Condo Investment Heads-Up

In the recent market, few property types have been hit as hard as the condo market.  It is my opinion that developers vastly over estimated people’s desire to live in a box… regardless of the maintenance perks. With a large percentage of condos within complexes going into foreclosure, investors need to be extra diligent in their due diligence process.

Due diligence, the process of assessing a property’s value and condition prior to closing, is more complicated today than ever. One additional check that needs to be added to all condo investors’ lists is the need to review the health of a condominium’s respective Home Owner Association (HOA).

HOAs are established to maintain the value of a community by providing property maintenance, rules, and general insurance. The cost to operate HOAs vary considerably and HOA budgets have been severely impacted by the foreclosure wave. When home owners stop paying their mortgages, they usually stop paying their HOA dues as well. When enough residents fall delinquent on their dues, a condo complexes maintenance may suffer or worse… the insurance coverage may lapse from non-payment.

Before investing in a condo, ask for a copy of the HOAs bylaws and ask for an accounting of current and projected dues. Also, ask the head of the HOA for a disclosure of the master insurance policy and if they anticipate any special assessments due to budget shortfalls.