I am buying my first condo. It's a 3/2 in good condition for under 50k. I should get it "no money down" and the cash flow should be good.Here's my question.Since I have never bought a condo, what should I look out for?I know what the assessment is and what the assessment covers. The owner is on the board and told me that he knows of no big assessment increases or special expenses on the horizon. They have good reserves (he says). According to him, there are no rules against renting them. He rented two of his for many years and I am sure a lot of the units are rented out.What else should I look for?Thanks in advance for your Foolish advice.Mark
Since I have never bought a condo, what should I look out for? Mark,I have lived in a condo for the past 11 years and it has worked out very well. It isn't for everyone. Basically, you live in an apartment that you own. I would request a copy of the CC&R's (sorry - can't remember what it stands for) and read them thoroughly. In fact, I believe you have to receive a copy of these. This will tell you the actual rules of the association. Not enough people read them prior to moving in. Assumptions are made about what is acceptable and what isn't. This can all be dealt with up front by reading the CC&R's. This will also give you the basis for any questions if something is vague.I would also request a copy of the last audited financial statement. I believe every homeowner's association is required to have their books audited every year and, again, this document should be made available to you as a potential purchaser. Don't rely on someone's memory. Read the numbers and make sure the reserves are okay. I would also ask the management company what major repairs were made in the last five years (roofs, etc.) and about anticipated major repairs. Our association anticipates certain big expenses and budgets for them accordingly. You will want to make sure that the association is doing likewise. Really look around the complex and get a sense of upkeep and neighborliness. Do you like a chatty friendly place or do you want a place where everyone is fairly private? If there are a preponderance of renters, they tend not to keep the place up like an owner would. Renters, per se, aren't bad. You just want to make sure that 95% of the complex isn't being rented out. Go by the complex at night and get a sense (if you can) of the noise level. Finally, if you can, get inside the unit for 1/2 hour or so in the evening and find out how much you can hear from the units around you. Is it tolerable living noise or can you hear people cough. And then the decision is your tolerance level. Good luck in your purchase and let us know what happens.twocbock
WARNING: Long post aheadI would request a copy of the CC&R's (sorry - can't remember what it stands for) and read them thoroughly. In fact, I believe you have to receive a copy of these.Covenants, Conditions, & Restrictions if memory serves. The association is required to give you a copy before escrow closes.I would also request a copy of the last audited financial statement. I believe every homeowner's association is required to have their books audited every year and, again, this document should be made available to you as a potential purchaser. Don't rely on someone's memory. Read the numbers and make sure the reserves are okay.I wish I had done this before I bought my townhouse. It turns out our aassn. has *never* had an independent audit, even though Calif. law requires one every 3 yrs. Our assn. doesn't allow members to attend board meetings (also a violation of state law), doesn't notify members of where or when meetings will be held, and takes forever to distribute sketchy minutes from the most recent meeting.The only legal remedy for this is to sue the assn., which I am not about to spend thousands on, especially since no other owners seem to care enough to pony up *their* dough to sue.The good thing, OTOH, is that the property values have gone up by about $25K in the 2 yrs we've had the place.Here is a good link for Smart Money's guide to condo assns. I urge you to read it before you buy.http://www.smartmoney.com/ac/home/buying/index.cfm?story=sevenAlso, I would advise against buying in a complex where more than 1/3 of the units are rentals; it decreases the property values.One last thing: go to the library & get a copy of your state's civil code. Look up any laws pertaining to condo assns. They often are a good checklist of what to look for or ask about your prospective assn.Best of luck,hempets
"CC&R's (sorry - can't remember what it stands for)"CC&R = Covenants, Conditions and Restrictions, a/k/a the Declaration, the Restrictions, or the Protective Covenants.I would also read the Articles of Incorporation and the By-Laws of the Owners' Association.Just my $0.02. Regards, JAFO
Off the top of my head, I would suggest that you document everything you are told with the documents (resale certificate) provided to you. You should have a contingency in the contract for the review of these documents. Read them cover to cover. It will be very boring reading but there is no excuse for not plowing though it. Verify that renting is okay and determine what role the unit owner's council or condo board/management will play in the leasing of units.Does the condo board have an “attitude” toward non-occupant owners? What is the percentage of units that are rented out (lower the better, probably best if well below 30%)?Hope this helps. If you have questions resond further on the board, email me, Terry@McCarthyHomes.com or call (301) 431-8431. If I think of anything else I'll respond later.Terry and Karen McCarthy, RealtorsLong and Foster Real Estate, Inc.
Talk to the condo's association to see if they forsee any type of future repairs or improvements that will require the owners of all the condos to dig into their pockets. In the condo where I lived, the owner found himself having to come up with a lot of money because they were required to pay for siding. Talking to the association that deals with the maintenance, etc, is a good first step.
Congratulations on starting to add to your very foolish portfolio with some foolish income producing progerty...just one caveat on buying withthe idea of renting. If the %of rentals exceeds 1/3 or so you may have a more difficult time in resale, since most mtg co.s will require at leat 20% down..could be difficult for many folks.Bill in Mt.
