Condos can be a wonderful lifestyle choice. A wise, well researched condo purchase may be a golden investment, but keep in mind some very important considerations. Take note that the purchase of a condo is very different from the purchase of a single family home. In the case of a condo purchase, those neighbors whom you hope will be the kind to help you out in a pinch will also be your co-investors. As in any business relationship, stepping into one should be done with savvy and careful research.
Here are some golden rules for a perfect condo purchase:
READ THE BIBLE!
The "condo bible," in this case. "What is the condo bible?" you ask. It is the minutes of the condo association; they'll be your strongest guide to a smart purchase. Preview these minutes and it will be well worth your time. Here you will find evidence as to any possible management difficulties. Ongoing gripes and complaints may indicate management problems and a lack of cohesive vision amongst the association. Other things may be highlighted in the minutes, such as projects that are underway or proposed. Find out the delinquency rates of current owners. This could be an indication that the association is underfunded. These are all details that a seller may not have mentioned but which are paramount in the consideration of your condo purchase.
DOES THE ASSOCIATION'S INSURANCE COVER YOU, AND TO WHAT EXTENT?
Get your hands on a copy of the certificate of insurance, which is a summary of the condo association's policy. The replacement costs within the policy should match the estimated costs of rebuilding. Also the certificate should contain a building-ordinance clause. This clause indicates that the insurance will cover the cost of bringing the building up to code if there is any rebuilding to be done. Understand exactly what the association policy covers. Again, all this research will clarify the future potential for a not-so-great, or great investment. Take the time. Be smart. Through careful research and due diligence, you'll follow the yellow brick road to a successful purchase.
HOW MUCH GOLD IS IN THE POT?: THE REPAIR FUND
Know what is in reserve. The general rule: If the complex is 1-10 years old, the repair fund should cover 10% of the cost of replaceable items. At 10-20 years old, the fund should offer 25-30% coverage. With a complex 20 years or older, the fund should cover at least 50% of repair costs.
IS THE RENTER POPULATION OVER 10%?
If so, make sure there are clear rental policies. In some cases the condo management company will also manage the renters. If this is the case, find out more about their screening process. Ask to see their rental lease and have your lawyer look it over. Talk to other tenants and get the low down. Again, there may be rental information and history in the association's minutes. If you are digging for gold and don't want toPr end up with a lump of coal, heed the sages' advice; leave no stone unturned.
ELIMINATE THE ENEMY: HAS THE CONDO ASSOCIATION HAD ANY LEGAL ISSUES?
Contact a real estate lawyer and go over the bylaws of the association. Are the association's bylaws consistent with the laws of the state you're purchasing in? Never underestimate discrepancies that might cost a fortune if left unchallenged.
Look into these essential details and you will be able to make a condo purchase with ease and confidence. Remember, the foundation of a wise purchase is not only in the building itself, but in all those niggly legal details. Happy digging, and may you strike gold and find the dream condo you've been looking for!
