Condos Encore - what should I do?

[phillytreasures]

Hello, everyone. New to this forum and hoping the financially-savvy folks can weigh in on my situation.
I suppose, the big, overriding question is – should I buy a condo?
A few non-financial details of my life to consider:
1. I absolutely do not wish to own a house. (I am on friendly terms with a screwdriver, but hate the idea of external and internal upkeep. Owned a small, easily manageable 1400sqft house when married and hated it then, too.)
2. I don’t intend to have children or pets.
3. I have back injuries which flair up at times and make climbing stairs difficult – I would need to live in a building with elevator (there are 2 level condos and duplexes in the area).
4. I don’t need much space – I live in 750sq (I think) and it is more than plenty for me.
5. Obviously, it would have been nice to have anything other than carpet and very old kitchen cabinets…

Financially speaking,
1. I am currently paying $830/mo for rental 1br/1ba unit in a well-maintained building with an elevator. The building is about 45 years old. I have washer/dryer inside my apartment.
2. Comparable square footage/50 yr building with elevator/washer/dryer situation condo in same neighborhood is selling for about $100,000- $110,000. Taxes about $1500, Condo fees about $250. I don’t know anything about association.
3. My rent has steadily gone up from $800 four years ago to $830 now. I have attempted to re-negotiate to no avail unless I prepay for a year or two. I am paying premium for living in this building (2 br/2ba duplexes rent for about same) and there are some units vacant, which doesn't help with negotiations.
4. I have heard horror stories about condo assessments and, while I could certainly pay them, it is a huge concern.

My questions:
1. Presuming condo association has sufficient reserves and is well-run; would it make financial sense to buy a condo? (I have decent credit and can put 20% down)
2. What specific questions do I need to find out about with respect to condo association before even thinking of making an offer?
3. What else should I consider with respect to rental/condo ownership?
Obviously, I yearn to have a slightly nicer place, but I don’t want to make a financial decision based on my desire for hardwood flooring.  Thank you in advance.

[ginyah]

If you don't want to own, owning never makes sense.

[CaliJim]

This type of calculator may help with the financial side of the decision: http://www.realtor.com/home-finance/fin ... lator.aspx

You are on your own w/ regard to how you would assign weights to the emotional vs financial factors.

[Stonebr]

I lived in a condo for 14 years. As long as you go into it knowing full well that there can be special assessments, and promise yourself that you won't gripe about them, it can work out just fine.

One other caveat: There's an old Swedish saying that every forest has its troll. I'd say that every condominium has its troll -- a person or group of persons who make it their life mission to object to everything that anyone else wants to do. I think it's a personality type that just wants to get into arguments -- regardless of the level of silliness, pettiness or injustice. We had our troll, and she made our lives difficult (but not impossible). If dealing with such people makes your blood pressure pop, then don't buy a condo. If you can turn the other cheek, just accept that this type of thing will go on. If it's a large building there will be some strength in numbers -- unless you become the troll.

[FrugalInvestor]

You are still responsible for the inside maintenance of your condo. If you are averse to this why are you considering taking it on?

[phillytreasures]

You are still responsible for the inside maintenance of your condo. If you are averse to this why are you considering taking it on?

Inside maintenance is not as big of a deal as outside maintenance. Its easier to clean a one bedroom condo than a 3br 3ba house with stairs every week. There are less faucets to replace, less places for leaks, etc.

[phillytreasures]

Thank you, everyone, for your replies!
What specific questions do I need to find out about with respect to condo association before even thinking of making an offer?
How do I know if a certain amount of $ is sufficient as reserves?
Is there a certain ratio that I should look for?

[Steelersfan]

You want to find out:

Exactly what level of reserves they have and what percentage that is of their annual expenses.

Have they done any special assessments in the last ten years and if so, how much were they and what were they for.

Are they putting aside any money now for a known future improvements, e.g. a new roof. I know of one local condo that knows it has to replace it's roof within the next several years. It's a big building and a $500,000 item. They're adding to their reserves but that large an expense will always be an issue until it's past.