2/2/2000Mark,Appraiser's Note:1. Financing. Can you obtain conventional financing on the property? To many tenants in the development may "block" you from geting a "good" loan. Check to see who would fund your project.2. Pending Ligitation. Are there any pending ligitations against the developer, board members, etc?3. Earthquake (Hazard) Insurance. What kind of insurance coverage does the HOA carry or don't have?4. HOA Board Meeting Minutes. Request a copy of all past minutes?5. Deliquent HOA Fees. Who's not paying, why not, and the impact on the budget?6. Parking. Deeded space or an easement?7. Storage. Any storage available, cost.8. Common Area. What are they, where, and rules.9. Resale History. Look up the ownership history of each unit in the development. Check for quick turnovers/resales, foreclosures, REO, rate of appreciation, etc.10. Number of units available. Find out the number of available units for resale in the subject development and in the competing market. How long are these units on the market, owner financing, concessions, etc?11. Condo vs hosue. Why purchase a condo? Check appreciation rate, ownership problems.12. Occupant Mix. What is the occupany mix? Such as, owner/tenants, yound/old, single/families.13. Restrictive Rules. How does your and/or potential tenant life style "fit" the CC&R's, such as parking, boats, outdoor TV equipments, hot tubs, etc.Finally, where can you get a 3 bed room and 2 bath condo unit for $50,000?Good luck,Appraiser, Certified General, San Francisco
Finally, where can you get a 3 bed room and 2 bath condo unit for $50,000?Not where you live (San Fran.), that's for sure!!!But down here in the South, if you don't have a yard, fence, garage & a fair walk to your neighboor's house, you don't have a real "house".I know the appreciation will be well below what I am used to, but I'll take it just for the cash flow. I am buying a 2-bedroom around the corner for about 65k. That cash flow is nothing to sing about, but maybe the condo will make up the slack & I won't regret the purchase(s) 5-10 years from now.....Thanks for all the good advice!!Mark
OOPs! hit the wrong key and submitted the post before I was done. In spite of the advice of "one of the fools" on the "Women's investing message board"( i.e. who needs a agent?) I would highly recommend you have representation. Of course, I am biased, but finding a home/condo is just the tip of the iceberg. If you have time to educate yourself in all the "ins & outs" of purchasing - that's great. Otherwise, I would suggest finding an experienced REALTOR (not just any real estate agent) to represent just your interests as a buyer. A good place to begin is by visiting www.rscouncil.com where you can find a Certified Residential Specialist for your area. Find several in your area and interview them. Should you have any question to direct to me feel free to contact me directly. Lynda Haneman, Coldwell Banker BainAccredited Buyer RepresentativeCertified Residential Specialist800-352-7090 www.lyndahaneman.com
Mark - I just realized that the first part of my repsonse never got posted. Here is what I noted in the first part: All the advice you received so far was great. But to be specific any offer you make should be "subject to" your receipt, review and approval of 1) an inspection of the condo itself and the building/complex structure, 2) the resale certificate (includes budget/financial reports, occupancy, bylaws, cc&r's, rule®s), 3) last 2 yrs annual HOA mtg minutes and last 1 years minutes of brd mtgs, 4) clear marketable title, 5) & last but not least you obtaining financing. The average contract in the Seattle area (where I work) is abt 17-20 pages. I've been in the business since 1980, and a good deal of my business now is representing buyers/sellers on condo transactions in suburban Seattle area.
P.S. I've been a condo owner myself for the past seven years. Other than my husband missing a garage to "dink around in on projects" we love it! It is so great to come home on the day the lawn is mowed - and we didn't do it! Good luck. Let me know how how things go. Lyndahaneman@att.net
Mark,Condominium living has a lot of benefits and is fantastic if the community is properly managed. But, it can also be a disaster if poorly managed or reasonableness is not used when enforcing restrictions. I own a condominium management company so I can give you some good guidance. Ask for (no, demand) the following:1) Copy of previous year's condo association audited financial statements. Review them and read the auditors notes carefully. The auditor should give an opinion as to whether or not reserve funds at the end of the reporting period are sufficient for expected future expenses such as re-roofing, painting, asphalt resurfacing, etc. The audit should provide a schedule of the amounts currently set aside for each expected expenditure. Some associations fund expected future repairs by special assessment. There may not be one planned in the immediate future but there may be one planned when you get ready to sell, making your unit unattractive to prospective buyers. Funding by special assessment is not acceptable.2) Copy of a reserve study either by the management company or an outside engineering firm. One by an engineering firm is preferred. Reserve studies tell you what common elements the assoc. should be reserving for, the expected remaining life of the common elements, the estimated replacement cost at the end of the remaining life for the common elements, and whether or not the assoc. is currently over or under-funded to meet these costs. A formal reserve study should be done at least every 5 years. If they don't have a reserve study, the assoc. is rolling the dice because they really don't know how much is needed to meet their future financial needs. It's nice to have $50,000 in the bank but if your repairs cost $90,000 there's still going to be a sizable special assessment. An assoc. should be proactive, not reactive, concerning a plan to deal with repairs and maintenance. When the time comes to make the repairs is not the time to figure out what to do and where the money is coming from to do it. The assoc. should have an organized/documented plan to meet reserve needs. It shouldn't be a crap shoot.3) Copy of the Declaration of Condominium, by-laws, and articles of incorporation (these are known in total as the Governing Documents). Make