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Condo purchase advice
Old 05-23-2010, 08:45 AM   #1
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Condo purchase advice

It looks like we are going to have to move out of our tiny, funky, aerie-on-the-alley (recently sold and new owners unlikely to want strangers living in their back yard)

so we are thinking about buying a condo.

One of the new downtown towers recently reduced it prices 20%, from you-gotta-be-kidding to merely gasp inducing expensive. The salescritter claims that the place is 60% sold. Handover of the HOA would take place at 75%.

With the current economic environment, we are worried about the developer (or their bank) going broke. Is there any way to get some info on this? I don't even know where to start looking.

I know we should read the HOA agreement and bylaws, but what else should we check on? And what are the red flags to look for in the HOA docs?

I hate house/condo shopping more than anything. In addition, we are having a very hard time deciding how much is reasonable to spend. Converting liquid, dividend producing assets to illiquid real estate tax producing assets is unpleasant. Upping our withdrawal rate to pay a mortgage is not a comforting thought. OTOH, buying instead of renting could be a good inflation hedge.

A condo in a desirable location would mean a 3x increase in our housing costs. Presently, we have a very low withdrawal rate (see tiny apt above), so we could theoretically afford the increase - we would still be within the 4% rule; but we have a major case of cold feet.

Any advice would be appreciated.
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Old 05-23-2010, 09:19 AM   #2
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We recently sold and purchased condos in MN. New disclosure laws require condo financial documents be presented to you prior to the closing. You want to know what kind of financial shape your condo is in. What assessements have been levied in the past? Are there new assessements forthcoming? Are HOA fees up to date? How large is the reserve fund. What percentage of occupants are renters? What percent of the units can be rented? If renters are allowed, does the BOD have stipulations on who can rent? ie convicted felons.

The condo I live in is well managed. As an example we had to replace the elevator to meet new codes and we were able to pay the $1000,000+ cost from the reserve fund without assessing the owners and this is in a 45 unit complex.
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Old 05-23-2010, 09:23 AM   #3
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The salescritter should be able to answer all your questions and give you all the info. If they don't, then ditch them.

Why don't you buy a home with a garage apt in the back and rent that out? Then your real estate will produce income.
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Old 05-23-2010, 09:24 AM   #4
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We recently sold and purchased condos in MN. New disclosure laws require condo financial documents be presented to you prior to the closing. You want to know what kind of financial shape your condo is in. What assessements have been levied in the past? Are there new assessements forthcoming? Are HOA fees up to date? How large is the reserve fund. What percentage of occupants are renters? What percent of the units can be rented? If renters are allowed, does the BOD have stipulations on who can rent? ie convicted felons.

The condo I live in is well managed. As an example we had to replace the elevator to meet new codes and we were able to pay the $1000,000+ cost from the reserve fund without assessing the owners and this is in a 45 unit complex.
Thank you very much for the info. How large should a reserve fund be? The place we are looking at is new, so the HOA is still under the control of the developer. It is a 42 story tower with 260 units.
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Old 05-23-2010, 09:33 AM   #5
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If I were renting and considering buying, I would be seriously looking to do it now. You may have missed out on a good opportunity...the Gov $8k giveaway for first time home buyers. http://www.federalhousingtaxcredit.com/


Condos have advantages and disadvantages. I have waffled back and forth. My current inclination is towards a house.
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Old 05-23-2010, 09:39 AM   #6
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The salescritter should be able to answer all your questions and give you all the info. If they don't, then ditch them.

Why don't you buy a home with a garage apt in the back and rent that out? Then your real estate will produce income.
We've done the house thing and have had enough of yard work. Also would like a place that we could lock and leave without worrying about it. Definitely do not want to be landlords.
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Old 05-23-2010, 09:44 AM   #7
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If I were renting and considering buying, I would be seriously looking to do it now. You may have missed out on a good opportunity...the Gov $8k giveaway for first time home buyers. Federal Housing Tax Credit: Home


Condos have advantages and disadvantages. I have waffled back and forth. My current inclination is towards a house.
Yep. Know we missed out on the gummit giveaway. C'est la vie. We were (and still are) waffling.
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Old 05-23-2010, 10:04 AM   #8
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With all the weirdness going on in today's economy I think I'd seriously consider renting rather than purchasing, especially a condo.

Of course if the sun suddenly begins to shine on the real estate market again, prices could take off and leave you in the dust. But that's a risk I would be willing to take at the moment.
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Old 05-23-2010, 10:24 AM   #9
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With all the weirdness going on in today's economy I think I'd seriously consider renting rather than purchasing, especially a condo.

Of course if the sun suddenly begins to shine on the real estate market again, prices could take off and leave you in the dust. But that's a risk I would be willing to take at the moment.