Are they FHA certified? If so then they had to do a reserve study. Ask to see it. In my area most condos have foregone that and it's not important now because banks are eager to make mortgages. Your area might be different.

Do the monthly common charges cover any or more or less utilities than are being covered by your rent.

[OAG]

We have lived in a condo for almost 8 years. We have a reserve fund that takes 1/3 of the monthly condo fee to fund. We have 20 buildings with 4 units per building (ranch style homes) all have an attached 2.5 car garage. We have no pools club houses etc just straight living units. We are about 90% full with about 6 units on the market by former owners. One key thing is to check the master insurance policy and what it covers as it should cover general liabilities outside your door. You will have to insure your contents and personal liability (very simular to a renters policy) - many people for some reason over insure themselves in condos or do not consider their contents and personal liability and do not even buy a policy assuming the master policy covers everything - generally it does not. Determine what the monthly condo fee covers (ours covers trash, snow removal, and lawn service in addition to all outside maintenance) - in almost 8 years no special assessments and none anticipated - reserve fund being funded at about $96K per year. You mention an elevator, maybe you should look for a single level unit - elevators can get expensive to maintain - Ranch Style units while many are multi-level some are not or you can mostly restrict your living to a single level as long as the main bedroom is on the main level.

[ianferrel]

I have attempted to re-negotiate to no avail unless I prepay for a year or two. I am paying premium for living in this building (2 br/2ba duplexes rent for about same) and there are some units vacant, which doesn't help with negotiations.

Could you explain this more? Shouldn't vacant units help you in your negotiations? You can threaten to move, which would result in even more vacant units. Clearly they don't have another tenant ready to go.

[phillytreasures]

Thank you, everyone, for taking the time to write a reply; greatly appreciated!

[Saving$]

If you decide you would consider buying a condo and find one you are interested in, before you make an offer, request the following:
1. Last 5 years of budgets and actual costs for Operations fund
2. Last 5 years of budgets and actual costs for Reserves fund
3. This years budget and dues, and 2011 ending balances for both the reserves and operations fund
4. List of all special assessments in the last 10 years
5. Reserves study (compare this to how much reserves they are collecting and the
6. Itemized listing of each expense for last one or two years
7. Meeting minutes for the last x (at least 2-3) years.
8. All covenants, bylaws, etc. Read them and look around the place and decide if they are being enforced.
9. Stop by the place and randomly talk to people about the association. Make sure you talk to the people that one set of people tell you are the problem. The ones pointing out a problem are generally actually the problem. Find out if the association enforces, over enforces or under enforces its covenants.

If you buy a condo next to a problem neighbor, you are stuck owning it. If you rent, you just move.

[phillytreasures]

This is very helpful; thank you. Question for you, Saving$: do i have the right to ALL of this paperwork BEFORE making an offer?
about 10 years ago I went out to look at a condo (I wasn't really looking then, but, rather, entertaining an idea though I didn't advertise my intentions to the agent), and I recall asking agent for by-laws. She stated that any and all association-related documents can be provided to me ONLY AFTER I make an offer. The offer being contingent on satisfactory (debatable, isn't it?)review of the docs. Granted, I may have been misinformed.

Are there laws that govern this or is this a general business practice to allow the potential buyer see all the docs you mentioned?
I can see why r/e agent would be reluctant in going through the trouble of providing this every time someone is considering to make an offer...(Of course, I , as a buyer, would rather have full transparency).

Do tell. Thank you!!

[damjam]

I used to sell real estate.
In my experience the documents you are interested are only provided after an offer is made and accepted.
I'm in NYC.

