Whether you’re looking to become an investor or simply ready to become a home owner and start building equity, a great place to start could be with purchasing a condo or town home. In comparison to a single family home, the costs associated with buying a condo or town home are usually much lower, plus many of the communities where these properties are located often have a variety of fun amenities, such as pools and spas, fitness centers and tennis courts.
Having community amenities available is a proven tactic for enhancing the appeal of a property to owners and renters. It’s also a widely accepted idea that amenities can help to improve the resale value of a property. What made me stop and think recently, however, was the notion that neighborhood amenities could actually reduce a property’s appeal and real estate market value, if maintenance has been neglected or they are in poor condition.
It is a small idea that leads into a broader topic, namely, that many issues in real estate are only relevant to the purchase of a condo or town home. My goal is to provide my clients with the resources and guidance they need to achieve their goals. With that in mind, here are some important topics to consider before purchasing a condo or town home as a primary residence or investment property:
- Association fees. What do the Home Owner’s Association (HOA) fees cover? How often do these charges occur? In general, HOA fees pay for items such as common area maintenance, insurance, amenities and management, however, the frequency and amounts can vary significantly, depending on the type of amenities.
- Neighborhood/Community Amenities. In some communities, the HOA fees only pay for the maintenance of a sign or a few small common areas. In other communities, where there are a variety of amenities such as a pool, spa or clubhouse, the HOA fees are typically much higher. It’s always worthwhile to note if the amenities where the property is located are in poor condition. If that is the case, the association should have enough reserve funds in the coffer to cover the necessary repairs. In a situation where the HOA does not have the requisite funds, it may have to levy a costly special assessment on the owners to pay for the repairs.
- Community Reserve Funds. The monthly fee needs to have a certain percent allocated to the payment of major repairs. Age of the community is often a determining factor for the actual percentage of the HOA fee that should be set aside. Generally, a good rule of thumb is that communities between 10 and 20 years old should have at least 25 to 30 percent of the HOA fees allocated to major repairs. Communities aged less than 10 years only need to put about 10 percent of the fees into the coffer.
- Management of the HOA. It’s a good idea to find out if the community is managed professionally or by a group of volunteers. Reviewing the minutes from the HOA’s board meetings is also advisable. In most cases, the best course of action is to find a community with professional management. Professional managers are more likely to set aside adequate reserve funds, maintain amenities, and handle issues efficiently.
- Community Rules. A community with extremely strict HOA rules may not be a good investment. One topic that is vital to consider prior to purchasing is whether or not it will be feasible to rent the property out. This is relevant even if the home is being purchased as a primary residence, because circumstances can quickly change and a strict HOA can drastically impact your ability to use the property.
If the condo or town home will be utilized as an investment property, an important question to consider is whether or not to hire a property manager. Navigating the laws that are pertinent to owning rental properties can become a headache. Choosing a professional management company can reduce some of the time-consuming hassles landlords experience and help to increase return on investment.
For information about our rates or how to analyze the effectiveness of the HOA for a property you are interested in, please call 910.859.7238, or visit www.UltimateRentalHomes.com.