How Sound Are the Finances?
Most all condo associations charge Home Owner Association (HOA) fees on a monthly basis. These fees are charged for a variety of reasons, but generally cover maintenance costs for the Building exterior, including the upkeep in the short and long term, along with the costs of paying for a property management team, assuming there is one in place. Every now and then the condo will need to make major repairs or upgrades to the building, and to cover those costs the condo association should have a reserve fund which is similar to a “rainy day fund”, of which part of the HOA dues should be going. A great rule of thumb: the older the condo complex, the more they should have in the reserve fund.
When the necessary repairs total more than the amount in the reserve, like the replacement of an aging roof or major plumbing issues, you, as a condo owner will most likely have to pay a portion of the cost through a special assessment. Often times the HOA will finance major repairs or offer owners an installment payment plan.
You also need to ensure the condo complex has an insurance policy, which should cover casualty and liability issues. Will the policy cover your possessions?… Probably not. What about in cases of a flood? This information is important because it will help you define what you need out of your own personal insurance plan.
To emphasize: Make sure you find out how financially sound a condo association is before you leap on board. Ask for proof of solid replacement reserves. The HOA dues are not built into your mortgage payment, they are in addition to what you are obligated to pay the bank/lender. Make sure you spend some time doing a budget to ensure you can afford it. When you purchase a condo in Oregon your realtor should use the condo sale agreement or add a condo addendum that will list the documents you will likely want to review before buying.
What is Included?
Having a hard time spending money without thinking that it should perpetually go towards some house repair or upgrade? Do you let the lawn die in the summer time just so you don’t have to mow it anymore? Welcome to one of the perks of being a condo owner. Most of the hassles of dealing with the exterior maintenance are taken care of, but find out exactly what services are included with your HOA dues.
Things like swimming pools, fitness centers and tennis courts are often available to the condo owners and are included in the HOA fees as a part of the community. Since one of the disadvantages to owning a condo over a house is the amount of storage, sometimes additional storage space will be deeded or made available for extra money for residents. Also, you may find you can/will be stifled creatively when you see some of the restrictions. Check out whether you’ll be able to hang birdfeeders, decorate for the holidays or fly a flag. While it is not easy to change the CC&R’s it can and does happen so be aware that rules might change in or out of your favor in the future.
All of these rules should be laid out in detail in the Condo’s official CC&R’s (Covenants, Conditions and Restrictions). If you sign on the dotted line, you are agreeing to be bound by their rules and they cannot be easily changed. Make sure they fit your lifestyle.
How Effective is the Soundproofing?
There are some people out there who will never consider the idea of a condo because of the proximity of one living space to another. Soundproofing is often a big issue, especially in older building, so make sure you consider how this might impact your lifestyle.
Of course, even in a house, you may hear some close noise pollution from time to time.
One of the major concerns in owning a condo is the possibility of a lawsuit. Typically these are filed by the HOA against the builder for some building defect. In Oregon this is most likely due to water penetration to the building envelope [roof, siding, decks etc..]. If this happens it essentially freezes any owners ability to sell since banks will not issue a new loan to a condo in litigation. Often times, even if the HOA wins the lawsuit they will still need a special assessment to cover a portion of the repairs cost.
How Resalable is the Condo?
If your condo association has unreasonable CC&R’s or charges higher HOA dues compared to similar properties, that could be an issue down the road when interested buyers compare your condo to others on the maket. If your condo complex has lots of renters instead of owners, that’ll be a factor, too. This is one of the double edge swords of owning a condo. If the rental policy is too restrictive you might end up having to sell because you are not allowed to rent. If the rental policy allows too many renters as a percentage of the total building occupants then it can make the building unfinancible with conventional loans.
You can’t predict every market fluctuation, but with a little savvy, you can make an informed decision. What’s the strength of the market in your city and zip code? Is there a thriving downtown area where condos are in demand? Look to see how fast condos appreciate in any given area. There are pros and cons to owning a condo just like there are with other property types. Take the time to make an informed decision and we always recommend our clients join the HOA board to have some influence on the direction of the building.
Make sure your agent provides you with all the necessary HOA information (declarations, by-laws, meeting minutes, etc.). Provided below is a sample of what is required:
- The conditions, covenants and restrictions (“CC&Rs”) and/or the Declaration.
- The HOA articles of incorporation and bylaws.
- Rules and regulations.
- Any policies related to age restrictions, pets, parking, any restrictions on rental of homes or units.
- All minutes of meetings for the preceding 12 months
- Current policies of casualty and liability insurance for the HOA and its board of directors.
- Documents verifying the current HOA assessments and budge.
- Notices relating to potential increases in the assessments or special assessments.
- Inspection reports, studies, bids of actual or suspected defects in the building.
- The latest reserve study for the HOA with current reserve amounts.