Three Questions To Ask when Buying A Condo

Buying a condo comes with a few unique points of due diligence that you must perform.  If you do not know the right questions to ask you may be in for an unpleasant surprise during the course of your transaction or later down the road should you need to sell it.  Hopefully you are working with a real estate agent that advices you to do the following:

  • Check the owner occupancy rate of the condo complex.  This is going to have a direct impact on you in multiple ways.  The first will be when you are trying to get a loan.  Most lenders will not lend on a condo complex with an owner occupancy rate under 50%.  This means more than 50% of the people living in the complex are renters.  Lenders view this as being a riskier investment and they are hesitant to lend.  Or they will lend but they will require higher down payment amounts, which you may or may not be able to meet.  Now let's assume that you are able to secure financing through a higher down payment amount or that you are a cash buyer and were able to avoid the issue all together.  Eventually you will become a seller and this question of owner occupancy rate will come back into play.  In other words, the people looking to buy from you will face the same issue, which will make it harder to sell because people working with a limited down payment amount will not be candidates for your home.  This means that there will be less potential buyers, which puts downward pressure on price and also makes it more difficult to sell quickly should you ever have to.  Make sure your real estate agent researches the owner occupancy rate of any condo you are interested in.  This doesn't mean you shouldn't buy any condo with a lower owner occupancy rate, but it does mean that you should factor this into your analysis.
  • Ask if there is any litigation in the condo complex. This has especially been an on going issue for many downtown San Diego condos for sale.  Litigation in a condo complex is one of the most devastating elements to price that a condo can face.  Litigation usually drys up lending and creates an environment in which only cash buyers are eligible to transact in the building or condo complex.  You will want to know this up front because if there is litigation and you are not a cash buyer you may be wasting your time.  You also want to know the answer to this even if you are a cash buyer because litigation will make it very difficult to sell your unit because you will need to find another cash buyer.  This will normally create a lot of downward pressure on price until the litigation is cleared up so you will also want to find out how long the litigation is expected to last.  These issues can go on for years.  Yes, it is true that there a few investors out there that will lend on buildings with litigation issues but in either case your options and those of potential buyers when you go to sell will be severely limited, which is never good for the liquidity of your property.  One of the ways to get details on the nature of the litigation and other issues leads to the third question that you should ask when buying a condo.
  • Request and review the HOA minutes.  No condo buyer should pass up this step.  It is your right as the buyer to review the minutes from the HOA meetings.  A lot can be learned from doing so including details on any litigation issues as we discussed above.  You will also learn about the direction of the complex including any future plans for investments, if there are any planned assessments, and generally get a sense for the overall health of the association, which you will be a part of if you buy the condo.  The meeting minutes can give you a very intimate view of what is going on and just how stable the outlook of the complex is.  Make sure you review the minutes for the last year of meetings.

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