[Steelersfan]

If you decide you would consider buying a condo and find one you are interested in, before you make an offer, request the following:
1. Last 5 years of budgets and actual costs for Operations fund
2. Last 5 years of budgets and actual costs for Reserves fund
3. This years budget and dues, and 2011 ending balances for both the reserves and operations fund
4. List of all special assessments in the last 10 years
5. Reserves study (compare this to how much reserves they are collecting and the
6. Itemized listing of each expense for last one or two years
7. Meeting minutes for the last x (at least 2-3) years.
8. All covenants, bylaws, etc. Read them and look around the place and decide if they are being enforced.
9. Stop by the place and randomly talk to people about the association. Make sure you talk to the people that one set of people tell you are the problem. The ones pointing out a problem are generally actually the problem. Find out if the association enforces, over enforces or under enforces its covenants.

If you buy a condo next to a problem neighbor, you are stuck owning it. If you rent, you just move.

That's a very comprehensive list and in an ideal world that's what you could do.

The reality is a prospective buyer isn't going to get that information. Not that many could make sense of all of it if they did.

I'm on the board of my modest sized (44 unit) condo and we turn over 3 - 4 units a year. We've never been asked for that much and would not go to the expense of providing it. Our units sell just fine.

I think items 1 - 3 for a year or two plus items 4, 8 and 9 are reasonable.

If you're buying in an area where housing prices went through large gyrations in the last few years and the condo market is in turmoil, then more could be prudent.

[phillytreasures]

Gotta love Bogleheads!
I've learned more on this forum today than I would have searching the web for days. You, guys, rock!

On a slightly related subject to the condo purchase.
I thought I'd start lining up financial side should I find an acceptable/acceptably priced condo.
Placed three calls : First Internet Bank, PenFed and Amerisave.
Wasn't prepared for all the condo restrictions....

1st internet bank doesn't do fixed loans, only 5 and 7 year arms for condos.
PenFed requires 30% (not 20%) down (despite my 800+ score)
Amerisave can't tell me until after I apply for pre-approval whether the condo would even be financed...

Apparently, the common refusal/issues (according to reps):
1. if a condo building is over 4 stories high, they have issues with getting appraisal, so they don't want to finance it
2. if there is an office or storefront on the lower level
3. if anyone owns more than 10% of the units
4. If x% is not tenant occupied

I am concerned about #4 because I know there are plenty folks that rent out their condos in the complex I would be interested in. Also, in light of the previous posts, it seems that I would not get info from the association until after I place an offer, but I need to get pre-approved BEFORE i give an offer.

Surely, I am not the only one who has to deal with this.
Thoughts and suggestions? Thank you in advance.

[Steelersfan]

It all varies by market. Here are the FHA actual requirements if you're going for an FHA backed loan. It's the middle column.

http://www.realtor.org/wps/wcm/connect/74a0aa00476e9b5c86bfafaa3b85ca9a/FHA_Condo_Rules_07.01.11.pdf?MOD=AJPERES&CACHEID=74a0aa00476e9b5c86bfafaa3b85ca9a

Mortgage lenders can apply more stringent requirements.

In our market (you can guess where it is) few condos are worrying about FHA loans since local mortgage lenders are happy to make loans without FHA backing.

YMMV

[Saving$]

This is very helpful; thank you. Question for you, Saving$: do i have the right to ALL of this paperwork BEFORE making an offer?...
Are there laws that govern this or is this a general business practice to allow the potential buyer see all the docs you mentioned?
I can see why r/e agent would be reluctant in going through the trouble of providing this every time someone is considering to make an offer...(Of course, I , as a buyer,

If the seller is truly interested in selling, the seller should be able to provide all this information. An agent who says it is not available until you make an offer, is in my opinion, simply lazy.

I have served several stints on the board of a HOA, and can tell you that most savvy buyers ask for some combination of the documents I listed, but few ask for all of them. The covenants and the bylaws convey with the deed and should be public information. The two HOA in which I own have those documents publicly available on their website.

One of the HOA's also has all the meeting minutes available on their website, behind a password. The balance of the info would need to be requested, but should be simple to get. If it is not simple to get, that should tell you something about the association.

