and return that makes it immediately profitable – the Cash Flow. There’s also the satisfaction of knowing that your money is secured by a physical, “brick and mortar” investment. It’s why people invest in real estate.
Purchasing an Own Your Own to live in would be comparable to purchasing a nice Mobile Home to live in, if you just want a place to own, one that you hold Title to. At the very least, it would accomplish the goal of owning. I’m thinking more in terms of an OYO as an investment to earn you an income, maybe lifelong income.
In an OYO building, you’re usually not dealing with HOA politics and power, just people who want a low key property with a good return. As OYOs are smaller buildings with less amenities, the monthly fees are less. They pay for the property management company to maintain the books and keep up the place.
Lastly, Own your Owns aren’t frilly and fabulous. There are no pools, tennis courts, hot tubs, gyms, saunas, yoga or Pilates studios, but you’re not there for that. Own Your Owns are protected, prolonged, profitable investment properties that will earn you significant interest on your money. You’ll have to find somewhere else to be frilly and fabulous – as if that’s ever a problem.