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The amount in a Reserve Fund can vary quite a bit depending on the size and amenities the association has. Some require $millions$ in reserves. To some $50K is more then enough.
800 units in 8 high rise buildings with 8 pools and private roads is one issue. A 4 unit single building with no amenities on a public street is another issue.
How many condos, amenities, elevators, parking arrangements, private streets, etc.
You are going to have a fun time purchasing this condo. Is this a for sale by owner and you are not using an agent? Where is your lender located, local or a far far away? Have you seen the HOA questionnaire?
Hi there. I recently entered into escrow to buy a condo. Throughout the process, I kept asking what the HOA situation was, and the seller kept saying he didn't know and that all will be revealed in escrow when the HOA docs need to be disclosed. After a week of submitting for the loan and jumping through the usual hoops of escrow and closing, the HOA docs came through and it looks terrible. Currently, the building has 10 units, the HOA is $270 a month and the reserves are at $10K. The 2014 budget is cash flow negative by $2,500.
When the bank reviews this, will it even approve a loan? And what would you do with this HOA situation? Anyone have a similar situation or have been in one?
Need some advice and thoughts to ground myself and see where people would stand with this. Thanks so much!
depending on your financial situation, the bank might not approve the loan. the HOA fee is directly factored in as an expense that adds to the principal amount of the loan. so for example if the most you could be approved for was 200K and thats the price of the Condo, the HOA fee would put you over the limit. a HOA fee of $250 adds nearly 100K to the principal of a 30 year mortgage.
i have a HOA fee of around $200, however that includes cable, internet, phone, and lawn services; along with the ammenties of my subdivision (pool, barbeque area with grills, gym, private park etc). Overall, i think its a decent deal, but it wasn't clear to my mortgage broker at first and required me to resubmit my loan and escrow papers once it became apparent...
Ask to see the reserve study. $30k, and $10k is peanuts for a 10 unit building that is additionally spending more than they make. Your $270 month fee could easily become $500 month with an $10k special assessment that you will need to get a loan for.
It sounds like to me most posters are jumping to conclusions with only a tiny bit of facts:
A, What does the $270.00 a month cover, garbage, cable, internet, water, possibly even electricity?? How much of this goes to Reserves? Have there been any recent legal issues that the HOA is trying to pay off?
B, On the current balance on Reserves, has there been a recent large expense that took a large bite out of the money like maybe new roofs?
C, On the negative cash flow on the budget, could be an anticipated expense that was not listed on the Reserve items. After 8 years in on our condo complex we are still discovering items we thought were listed and are not. Last year we had to eat almost $40,000 for our A/C Chiller for the common areas. It also could be an out of the ordinary expense that is upcoming so they budgeted for it.
Bottom line, get more details, review the budget, see where everything is going, and don't make snap judgments based upon few facts.
If the bank doesn't approve the loan, it may be a blessing.
If they do, and you can't back out, get on the BOD to keep a very close eye on everthing until you are able to sell.
HOAs in general are just another form of taxation which benefits property managers, lawyers, and often BODs benefit from free work done on their units or special gifts being purchased for them. Read other threads and Google HOAs for more information.
To all those who are saying little reserve funding means trouble, what's the difference between owners saving up money themselves, knowing there will undoubtedly be assessments, vs a big reserve fund that is under the control of a condo board.
At my previous condo there was a substantial reserve fund of $180,000. When we had major projects, like refinishing of road-ways, and new roofing, they would only take a fraction out of reserves, like $10 or $20K, and owners always ended up with an assessment of about $2800 for each project. So if the board won't touch the reserve fund there's nothing you can do about it.
The only really well-run condos I have seen are in Canada, which has very strict and detailed condo laws and exacting rules and regulations on how condos need to be run. In the U.S. it's a hodge-podge of a mess.
Everyone's like "run from these bad indications" --- but where are all these great well-run condos? Especially for the average buyer, not high-end.
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