You’ve spent the better part of your life paying rent and have decided that home ownership is right for you. Or, maybe your apartment complex is “going condo” and the tenants are being given the right to buy in.
Buying any apartment should be carefully weighed after you perform due diligence. That means ensuring that the place where you plan to live provides what you need and offers an investment opportunity that won’t sink you in the end.
1. The Property. There is property you want to buy and property you want to stay away from, but how can you know the difference? For starters, the condominium’s location should be of utmost concern for you. That property should be in a neighborhood that is stable, offers easy access to transportation, is near shopping and schools, and within proximity of your workplace. You’re buying for the now, but you’re also buying with the intent to sell your place later on. Even if the condo is the last place you live in before you pass away, you want to leave an inheritance that can easily be disposed of without loss to your loved ones.
2. The Deal. What is the cost of your unit? It may come in at a very low price, say $145,000, but also require you to fork over property taxes of $3,000 annually, monthly association fees of at least $500 and perhaps a separate cost for parking. Taxes, fees and related costs are seldom fixed, therefore you need to find out what the average annual increases are and include this information in your budget.
3. The Tenants. Just like apartment living, there will be an assortment of tenants. Unlike apartment living, your fellow tenants will have a financial stake in the condominium complex. People with a vested interest in property should be individuals you can live with. They also should be up to date on their payments otherwise you could be left paying higher fees for their delinquencies. When you meet with the condo board, you’ll want know if everyone with skin in the game is keeping up their share of the expenses. If not, your association could be underfunded and next go around you’ll be hit with higher fees.
4. The Board. Members of the condo board are volunteers, but some people may act like royalty and treat you like a commoner. Personality differences aside, you need to find out some information about how the board conducts itself, details that will be revealed in board meeting minutes. Carefully read the minutes to find out what is on the agenda and what association members are saying. If you’re reading widespread complaints about building services, then building management may be having some problems. Just ask yourself if you want to be part of an association where problems are ongoing and management is in disarray.
5. The Repair Fund. Every condo association should be well funded with money set aside for repairs. Those repairs include replacing the roof, paving the parking lot, maintaining the HVAC system and keeping the grounds in shape. Complexes that are new, meaning the building is new not the association, should have about 10 percent of the replaceable costs of building repairs set in reserve. Those percentages rise dramatically as the building ages and can top 50 percent for an older complex in cities like New York, Chicago or Seattle. If the maintenance fee seems too low, then your association may not have money on hand to tackle major repairs.
6. The Legalese. You will want to work with a real estate attorney well-practiced in condo law. Your attorney will review the purchase agreement to ensure that it complies with state and local statutes, and that the agreement is reasonable, enforceable and clear. Your attorney will verify that the unit you are buying corresponds with the condo subdivision plan, that the legal description spells out such details as your use of common facilities including tennis courts, assigned parking spaces and the purchase terms. He will also review your cancellation rights, warranty provisions, guarantees and insist on contingencies, if needed.
7. The Investment. In the second point we looked at the deal, but digging a bit deeper you need to look at that deal from an investment standpoint. And this is where things can get real tricky. Your real estate agent may sing the condo’s praises, but does she really know how well it will hold up as a long term investment? Probably not. Comps can give you an idea about current market conditions, but it may take you looking over many years of data to track the buying and selling of similar properties in the area, including your own unit. Understand your local housing market especially the condo subset. Houses may perform well in your area, but condos may be a tough sell and appreciate much slower than the overall market.
If you are buying a condo in foreclosure, you have another set of concerns to consider. You may be responsible for unpaid association dues and the unit you are buying could be one of several that have passed through foreclosure. And that is where due diligence comes in with you understanding what you are getting into and then making an informed decision.