What To Look For in a Condominium Association When Purchasing: Building Health, Financials & More

Condominiums can afford you a great, carefree lifestyle and some fantastic amenities--but there are several pieces of information you must ascertain in order to determine if the building is "healthy" or not. A financially unhealthy condominium association, or one that has rules and regulations that do not match your lifestyle or long-term real estate investment (aka, exit) strategy--could end up being less of a return on investment in the long run. Here are 10 key terms and issues you need to know about:

1. Regular monthly assessment--your portion of the total bill for the monthly expenses of the building. Make sure you'll use the services there and that they are in line to comparable buildings.

2. Special assessment--this is when the building has expenses beyond the regular monthly assessment and can't afford them out of their reserve account. Often this is for major repairs and is billed proportionately to each unit owner, above and beyond the regular monthly assessment the unit owner already is expected to pay.

3. Reserve account--the savings account of the building. Minimum I'd recommend is $1,000 a unit in a small building, up to $5,000 a unit in larger buildings. The goal with a reserve account is to have enough in reserves at all times to avoid special assessments (whenever possible or forseeable).

4. Deferred maintenance--what issues do you see as you walk the building that don't appear to have been addressed? Aging hallways, older windows in need of repair, and inoperable elevators, and unkempt landscaping are just a few examples of deferred maintenance that may come back up later as a special assessment.

5. % Owner Occupied--a building less than 50% owner occupied may be tougher to finance. A building with 100% owner occupancy may not allow rentals. Confirm the percentage of owner occupancy in the building.

6. Rental cap--some buildings do not allow the percentage of owner occupancy to fall below a certain level. Check with the building to confirm if there is a rental cap, and how close to the cap the building is (or if there is a waiting list to rent out units).

7. Own before rent clause--this means that some buildings may require you to own a unit for a certain number of months or years before you rent it out, say 18 or 24 months.

8. Pending litigation--is the building being sued? Is the building suing someone else? This makes it much tougher to finance.  Review any pending litigation details with your lender before applying for financing.

9. Parking--determine the status of parking in the building. What space # and where is it located specifically? Is it attached to the building, or detached and separate? Inside or outside? Is it deeded or assigned? Is it valet or self park? All this must be determined and confirmed.

10. Storage--confirm if there is additional storage that comes with the unit (outside the four walls of the unit) and where that is, and if it is shared or private.

I go further into detail on each of these in the below video, and discuss the difference between condos and coops (cooperatives) as well: