Buying a condo or are you thinking about it? Either way, there are important things to watch out for. Let’s go over what I check for whenever I have a customer for a condominium.
Trust me on this. You won’t find what you need to know in any listing form or internet posting. That’s because the information you need comes from the property manager. While I have many years of experience with condos, I still need to contact the property manager. Only a condominium property manager has the current and complete information I need.
So let’s look at what you need to know:
Owner Occupier Rate
Banks do not look kindly upon condominium complexes with a high percentage of rented out units. They view tenants as less stable financially than owners who live in the unit. The owner occupier rate must be at least 50% for banks to lend on a complex. Some banks won’t lend unless it’s slightly more.
Single Owner Rate
There are investors who own a lot of units in a condo complex which they rent out. Banks typically will not lend if 1 person or entity owns 10% of the units
Banks won’t lend if there is an ongoing lawsuit plus they also want a history of lawsuits.
Capital Reserve Fund
A condominium must have a capital reserve fund that’s at least 10% of it’s gross income for Fannie, Freddie or the FHA to grant a mortgage. It’s also true that banks in general want to see this at 20-25%. Even if an association reaches the 10% threshold, lenders will blacklist that development because 10% is considered inadequate. Banks don’t lend on minimum standards and you don’t want a financially poorly managed building.
Special assessments are a red flag to a lender. There are circumstances where a special assessment will make getting a mortgage impossible or very difficult. For example, deferred maintenance or correcting a code violation. Special assessments are also used to replenish a depleted reserve fund. Some associations use special assessments for routine, expensive upgrades rather than increasing the monthly maintenance fee. You want to know if any exist or are planned for the future.
Future Capital Improvements
Capital improvements are expensive. Such things are renovating a lobby, re-roofing the complex etc. are major projects. What you need to know is whether or not there are any capital improvements scheduled or anticipated. Then the question is whether or not the capital improvement has been budgeted for or whether it will be paid by a special assessment.
Maintenance Fee History & Anticipated Raises
It’s a good idea to verify the maintenance fee because sometimes what’s in a listing isn’t accurate. You need to know how often the fee has been raised in the past and by how much. Are they going to raise it in the near future? What do they anticipate happening?
Most people are surprised to find out what’s not covered in the condo fee. Don’t be one of them – find out specifically what’s covered.
Miscellaneous But Important
Here are 5 important but often overlooked items:
- Pets. Whether or not you own a pet, you need to know pet policy
- Insurance. Is there a master insurance plan for the structure? What does it cover? This directly affect your insurance costs and liability.
- Environmental. Does the building have a termite policy? Flood insurance? Depending on the locational need, are such things handled by the association?
- Parking. Is there a waiting list for indoor spots? Outdoor spots near the front door? Verify cost.
- Cable/Internet. Is there a basic plan for residents? How much to add on what you want? Contact the provider for accurate information on this.
Buying A Condo
Buying a condo isn’t as complicated as this might seem. You simply need to verify that you’re not going to be hit with higher fees in the near future and that the association is responsibly run. Condominiums offer a lifestyle of convenience. Because they do, they’re very popular as a 1st or later in life purchase. So whether you’re starting out or downsizing, consider buying a condo. It may very well be the best fit for you.
Call me at 201-741-8490 if you’d like to explore condo options or have any questions.