Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I am looking at a small boutique condo building in Washington, DC. The 6 unit building was fully renovated in 2007. All tenants are paid up, but they have not been doing a good job of keeping reserves. The increased HOA significantly last year several times, which have risen from $219 to $342 (nearly 55%) to try to build reserves up. Currently, they just have about $1,200 in reserves. The 2016 budget is $17,500 (with 10% reserves).
They have a management company, but not sure why they did not suggest to save at least 10% each year for reserves. They just fixed a roof leak in January, and seem to have kept the building up with the cosmetic stuff I can see. Each unit has their own HVAC, and the shared costs would just be the flat roof, entry door, trash, lights, cleaning the hallways, snow removal, master insurance, water, and management company fees. There is not any landscaping.
I am trying to find out the rationale as to why they did not keep more reserves over the years. In 2013 and 2014, for example, they did not budget to collect any. In a letter written by the condo president, he said they they are planning to do a roof survey this year, and any unforeseen expense would be paid by a special assessment. Also, 2 units sold last year, and 2 are for sale now (including the one I am looking to buy). That means there will be an entirely new condo board who can make better group decisions. The president is one of the people that is staying, but I do not know how long he has been president. He lived oversees for a while, and has come back and made many changes.
The area is poised for tremendous growth, so I am not concerned about the values dipping. Actually, I could easily see 25% growth in the next few years based on other development in the area. I am more concerned about how fearful I should be.
Thoughts?
My friend lives in a small condo same story. They actually keep zero in reserves. They do assessments every time a repair. Reason why most folks are bankers, brokers, lawyers who would rather invest their own money at 5-10-% then keep it at near zero in a reserve fund. Plus low maint is a selling point.
Same strategy in a larger building with older folk, newlyweds, lower income folks. Good luck, trying to have no reserves and just tacking $10,000 onto a maint bill and expecting payment. Each building is different.
Small buildings where owners have their own HVAC in each unit in states without a reserve study requirement very rarely have a reserve study.
In fact legal counsel 100% of time would advise you not to get one. Why, the managing agent uses it as a free for all. They pay for a reserve study, which in turns brings engineers in, which in turn if an issue is detected that is not resolved and an issue happens building can be sued. Additionally, often the inspector/engineer could notify town of issues then cause fines and penalties. And if a reserve study was done it would never be given out to owners. it would just be for budgeting/reserve account reasons.
I am a treasurer of a small condo building 30 units. In my small brick/stucco building owners are responsible for their own HVAC, Water heater, Windows, doors and decks. Building is responsible for roof, exterior, cement, parking lots, exterior lights, landscaping, snow removal, insurance etc. .
A roof last 30 years, black top 10 years, sidewalk 25 years and rest of bills are on-going.
I know when the roof was put on etc. Roofs on the five buildings combined costs around 300K, I know it last 30 years. I don't need a reserve study. Neither should a buyer. You home inspector should also look at roof. You should ask how long since it was last done. When I sold my coop guys inspector walked in with him to my unit spent 30 seconds, looks nice and then said so the super with key is available as promised. My buyer a CPA and inspector then went to furnace room, elevator mechanicals and up to roof etc. Got estimates etc. Then compared to reserves and bought unit.
This may shock folks and I was surprised when I bought my condo. it does not budget at all, never had a reserve study, only issues minutes once a year for annual meeting, which basically say nothing. We do have a CPA that issues financials once a year.
From day we opened the doors in 1979 and became a condo the building has never had an assessment, we have average maint and our single operating account has around one years worth of maint in it for issues.
We don't sell much units maybe one a year and mostly to folks in the area. On surface our building seems odd, but in 1979 condos were a relatively new thing and did not require much and we never updated rules over time.
But that said and out of state buyer would think our building was a scam. Someone buying today would get a copy of our 2014 financials and our 2015 annual meeting minutes which basically says nothing as we had no vote at that meeting.
Buying in a small building is a leap of faith, a bad board, bad neighbors or even a large unexpected bill can impact you greatly. But the opposite a single new great board member, or new great neighbor can turn whole building around.
Well then this is just not doing the proper due diligence. Checking on how well the maintenance of the building is just something you should do before you plop 200k into a condo. If not well then the buyer just gets stuck with the consequences.
Well said. If lack of a reserve study or inspector not including roof as part of a condo inspection were sufficient reason not to buy a condo, none of the over 700 units that closed in my small market last year would have sold. Every condo association knows when the roof was last replaced and when they are expecting to address major issues and what the budget allows for maintenance/replacement. Talking to other owners is prudent as well. With this knowledge a buyer can weigh the risk/reward and make an informed decision.
Someone mentioned earlier that single family home purchasers inspect the roof unlike condo purchasers. True and sometimes they will proceed with the purchase anyway with a roof that is in need of immediate replacement. Purchase price is the ultimate equalizer.
I will close three condo sales this week and next. Only one has fully funded reserves and one has zero. In my opinion all three are excellent buys. Every situation is different. The blanket statement that lack of a reserve fund or reserve study is reason to walk away makes no sense.
Well said. If lack of a reserve study or inspector not including roof as part of a condo inspection were sufficient reason not to buy a condo, none of the over 700 units that closed in my small market last year would have sold. Every condo association knows when the roof was last replaced and when they are expecting to address major issues and what the budget allows for maintenance/replacement. Talking to other owners is prudent as well. With this knowledge a buyer can weigh the risk/reward and make an informed decision.
Someone mentioned earlier that single family home purchasers inspect the roof unlike condo purchasers. True and sometimes they will proceed with the purchase anyway with a roof that is in need of immediate replacement. Purchase price is the ultimate equalizer.
