3 Things to Review Before Buying a Condo
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The condo collapse in Surfside, FL - where about 100 people were killed - is a tragedy that is currently being investigated. While building collapses are extremely rare, recent reporting has touched on some components of condo ownership that are less rare, such as special assessment fees and infighting among residents.
HOA Fees versus Special Assessment Fees
HOA Fees
A homeowner’s association (HOA) is a group of people that make and enforce the rules of a condo community. All residents pay a monthly maintenance fee, also known as an HOA fee. This money goes towards regular monthly expenses to maintain the common areas, such as pool maintenance and landscaping. Any funds leftover go into a reserve account to be used towards less frequent projects, such as replacing a roof.
Special Assessment Fees
When the cost of repairs needed exceeds the amount in reserves, the HOA board may require a special assessment to be paid by each owner. Reports are indicating that the residents of Champlain Towers South were planning to pay a special assessment fee ranging from $80-336K, depending on the size of the unit.
Special assessments are necessary, but often not welcome news. There are retired residents on a limited income that likely did not factor the special assessment into their financial plan, or residents looking to move soon and do not want to pay for something when they won’t be around to benefit from the improvements.
Three (3) Things to Review Buying a Condo
#1 Review the minutes from previous HOA meetings.
As a prospective buyer, you can request the minutes from recent HOA meetings. Reviewing the minutes will give some indication as to how well the association is run, if there are any big expenses coming up, or if there are ongoing legal disputes among residents.
#2 Review the balance sheet of the HOA.
Much like you would want to review the financial condition of a company before making an investment, you want to be sure you are not walking into a condo group with a messy financial situation. Ensure that the association has built up adequate reserves and that the financial statements are organized. During the Great Recession of 2008, many condo owners were not just underwater with their mortgage, they were also unable to pay their HOA fees. This led to HOA fee increases for everyone else. Adequate reserves can help the association better weather economic downturns.
#3 If you decide to join your HOA board as a board member, review your insurance options.
The HOA board for a condo is made up of elected volunteers. Despite the fact that you are not being paid, you can still be sued. Unfortunately, the Surfside catastrophe is another example of this. The tenants and surviving family members are now suing both the association and board members personally. Directors and Officers (D&O) insurance is a type of insurance to consider to protect you financially from lawsuits. Meet with your insurance provider to ensure you have the proper coverage.
Do your due diligence before investing in any property.
Condo communities come with more stipulations and nuances than single-family homes. Reviewing these items, along with an inspection report by a professional that has experience with condos, can help you make the best decision possible for you and your family.
Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.
Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.