The thing about buying a property in a HOA is you are not just stuck with the property, but also with the HOA. You are purchasing ALOT of risk if you buy into a poorly managed HOA. I cannot begin to describe how terribly some HOA's are managed. Many of them outright ignore the law and violate it repeatedly. Unless an existing homeowner is willing to take them to task and fight the battle, they get away with it. Everywhere I have owned that has an HOA, 80% of the owners are totally apathetic. They don't want to serve on the board, they don't want to attend meetings, and they want to pay as little as possible. They don't care what the board does, and will generally vote for whomever will set the dues the lowest, until things look terrible and they complain loudly. Then they will vote out that board and vote in a new one that must do an assessment, and works their tails off to clean things up. Once cleaned up, people are happy with the way things look, and only remember that the current board raised dues, so they vote them out and the cycle starts over. If a majority of owners interested enough to attend meetings and obtain proxies plan to sell within a few years, they will be extremely resistant to proper reserves collection, and HOA will be weak. They are counting on most buyers being as ill informed as they were when they bought, and counting on the buyer having no idea until after closing.

[damjam]

They are counting on most buyers being as ill informed as they were when they bought, and counting on the buyer having no idea until after closing.

That is why the contract for purchase should have a clause for review of documents. If the documents you request in the contract are not supplied or portray things in a way that is not satisfactory to you then you walk away from the deal. In NY it is very common to use an attorney for purchasing real estate. Perhaps in other parts of the country this works differently.

[Watty]

1. I absolutely do not wish to own a house. (I am on friendly terms with a screwdriver, but hate the idea of external and internal upkeep. Owned a small, easily manageable 1400sqft house when married and hated it then, too.)
.......
Condo fees about $250.

There are lots of good reasons for not wanting to own a house but an adversion to doing the upkeep is not a good reason to go with a Condo instead.

In the condo you would be paying $250 a month for the upkeep plus any special assessments.

You can pay a handyman $250 a month(on average) to do the upkeep of your house instead of doing it yourself and that is no different.

[phillytreasures]

With respect to upkeep...
Its not just the upkeep.
I know it sounds weird, but maybe because I grew up in a different part of the world , I never really cared for homeownership.
A small apartment in metropolis is more comfortable and desirable to me than a larger house in suburbs. I would rather spend money on experiences than live in a larger place.
I don't care for planting of the flower beds, racking of the leaves, getting someone to clean the driveway from the snow and taking out trash every tuesday.
As a single person, I certainly do not need so much space as would come with even the smallest house (I have long been interested in minimalism and don't own much "things" ). House needs to be furnished, electricity paid for, and I presume it would be a higher expense than for a smaller apartment.
If I were to look for a rancher (remember, I have issues with using stairs at times), in my area it would likely need to be completely remodeled, which adds more to costs.

Don't get me wrong - I really would rather not pay condo fees, but this leaves me back with the dilemma of renting vs. ownership.
Maybe I am being nearsighted with this decision. I am willing to listen.

[Saving$]

My rent has steadily gone up from $800 four years ago to $830 now. I have attempted to re-negotiate to no avail unless I prepay for a year or two. I am paying premium for living in this building (2 br/2ba duplexes rent for about same) and there are some units vacant, which doesn't help with negotiations.
4. I have heard horror stories about condo assessments and, while I could certainly pay them, it is a huge concern.

If you owned a condo, the chances that your association dues would have increased the same $30/month in 4 years ($7.50/m per year) are high.

Look at the posts above and figure out the math. Simply put, with the taxes and HOA dues you listed, if you buy a place and have a +/-90k mortgage, your monthly costs will be slightly higher than your current rent, but you will have a tax write off that will more than cover the difference, so financially you will be slightly better off. The advantage is you can do things you want to the unit; the disadvantage is you are stuck with that unit and less able to move when you get an undesirable neighbor, etc.

Over the long term, I still believe real estate ownership has benefits. However, ownership in an HOA has too many downsides.