When Buying a Condo
Condos seem to be "hot" these days, especially in the big cities. Given low mortgage rates (even with the predicted rate hikes), the market should continue to be hot for awhile yet.
According to a recent newspaper, one of the trends in condo buying is "upsizing". So, rather than buying a property where you have to be responsible for maintenance and such, many are opting to buy a bigger condo as their families grow and their needs for space increase.
The thing to think about when looking at condos is to be sure to check further than the price. When you are calculating what you can afford a month in mortgage, don't forget to think about condo fees.
In some complexes, condo fees have been chronically too low. Then a big maintenance item comes up; it could be as simple as a new roof. Suddenly, the fees are through that new roof, and there's no end in sight. This is a sign that a corporation has not planned for the future, and that they have not taken care to protect the property values of their shareholders. That's what you are when you buy a condo; you are a shareholder in a complex, and you have to think about the value of the whole complex, and not just the really cute unit you saw.
How do you know if you are getting a deal, or being taken to the cleaners? If you are looking at a condo complex and the fees are very reasonable, be SURE to check the corporation's finances. If there isn't a healthy amount in the condo's bank accounts, run! While the fees may look like a good deal, you are likely getting into a condo complex which has chronically underfunded itself. While that may make condo owners happy in the short term, in the long term it's a disaster waiting to happen. As soon as major structural elements need their regular maintenance (roofs are a classic case), you could be looking at a major increase in fees, or a "special assessment" which requires you to pay a large sum on a one-time basis. However, a one-time special assessment won't fix an underfunded condo complex, and you can expect the situation to get worse before it gets better. Either fees will go up, or there will be more special assessments.
If you are looking at a condo and the fees are higher than other places you've looked at, check to see what the growth in the fee has been over several years. You or your real estate agent should be able to get that information from the condo corporation or the corporation's management company. If fees have been high for a long period, and increasing at a measured pace, then the next check is to be sure that the complex has a healthy bank account. If all these things are true, you can reasonably anticipate that the complex is well funded, and you don't have to worry about a spike in condo fees. This is a complex which has been well-managed and has planned for the future with both the owners and property values in mind.
However, if fees are high, and they've only recently been put at that level, check carefully into the overall health of the condominium. Does the corporation have a good amount of money in the bank? Are they prepared for the regular maintenance items which will be coming due on the complex in the next 5 to 10 years? Get as much information as you can. Talk to current owners if possible. If it looks as if the corporation's books are not everything that you'd like, don't buy. Even if the complex still has curb appeal, that may soon diminish if there isn't money to keep it fixed up nicely.
As a previous board member of a condo complex, I can tell you that fees set at a low level are a real problem. Over time, the complex may begin to look "run down" as the most inexpensive fixes are attempted, in order to maintain artificially low fees. While this may get a condo board re-elected, it won't keep the complex in good shape. You need to have a complex which has been run like a business, and which charges the right amount for the services that the complex provides to the condo owners.
A little research can go a long way to getting you the condo of your dreams. And that research will ensure that you can expect it to stay the condo of your dreams.