|
|
I haven't bought any condominiums or townhomes. They look and feel like apartments, but they're not. They're homes, and, as you mentioned, a Home Owners' Association (HOA) is often in place. In a scenario where my desire is to hold a condo as a rental, that alone is enough for me to be say "No, thanks." Why? A quick Google search yielded the following. I borrowed most of it from www.frugalwoods.com. BTW, there's lots more info out there too. Again, the stuff below is more than enough for me to seek other investment opportunities. - Condo Fees: Any condo is going to have a fee. Usually this is referred to as a Home Owners Association (HOA) fee on the MLS listing. Make sure to factor this fee into your monthly payment calculations. When you’re calculating the long-term cost of ownership, make sure to index this fee to inflation. It will go up.
- Condo Assessments: Did you know that just paying the condo fee may not be the full extent of your financial obligation? When something major needs fixing like the roof, the boiler, or all of the windows, the Condo association can levy an assessment on all of the owners. This is a lump sum of money you have to pay in a certain period of time. I’ve seen major assessments run into the $15k-20k range per owner! The Condo association can tell you whether they have anything immediately planned and this can be a point of negotiation in a sale. If there is an upcoming assessment you can often get the seller to pay all or part of it in the closing.
- Condo Association Financial Health: When evaluating the above fees and potential for fees it can be useful to know how the Condo association is doing financially. You should request financial statements from the association as part of your due diligence, but here are some common questions to ask:
- Does the association maintain a large reserve to cushion or prevent assessments? If the reserve is small or non-existent, you should expect periodic assessments for major repairs.
- Has the HOA fee been steady for many years? If so, it may be due for an increase. If it has been increased recently, you should find out why. Sometimes a recent increase is a signal that deferred maintenance is becoming critical.
- Are any units behind on their dues or past assessments? While the condo association can put a lien on a unit for non-payment, often the other owners in the association will be stuck with paying necessary expenses for units that are in default.
- What’s the composition of the Condo association leadership? Are they owner-occupiers or landlords? Landlords often want to keep the monthly fee to a minimum in order to maximize cash flow at the expense of association reserves and maintenance. Owner-occupiers tend to take better care of the property but can be busybodies when it comes to association rules.
- Condo Association Rules: These can be the pits. Everything from whether you can use an antenna for TV to the color you can paint your front door. Common are restrictions on pets and on renting out your unit. Maybe these don’t bother you… but it’s worth giving them a hard look before buying.
- Condo Governance: Some associations are super chill. Other are run by Atilla the Hun. Somewhere in between is a happy medium where the major rules are enforced and common sense reigns.
- FHA Lending Rules: If you need an FHA loan (and if you do, you probably shouldn’t buy until you don’t need FHA), buying a condo comes with additional restrictions. There are many, but the big one is that at least 50% of the units need to be owner-occupied.
- Your Neighbors Are REALLY close: Don’t forget to check out the neighbors all around you (including above and below your unit, if applicable). Are they rented? Do they contain a shut-in hoarder? Buying a condo is a much bigger commitment than renting an apartment and you could be stuck with these people for a long time.
|
