Saturday, November 20, 2010
repeat: Ten questions for prospective condo buyers
This is repeat of a post from last year that is still relevant. Some of you may have missed it then.
I've seen many a search for a beach condo grind to a halt or take an abrupt turn when a buyer encountered an issue that they hadn't considered earlier. One's mental image of the perfect beach getaway may be at odds with the reality. Below is a list of ten pertinent questions prospective buyers of beach condos should have asked and answered prior to beginning the search.
1. If planning to get a mortgage for the purchase, how much down payment will the lender require? Mortgage requirements for Florida condos are different than those for condos in other states and for houses. Expect to have to put down 25 to 30% in most cases for Florida condos. Your pristine credit does not matter.
2. What will my taxes be? Forget what the current owner is paying. It does not apply to the new owner except (sometimes) for the first partial year of ownership.
3. Will there be a problem with my English Mastiff? Probably. Most condos have rules limiting the number and weight of pets. Some don't allow any pets at all.
4. Do the condo fees cover all expenses? No. In most condos the monthly fees cover insurance and maintenance for the building, water and sewer, basic cable, lawn care, common area electric and other common expenses. Some condos also include hot water in the fees and some even cover AC units. At the other end of the scale, some do a special assessment every year when the insurance bill arrives and a few complexes with artificially low monthlies seem to assess every time the wind changes direction. Be suspicious of condos with too-good-to-be-true low monthly fees.
5. Will the insurance on a Florida condo be sky high? No. As the condo fees cover the insurance for the building, the unit owners have only to cover the interior and contents of their units. I pay less than $1000 per year for a small 2 bedroom beach rental condo.
6. If I don't like the layout will I be allowed to remodel my unit? Yes. In most cases, any interior alterations that do not affect the structural integrity of the building are allowed. Removing non-load-bearing walls and building new walls are common alterations. Exterior alterations in most cases are more tightly restricted. Replacing the tired wooden front door with a hip new stainless steel door will likely not be allowed.
7. Are ground floor units undesirable? Not according to the people living in them. If you don't plan to go to the beach often, you will prefer the view from an upper floor. If you're one of those people or families that will be on the beach a lot, you may want to consider the lack of barriers (stairs or elevators) between your unit and the beach. I've found that the people in the ground floor units are the ones who spend the most time on the beach. Bonus here is that the ground floor units usually sell at a decent discount to higher floor units.
8. Can the condo association bill me for repairs to the building without my consent? Yes. All owners in a complex share the expense of maintaining the common elements and the board has a duty to maintain those shared assets. When the time comes to repair the balconies or replace the roof, if sufficient reserves don't exist, each owner will be assessed their share of the total. Sometimes an association will get a loan to pay for a large expense and increase monthlies to cover the repayment of the loan. This is why it is vital to review the condo budget and to read minutes of recent meetings. A buyer should be aware of recent and/or upcoming repair projects. Some buildings have reserves to pay for future expenses and some have none. Lack of reserves may kill chances of a mortgage. If considering a unit in an older building, all other things being relatively equal, a building that has recently completed a large renovation project is more desirable than one staring at an upcoming project.
9. If the seller agrees to pay the assessment for the upcoming concrete restoration project should I be concerned about anything else? Yes. The assessment might not be enough to take care of unexpected issues that surface during the project. Even more important, are you prepared to deal with the noise and inconvenience of the project for an extended period? Major concrete projects in addition to being expensive, are unbearably noisy, balconies are out of use and often pools are covered for the duration. As stated in number 8, a building with recently finished project is preferable all other things being equal.
10. Will I be able to rent my unit out for some income when I'm not using it? Maybe. Some condos have no rental restrictions while others have up to a one year minimum rental period. If you are prohibited from renting for less than a year, you won't be using the unit at all if you choose to rent it. If you buy a unit in a building with a one month or longer minimum rental, you may have a hard time picking up a monthly or longer tenant outside of the January through April season. You can read my detailed post on rental restrictions and their implications here.
This is by no means a comprehensive list but it's a good start. Knowing about restrictions and issues may eliminate a lot of wasted effort in your search. If anyone has others I've not included, please add them in the comments below.
I know that things are getting tougher
When you can't get the top off from
the bottom of the barrel.