real estate

What to know before you buy a condo

For those who have cash to purchase and don't plan on selling the unit anytime soon, the delinquency rate may not seem as big of a problem. But keep in mind when an association is short of cash, it has to cut on maintenance services or amenities.

"Depending on how long the high delinquency has been in place, that beautiful pool may not stay beautiful for very long," Berger says.

Some associations also may charge unit owners special assessment fees to make up for the budget shortfall.


The less cash reserves a condo association has and the older the building, the higher are the chances that owners in that building will be hit with a special assessment fee at some point, Berger says.

Fannie, Freddie and FHA also require condominiums to put aside 10 percent of their annual revenue for emergencies and capital expenditures. Condo projects may be allowed to save less annually if they demonstrate they don't need as much reserves. The lack of proper reserves is the No. 1 issue in many of these condominiums, Tomaselli says.

"Eighty (percent) to 90 percent of them do not have appropriate reserves in their budget," Tomaselli says, based on projects he has worked with, including existing and new buildings.

Too many investors

The percentage of investors who own units in a project may also impact a buyer's ability to get a mortgage or to sell the unit soon.

Lauren Stark, who specializes in condos as a real estate agent for The Stark Team in Las Vegas, says about 95 percent of her deals are cash. "There's virtually no financing (for condos)," she says.

Stark says Las Vegas' condo buildings aren't necessarily financially troubled as many of Florida's condo projects are. But they are heavily owned by investors. FHA does not approve condo projects in which more than 49 percent of the units are owned by investors. Fannie and Freddie have a 30 percent cap for investor ownership.

Generally, units in buildings that are not financeable lose value because they have to sell mostly for cash, at discounted prices.

Is the building insured?

Another important factor that condo buyers often overlook is the community's insurance coverage.

Berger says many condo associations are reducing or dropping the community's insurance coverage to cost cuts. The move jeopardizes the investment of all the owners in those projects.

"New purchasers should ask the seller to obtain a copy of the building's master (insurance) policy," she says. "Then take it to your own insurance agent and ask is this enough coverage."

Insufficient insurance coverage can also make units in a project ineligible for financing, Tomaselli says.

"Nowadays, lenders view the condo development itself as collateral, not just your unit," he says.


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