Ok, its Halloween so a little extreme on the title but if you are considering buying a condo there are some things you are going to want to be aware of. The main thing is, you want to make sure you are buying into a financially solid and well-run building. Now, this might sound like a no-brainer but its important enough to keep repeating. Buying into a good building will make sure your investment will be an appreciating asset and not a depreciating one. No one likes to lose money right?!
So what do I mean by a "good building?" Well, there are a few things that you will want to make sure you find out about ideally before you make an offer:
- What are the current reserves of the building?
- What is the ratio of owners to renters in the building (or ownership percentage)?
- Are there any special assessments currently or planned?
- Are there any lawsuits or litigation currently in the building?
These four questions are ones you or ideally your agent should be asking. A good agent will try to get this info before looking at the property but sometimes it won't be available. In these instances, they can typically find it out later before making an offer. Below is a break down of each to help you better understand them.
Reserves: This is the amount of money the building has in an account for a rainy day. This is the money that can be used to fix or address any issues with the building.
Ownership Percentage: It is very important that a building has 50% owners but ideally more. This is because lenders want to see 50% or more to lend int he building. If there are too many renters and people cannot get a loan, the value of the building goes down as only cash buyers can purchase there and cash usually gets a discount. Plus owners take better care of the building than renters do.
Special Assessments: This is what a building will call for IF there is not enough money in the reserves account to cover whatever is needed to be done. The building's association will agree to have everyone help pay for the project out of pocket. This could cost you thousands of dollars. Plus lenders won't lend in a building with a special assessment so it can hurt your value as well.
Lawsuits/Litigation: These can also hurt your value. If someone is suing the association or if the association is suing someone like for example a developer, lending becomes difficult in the building and again, the values will go down as cash-only buyers will be able to buy in.
If it is a small building and self-managed sometimes its hard to find this info out before placing an offer. Don't worry though. During the attorney review period, your attorney will be requesting this information from the association for you to review. IF for some reason you still can't get the info your lender will also be requesting it. So don't worry there are plenty of layers of protection in place to make sure you are making a smart decision.