Condominium investors - Posted by Lyle


#1

Posted by Mr Donald on November 16, 1998 at 11:02:29:

$120 per year? What is the FMV of your unit? What exactly is the coverage?


#2

Condominium investors - Posted by Lyle

Posted by Lyle on November 14, 1998 at 22:34:40:

Greetings. I would like to get some feedback from the investors in this newsgroup who either specialize or own condominiums. I was especially concerned about how investors deal with the association fees and the dreaded “special assessments.” I have a brand new condominium that I am thinking about leasing and was wondering if investing in condos worthwhile.

Thanks,

Lyle


#3

Re: Condominium investors - Posted by Tim (Atlanta)

Posted by Tim (Atlanta) on November 17, 1998 at 11:41:08:

I have 12 condo/townhouse units, and they are working out very well. Be aware that condo/townhouses are much harder to sell, but I make that up in monthly cash flow. My average positive cash flow after expenses (including fees) is around $250 per unit. I can’t seem to find that type of cash flow in the SFR market


#4

Re: Condominium investors - Posted by Jeff_Dallas

Posted by Jeff_Dallas on November 16, 1998 at 13:58:54:

Condos can be great investments, but there are some unique concerns that a condo investor should consider:

In addition to the conventional SFR investment analysis, you?ll want to focus your due diligence on the condominium ASSOCIATION. The first thing you?ll want to do is locate the management agent for the association. Talk with the management agent and ask him to provide you with as much information as possible: When was the last special assessment levied? Does the agent expect any additional assessments soon? Any pending litigation?

The Association?s financial statement will speak volumes-REQUEST A COPY. Are the financial reserves adequate? Excessive Accounts Payable? Large amount of uncollected dues/assessments receivable? Any of these items should be a red flag indicating a potential problem. In many ways, owning a condo is analogous to owning shares in a corporation and you should analyze it as such.

Ultimately, the bulk of the decision making authority of a condo regime resides in its board of directors. Since it is this group that will make the decisions on how your monthly dues are spent, it?s imperative that they are competent. For Example: In Dallas, the poor soil quality has the potential of causing severe foundation problems if the grounds are not carefully maintained. It is not uncommon to find a situation in which a condo regime?s board of directors has neglected its foundation and is faced with a major repair expense. When reserves are insufficient, I?ve seen boards of directors levy special assessments of up to $10,000 per unit to fund such repairs caused by neglected maintenance. The old adage “a camel is a horse created by a committee” is too often demonstrated in a poorly run condo regime.

This is not to say that condos cannot be good investments; they have been for me. Just be aware of the risks and pitfalls that are inherent in a “co-operative” type arrangement such as this.


#5

Re: Condominium investors - Posted by Jeff_Dallas

Posted by Jeff_Dallas on November 16, 1998 at 09:59:16:

Lyle,

Find out who insures the condo association’s “Master Policy”. They will most likely be able to insure you on a “sub-policy” which will be your most economical solution. ( I pay $120 per year for mine)


#6

Re: Condominium investors - Posted by Dave T

Posted by Dave T on November 15, 1998 at 21:12:33:

I own four condos and three townhouses – all have association fees. I just factor in the association fees as part of my operating expenses. I have my property managers pay the fees from rents collected. I also keep two months fees in an escrow account with my property managers sso that fees can still be paid in the unusual event that I have a vacancy for an entire month.

Since you already own the condo, you should have some idea of whether a special assessment is in the offing. Your covenants and bylaws should also indicate whether a special assessment can be unilaterally levied by the board of directors or must be put to a vote by the association members. I have not had a special assessment in the last fifteen years, but I believe that is because my associations are mature and maintain healthy cash reserves. If you are concerned, then keep a reserve account for a special assessment emergency and put a few bucks into it each month.

I never have the tenants pay the association fees. If fees are not paid, then the association can put a lien on the property. Instead, I set rents high enough that I can cover all expenses and still have a positive cash flow.

Hope this answers your first question.

As to whether cnodos are good investments depends upon your investment strategy. If you plan to hold for rental income for a long time (ten years or more), then condos may be cheap entry points for building a real estate portfolio.

If on the other hand, your intent is to buy for resale, then you need to know the condo market for your area. Generally, home buyer’s priority in descending order is for detached single family houses, semi-detached townhouses, and lastly condos. Since a condo is the least desired property, your buyer market may be very limited.

In my experience, condos make great rentals but poor resales. Condos will not appreciate as quickly as SFRs and the specter of increasing association fees intimidates some buyers. This is why I suggest that you need to hold for ten years before considering resale – it may take that long to realize a significant profit.


#7

Re: Condominium investors - Posted by Rob FL

Posted by Rob FL on November 15, 1998 at 08:45:32:

Be careful with brand new condos you might end up getting burned. I have seen several condo developments where the units get sold off by the developer at 75K and 3 years later when all the units are sold, everyone finds out that the units are only worth 50K because of bad appraisals. Also if most units are owned by the developer, then the assessments may end up skyrocketing when they finally sell off all the units. The reason being is that the developer usually doesn’t have to pay any assessments for the first couple years. They just maintain the complex and when they finally bail out, you really get to find out what the TRUE budget is.

My basic idea on condos is to wait until all the units are sold off and then buy them on resale. I bought one last year where the original owner paid 45K for it in 1984 and sold it to me for 21,500. My total payments are $463 and it rents for $650. I almost feel like a thief.


#8

oops…the post above was meant to be a response… - Posted by Jeff_Dallas

Posted by Jeff_Dallas on November 16, 1998 at 13:52:00:

…to Andy A’s question about condo insurance in Florida (below)