I will close three condo sales this week and next. Only one has fully funded reserves and one has zero. In my opinion all three are excellent buys. Every situation is different. The blanket statement that lack of a reserve fund or reserve study is reason to walk away makes no sense.
So you think it makes sense to buy a condo without a clear idea of what needs repair/replacement in the the foreseeable future and whether there are funds being collected to fund these items?
Fine by me. Probably works for those folks who have a lot of give to their budget.
Personally, I'd want to know what's going on with the buildings I buy into. Could be a lot of deferred maintenance is coming due in the near future. Why did the dues go up 50%? Why are two thirds of the owners bailing?
Could be the price is so low and the expectation for increase in property values so high that it doesn't make any difference to the OP.
Fine by me.
But I would no more buy a condo or townhome without a thorough understanding of the financial situation including the maintenance schedule as assessed by an engineer that I would buy a detached home without a thorough inspection of the roof, foundation, etc. by a certified inspector.
Some HOA boards who are quite content with deferring maintenance until the lawsuits start over leaking roofs, disintegrating siding, etc.
So you think it makes sense to buy a condo without a clear idea of what needs repair/replacement in the the foreseeable future and whether there are funds being collected to fund these items?
Fine by me. Probably works for those folks who have a lot of give to their budget.
Personally, I'd want to know what's going on with the buildings I buy into. Could be a lot of deferred maintenance is coming due in the near future. Why did the dues go up 50%? Why are two thirds of the owners bailing?
Could be the price is so low and the expectation for increase in property values so high that it doesn't make any difference to the OP.
Fine by me.
But I would no more buy a condo or townhome without a thorough understanding of the financial situation including the maintenance schedule as assessed by an engineer that I would buy a detached home without a thorough inspection of the roof, foundation, etc. by a certified inspector.
Some HOA boards who are quite content with deferring maintenance until the lawsuits start over leaking roofs, disintegrating siding, etc.
Small buildings, pretty easy to see cash on hand then inspect your self. Existing older condos that need a new roof or siding cause they wore out why would there be a lawsuit?
Unless own the unit and are on the board or friends with someone on board who off the record who would show you that info/
For instance in my buildings all the rails need repainting. We discussed it at condo meeting, it is not in minutes, next summer if we have money will do an RFP to get bids and then if we get a good bid will paint all the rails.
Once I tell folks I am painting rails I am committed, then I have folks who have nephews, cousins etc in painting business trying to put sweetheart bids in. It is maint, I am not allowed to change color, I dont need permission, the non-board members will find out after we are ready to paint and have selected a painter.
Condo owners are like the book Give a Mouse a Cookie, if I tell them I am painting rails, what about windows, if doing windows, how about new gutters, how about blacktop etc. I cant imagine telling non-owners who are buying that I am painting and owners promising them I am painting rails.
Acquaintances bought a $32K condo in the mountains. Great deal. Owners had passed on. Place seemed in reasonable shape. What a deal.
Within a year, it was "discovered" that the back decks had all rotted beyond repair and needed replacement. Ditto the roof. And there were foundation and erosion issues that needed to be addressed.
They got hit with a $17K assessment.
They are now trying to sell it but not having much luck as several of the owners are suing the HOA for not maintaining the property.
Acquaintances bought a $32K condo in the mountains. Great deal. Owners had passed on. Place seemed in reasonable shape. What a deal.
Within a year, it was "discovered" that the back decks had all rotted beyond repair and needed replacement. Ditto the roof. And there were foundation and erosion issues that needed to be addressed.
They got hit with a $17K assessment.
They are now trying to sell it but not having much luck as several of the owners are suing the HOA for not maintaining the property.
It's a can of worms.
How could decks rotted beyond repair "seem in reasonable shape". Sounds like a readily observable issue. A buyer is responsible for doing their own due diligence and this sounds like perhaps the buyers never visited the property. $32K in the mountains should have in itself alerted someone to possible issues..
So you think it makes sense to buy a condo without a clear idea of what needs repair/replacement in the the foreseeable future and whether there are funds being collected to fund these items?
Fine by me. Probably works for those folks who have a lot of give to their budget.
Personally, I'd want to know what's going on with the buildings I buy into. Could be a lot of deferred maintenance is coming due in the near future. Why did the dues go up 50%? Why are two thirds of the owners bailing?
Could be the price is so low and the expectation for increase in property values so high that it doesn't make any difference to the OP.
Fine by me.
But I would no more buy a condo or townhome without a thorough understanding of the financial situation including the maintenance schedule as assessed by an engineer that I would buy a detached home without a thorough inspection of the roof, foundation, etc. by a certified inspector.
Some HOA boards who are quite content with deferring maintenance until the lawsuits start over leaking roofs, disintegrating siding, etc.
Every time one of our units go up for sale the realtor stops to see me. I give them the current amount of reserves, expected dates the money will be needed, a copy of our budget. They usually give me a form to fill out about expected expenses, future increases, etc. It is easier for me to be open about our finances than to get call after call.
Every time one of our units go up for sale the realtor stops to see me. I give them the current amount of reserves, expected dates the money will be needed, a copy of our budget. They usually give me a form to fill out about expected expenses, future increases, etc. It is easier for me to be open about our finances than to get call after call.
Are you a managing agent? The package is completed by our managing agent for a fee. The board does not talk to realtors directly.
I would never give out my budget, expected increases, future increases in writing. That could blow up in your face. The managing agent gives out the package of house rules, offering plan, latest financials, owner occupancy ratios, any minutes etc. And buyer must get sellers permission and pay a fee to get it.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
