Top 10 Things To Know About Condos

What you should Know Before Making an Offer on that Condominium.

Here's my top 10 list for what you should know when researching condos.

The fee isn't all bad! Here's what you might get:

I know, I know, everyone hates condo fees.  But much of the fee often goes to things that you might have to pay anyway, or go to amenities that everyone can share on group savings discount.  Usually less than 10% of the fee goes to overhead  - and the rest goes to the complex.  For example, a typical fee might be $300 a month - or $3600 a year. Where might that $3600 go? Let's see.

Landscaping: $250

Plowing: $250

Insurance: $300

Trash: $300

Water/sewer: $1200

Capital Reserve (future expenses, roof, etc.) : $400

Right there, you've got about $2700 of expenses, most of which you've either got to do or purchase yourself if you have a single family home.  Trust me, a snow blower ($900) and lawnmower ($400) and home owners insurance take a bite too, and you've still gotta do the work!  So there are advantages to having condo fees - they aren't all bad.

Don't assume You Know what the fee covers.

Not all fees are the same - I laid out a typical fee structure, but there is no typical fee structure!  All condos are different, and you should know what your fee covers.  Sometimes they cover heat and hot water, and sometimes they cover very little.  So check!  Every time.

Investors sometimes can't purchase no matter the price

Many investors look at condos to get something started.  But in a lot of the more inexpensive complexes, the "investor ratio" is at maximum.  Many condo associations limit how many tenants can be in the complex at one time, and once that maximum is reached, there will be no new investor purchases.

Rules and Regulations can vary widely - and don't violate the pet policy!

Rules and Regulations can be very strict - or very loose - but review these to make sure you and the association aren't going to get into disagreements. While most rules are only loosely enforced, the association can decide to enforce them at their leisure - and it can get expensive quick.  Pet policies should be confirmed before the purchase of any pet - in case their were changes that were not well explained or communicated.  Ask first!  Smaller associations will occasionally make exceptions in writing, if permissible, and everyone is friendly.  Stay friendly!

Ask about Special Assessments - And look for warning signs!

Special Assessments are big fees that unit owners have to pay, usually because the capital reserve fund isn't big enough for whatever renovation they need to do.  Complexes are supposed to collect part of the fee so that when decks and roofs needs to be re-done, they don't have to borrow money.  But many complexes underestimate the costs of these improvements, and need to ask for more money from the unit owners.  So check the roofs and windows, decks and driveways to see if big expenses are coming due - and make sure the capital reserve fund will cover them.

A Duplex is not a condo - neither are single family attached homes!

A duplex is most often properly called a single family attached home.  With no fee, and no condo master deed or trust, these homes look like condos, but are not.  Like condos though, they share things - typically roofs and lots - so they require their own research.  

A townhouse is a style of home, which may or may not be a condo.

A townhouse is a unit style, where the bedrooms are on the top floor, and the living area is on the main level.  This is opposed to a "garden" or "flat" style, where they are all on one level.  But you can buy a condos of either type, so telling someone you want a townhome is a restriction that you may not mean to communicate. 

Foreclosed condos may not pay their 6D's at auction

Be careful if purchasing a condo at auction.  Just as in single family auctions, where the taxes may not be paid, on condos many banks do not get a 6D, which is proof that all the condo fees have been paid.  If the previous owner wasn't paying his mortgage, he probably wasn't paying his condo fees either, and you should know what that is if you make a bid at an auction.

Prices are more volatile, on the way up, and the way down

Be careful when buying condos when the market has gone on a long run.  When the market turns, and gets soft, condos often lose value faster than the single family homes in the same town.  Part of this is that in large complexes, the only way to compete against other units is a lower price, and in large complexes in a soft market, there are usually multiple units on at the same time.  The converse is also true -buying condos before the market improves can be a fantastic investment - assuming you get out near the top. 

Check your insurance certificate for deductibles and get GAP insurance if needed

Most complexes today are moving their insurance to high deductible policies, mostly to eliminate small claims.  Here's how that works.  The Master Insurance Policy, paid for with your condo fees, will cover you in the event the unit burns down - but the deductible is very high - sometimes 10,000 or more - and you have to pay that first.  Ouch!  Typical homeowners insurance also has a deductible, but it is usually $500 or $1000, so much less difficult to pay.  What to do?  Fortunately, condo owners can buy GAP insurance, which is usually very affordable, ($300-500), and will cover your possessions and pay your deductible.  Well worth the extra expense.