sure your Declaration has the local register of deed's recording stamp on them. Otherwise, the official set on public record may be different from yours. If the seller can't provide a copy ask the selling real estate agent. He/she should provide these as a matter of disclosure. Offer to pay the copying costs. The Governing Documents is where you'll find out the rules for the condominium community. This will also tell you what the assoc. is responsible for maintaining and what maintenance is your responsibility (Make sure you understand the difference in common elements vs. limited common elements. The assoc. owns and maintains common elements. The assoc. owns limited common elements but you may be responsible for maintenance on limited common elements such as decks, patios, exterior doors, exterior windows, etc. It varies from state to state and community to community.). The Declaration will also tell you how much the Board of Directors can increase the assessments before having to get the approval of the members. (Any freedom given to the Board of Directors of more than 10% per year or a C.P.I. adjustment, whichever is greater, is unacceptable).4) Ask for the name and telephone number of the property manager. Call him/her and ask the same questions you asked the seller. It'll be interesting to see if you get the same answers. Hopefully, you will.5) Ask to review the minutes of the last 3 Board of Directors meeting. This will definitely give you insight as to what the issues are in the community.6) Ask for a copy of the current year's operating budget. It wouldn't hurt to have a copy of the previous year's budget either. The assessment level per unit should be shown on the budget. Has it gone up? If dues are going up each year by more than a small percentage, you've go a red flag. Ask questions. There may be a reasonable explanation. Make sure you're satisified that the increase won't continue. Make sure funds have been allocated for routine maintenance needs that come up during the year. This is where a lot of assoc. get themselves into trouble. They believe this is the year that the maintenance needs will diminish. It's better to have funds in the budget and not need them than vice-versa. This should be in addition to budgeting for reserve funds. 7) Take a look at the physical common elements yourself. Do they look well-maintained? Do you see shingles that are curling, paint that is cracked/chipped, etc.? Does the asphalt have cracks? That means major repairs are right around the corner. Make sure you hire a certified insector for your unit, too.I hope this has been helpful. The best advice I can give you is to ask questions and GET CONFRMATION of the answers and then do the same thing over and over. Buying a condo is like a marriage - make sure you get the right one before you commit because it will be hell if you find surprises afterwards. To get out of, or deal with, a bad condo will suck up a lot of your energies that can be better spent elsewhere. The good news is that I believe there are a ton of great condo communities out there. I hope you find one of them. For more information go to www.caionline.org. Good luck!
GET IT IN WRITING! Rules against renting should be easily available from the board, and they will be in writing. Just saying that he isn't aware of any assessments on the horizon means nothing--can you get the notes from the home owners association meetings? Be cautious.Been there,Richard
My suggestion would be to speak to another board member.Preferably the President unless he's the owner.At the very least find someone with less conflicting interest.Remember the "WOLF'in sheep's clothing.
Review the Declaration of Condominiums carefully and make sure that the management of the association affairs is stable. Most Purchase & Sale Agreements will contain a Condo Rider (Addendum to Contract) discosing monthly asessment, anticipated special assessments and the opportunity to cancel the contract after having had the opportunity to review the declataion of condominium. Avoid condo's with more than 500 units with large budgets. Large budgets and numerous units often opens the door to kick backs and unit owner apathy over condo affairs. I'm presently involved, as Plaintiff's attorney, in a class action lawsuit involving gross board mishandling of condominium finances. That association had over 1000 units. Very small condos usually pay higher maintenance fees since common area expenses are not as efficiently spread out over a large number of owners. Condos are more desireable if the proportion of owner occupied v. rented units is higher. Also, watch out for condo commandos. A very litigious board will result in high legal fees. If the legal expenses are high beware. That is generally the result of a poorly managed, uncompromising board of directors. I just closed yesterday on my third condo. I hope to accumulate a few more units over time as a diversification of my investment portfolio. Good luck. Cesar
FYI - I just bought a Condo in the 40's, and I am kicking myself for not going through with the inspection. It costed $250.00 and they inspect your whole condo. Yes I know you can do this yourself, I thought I did a good job of inspecting mine and now I am finding quite a few problems one being with the baseboard heat in my condo, having a problem going back and forth with the condo association. Which by the way I just recently became a board member. Something to think about! They seem to listen to you better if your discussing it face to face and also it gives you a vote as to how the money is spent each year. Your lawyer will go over the condo docs with you that explain how much money are in reserves and what they have spent in the past, etc... Assessments are probably not the biggest thing to worry about. We have one every year, just $50 a month for about 4 months. But our complex is only 24 units. They only have about 15,000 in reserves. They have an outstanding loan for a deck they rebuilt. And will eventually need to repave the parking area, cost is $70,000. Currently it is being capped every year, to get us by until we pay off the loan and try to get a new one. So definately look for things that will need improvements, and look around the general structure. Will they be siding it? Most condo places are doing this now. Hope this helps..
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