Condo Purchase Needs Extra Care : Research Required to Maximize Enjoyment and Potential Profit
A growing number of would-be buyers are shopping for condominiums instead of single-family homes, as prices for detached houses continue to climb and new tax laws encourage renters to become owners.
But not all condominiums are created equal. Consumers who don’t do their homework before buying a condo may find that they don’t fully enjoy their new home and that their future resale profit will be limited.
As with any type of purchase, experts say condo buyers should think of comfort first and potential profits second.
“The most important thing to remember is that you want to buy a place that you’ll be happy and comfortable in,” says Lou Piatt, executive vice president of Jon Douglas Co., one of Los Angeles’ biggest brokerage firms.
“Resale profits are important, but they should take a back seat to your life style requirements.”
Attractive to Many Buyers
Clearly, condos aren’t for everyone. Most don’t offer the privacy of single-family homes, and condo dwellers are “forced” to have more interaction with their neighbors because they share common walls, sidewalks, pools and the like.
But condominiums attract buyers for a variety of reasons, realtors say. They’re usually much less expensive than houses in the same neighborhood, and each project’s homeowners association--not the individual owners--usually perform most maintenance tasks.
A condo buyer also usually gets more amenities--pools, spas, recreation/fitness rooms, tennis courts and the like--than he could afford by himself. “But it’s important to determine whether you’ll be able to use all those amenities,” says Temmy Walker, president of the Studio City-based brokerage firm James R. Gary East.
“Having a pool or tennis court is great, and it makes your condo more salable. But there’s no reason to pay extra for a condo that has all those things if you’ll never have time to use them.”
Picking a condo that will provide maximum enjoyment and maximum resale profit takes even more work.
As always, the location of the property is paramount. The most promising prospects are in areas where the local economy is strong, schools are good, the transportation system is efficient, and shopping and other services are convenient.
It’s also important to see how many other condo projects are in the area. Buying in an overbuilt condo market can mean a lower sales price, but it’ll also mean lower resale profits if the unit must be sold before the glut goes away.
Close Inspection Needed
Some of the best condo prospects are often found in areas with a good mix of high-quality apartments and mid- to upper-priced single-family homes, experts say. A condo surrounded by low-quality apartments likely won’t appreciate much because the neighborhood may be going downhill and future buyers will be hard to find.
Once the consumer has narrowed the field of potential condo projects to three or four, it’s time to take a closer look at each development.
“You want to make sure that all the common areas are being kept up,” says Walker. “Make sure the landscaping is alive and well-tended, sidewalks are clean and in good repair, the pool’s in good shape and the recreation room is useable and well-lit.
“If the common areas are in bad shape, you’re probably better off looking somewhere else,” Walker says. “If the homeowners association hasn’t been taking good care of the property, there’s no reason to think they’ll start doing a better job after you move in.”
Potential buyers should also try to attend at least one meeting of the project’s homeowners association.
“Going to a meeting gives you an idea of what your neighbors would be like if you bought a place there,” says Piatt at Jon Douglas. “And the way they solve their problems at the meeting helps you know whether everybody gets along, or if there’s a lot of animosity.”
The issues addressed at the meeting can also yield important clues about the development itself. For example, if directors of the association discuss the project’s rising crime rate or the need to make costly repairs, it may be best to look somewhere else.
It’s also important to check out the association’s financial records. This goes beyond determining how much the monthly homeowners dues will be: The association must have a strong balance sheet, with an adequate reserve to meet large expenses.
If the association is in bad financial shape or doesn’t have enough cash set aside to pay regular or unexpected bills, owners in the complex may see their monthly dues rise or get hit with a large “special assessment” to pay for repairs or maintenance.
Buyers who don’t feel qualified to determine the association’s financial health can hire an accountant or other professional to review the group’s books. Monthly fees and special assessments generally aren’t tax deductible, unless the condo is being rented out to someone else.
“If you’re going to make an offer on a condo, make sure it’s contingent on your satisfactory inspection of the financial records, bylaws, and everything else that can affect your pocketbook or the way you live,” advises Walker. “That way, if you find something that you can’t deal with, the sale won’t have to go through.”
It’s best to look for developments where at least 70% of the residents are owners, not renters, experts say.
“People who own their unit instead of rent it tend to take better care of their property,” says Piatt. In addition, he says, absentee landlords may oppose making necessary repairs or improvements because the cost will hurt their bottom-line profits.
There’s one other reason why it’s wise to select a development with a large majority of owner/occupants: Many lenders and government agencies refuse to make loans on units that are in projects with more than 20% or 30% renters. Others charge higher rates on such loans, which drives up the homeowner’s monthly payments and makes the property less attractive to future buyers.
If a buyer must choose between a two-bedroom unit or a one-bedroom for a bit less, it’s usually best to stretch finances and choose the larger home.
“A two-bedroom unit usually isn’t much more expensive, but the extra bedroom really enhances its investment value because it’ll appeal to a lot more (future) buyers,” says Tom Cannon, senior vice president of the Grubb & Ellis real estate office in Mission Viejo.
“The only people who are looking for one-bedroom units are singles, or a few married people with no kids.”
Realtor Piatt urges would-be condo buyers to look for units with many of the most sought-after features in single-family homes: Relatively large rooms, tile instead of linoleum flooring, a good floor plan and “extras” such as vaulted or beamed ceilings.
“The high-quality condos tend to have better appreciation potential,” he says. “And they’re nicer to live in, while you’re still there.”