In this tight economy, many would-be home buyers find that a condominium is more affordable than a single-family house; offering amenities, such as a swimming pool or fitness room, which they could not afford on their own.
Condo owners may also enjoy professionally landscaped grounds, onsite maintenance staff, and sometimes the security of a gated entrance and nearby neighbors. Along with the perks, however, there are some potential drawbacks which you should be aware of before considering a condo purchase.
When you purchase a condo, you become a member of a homeowners’ association (HOA).
The Good News
The HOA serves to maintain peace, cleanliness and efficiency throughout the condo complex. The board of directors is responsible for maintenance, such as lawn-mowing, trash pick-up, pool cleaning and elevator repair; as well as the enforcement of rules and regulations.
Each condo owner pays a monthly HOA fee to cover these services.
The monthly fee, which may be as little as $70 or as much as $500, is not a part of the mortgage payment, but is paid directly to the homeowners’ association.
The Bad News
Overdue fees may incur fines, or even a lien against your property. The HOA may also increase fees according to their bylaws.
After the homeowners’ association has paid monthly maintenance bills any remaining funds are held in a reserve account; to be used for occasional expenses, such as new roofing or exterior painting. If reserve funds are insufficient when a major problem, such as burst pipe, occurs, the HOA may require each resident in the complex to pay a special assessment.
Homeowner associations often have rules designed to protect the value of the property. These regulations, spelled out in the association’s Covenants, Conditions and Restrictions (CC&Rs), may restrict the use of outside antennas, what can be stored on your patio, pets, parking spaces and even the color of window blinds visible from the outside. Before making changes to your condo, such as painting, you may be required to submit a request for approval. CC&Rs are legally binding. Homeowners’ associations can sue the condo owner, or take possession of the property for serious violations.
What to Look For
If you’re considering the purchase of a condo, ask for a copy of the HOA’s financial statements, CC&Rs, by-laws and regulations as well as the minutes from the previous year’s monthly HOA board meetings. Speak to nearby condo residents and the HOA board of directors. These steps will help you analyze both the future and the atmosphere of the condo. Consider these points:
- Are there multiple HOAs for this condo? (Large developments sometimes have more than one HOA.)
- What is the turnover rate in the condo complex? (If residents don’t stay long there may be a problem with the HOA.)
- What percentage of the complex is occupied by renters rather than owners? (More owner-occupied units typically mean a higher resale value.)
- How often have the HOA fees increased in recent years?
- What resident complaints are noted in the HOA meeting minutes?
If you have concerns, ask a real estate lawyer to review the HOA documents. A lawyer can also check the history of any lawsuits filed against the HOA.
Want FREE help eliminating debt & saving your first (or next) $100,000?
Money Under 30 has everything you need to know about money, written by real people who've been there. Enter your email to receive our free weekly newsletter and MoneySchool, our free 7-day course that will help you make immediate progress on whatever money challenge you're facing right now.
We'll never spam you and offer one-click unsubscribe, always.