I was wondering the same thing.

DW and I intend to downsize the house. I was considering the possibility of selling our house and renting for a few years as we travel... and buying a house after we get the travel bug out of our system.


Any idea about where home prices will be headed? Will it outpace general inflation?
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Old 05-23-2010, 10:46 AM   #10
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We've done the house thing and have had enough of yard work. Also would like a place that we could lock and leave without worrying about it. Definitely do not want to be landlords.
As a condo owner, my advise would be to not buy a condo. You may end up sharing a wall on all 4 sides. Chances are very high you'll have noise issues that hurt your quality of life. I only have neighbors on 2 sides but they're both loud. If you've always had houses and never had to share walls before then i'd recommend renting first to see if your up for it. I plan to buy a small house with a small yard as my next residence. That way I don't have much upkeep but have more privacy.
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Old 05-23-2010, 10:56 AM   #11
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The pitfalls to buying a condo.
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Old 05-23-2010, 11:36 AM   #12
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We moved from a secluded, detached house on 3 acres to a newly constucted condo in 2006. We bought in 2004 when the real estate market was still on steroids. On paper we've taken a 20 percent haircut in value for the condo we now make our primary home (offset by a 20 percent spike up in value by another condo we purchased in 2003.)

I think your biggest risk for buying into a new condo is whether the project will be completedly or almost completely sold out. Things can go real nasty if the project isn't completely sold out in a reasonable time, like the developer (generally a limited liability company) going broke and not being able to take care of building warranty issues. The fact that the developer is discounting prices might suggest that it's under real pressure from lenders or investors to get the project sold out soon. Of course, current owners are probably royally pissed off by the current round of discounts and more discounts could be in the offing.

The change over from the developer-controlled HOA to the Asssociation-controlled HOA is not a real factor in the equation, though 75 percent sold out is much better than 60 percent sold out. Of course, 90 percent sold out is even better than 75 percent sold out. I'd talk to current owners in the condo to see if they're having any major building issues. For one condo I own, the buildings and units were well constructed with virtually no major issues; the other one I own has had numerous problems -- the elevators had major performance/maintenance issues; the garage door broke down repeatedly; some of the common areas were designed poorly, etc. How high are the fees?

On the issue of condo living, it has major benefits, but you do lose a lot of privacy and control over your home. Not sure I'm going to stick with the condo once I retire.
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Old 05-23-2010, 11:54 AM   #13
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I would attend an association meeting. Listen to the gripes ... rumors. Then simply factor your concern(s) into the price you offer.

If the price is low enough ... pick up an extra unit next door (and cut a doorway between the units).

Reminds me of when I paid 5k for a 3 family and my mother in law said "what if the price go down further?" I respond "you mean they'll PAY ME to own them?" ... she got the point. Seven years later I sold the place for 160k.
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Old 05-23-2010, 11:58 AM   #14
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At first glance, for me the advantages are 1) don't have to mow lawn or shovel snow, 2) property taxes, mortage treated like owning a home. Disadavantages are 1) lose some privacy and control, 2) if you have pets (especially dogs), they might be not allowed, 3) no real control of monthly maintenance fee for common areas
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Old 05-23-2010, 12:01 PM   #15
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IP, if I were you I would continue to rent but then I am not so sure about the idea of condos to begin with. Actually Frank and I are on the fence about buying condos vs single family homes when we (eventually) decide to sell our houses and move. (Edited to add: The rest of this post is just thinking out loud about the condo vs single family home choice so probably doesn't answer your question. I'm sorry!! My excuse is that I am still half asleep.)

We love the idea of no yard work - - neither of us spends any time in our yards as it is, and we are both getting to the point that we simply refuse to mow any longer and never want to shovel snow. And really, when you consider insurance, property tax, and the cost of a lawn guy, we are probably spending $350/month or more that could go towards condo fees. We also love the "lock and leave" aspects of condo life. What freedom that would be!

But the idea of dealing with PITA HOA's, or sharing walls with loud neighbors who could make my life miserable with no possibility of escape is not really appealing. Plus there is the fact that you have to cede some control to the HOA. On top of everything, I have always dreamed of having my own private two car garage with automatic garage door opener and lots of space in it to park my car - - a suburban luxury that provides a nice level of security, convenience, and privacy, and that I haven't yet encountered and would love to experience. Frank thinks a private garage is appealing but for completely different reasons - - he likes the idea of having a large unimproved space to convert to workshops for his projects and hobbies. (Luckily we choose to live separately so this is no conflict for us).

Originally I thought condos might be OK but Frank was against them. But lately the "lock and leave" and "no mowing or snow shoveling" aspects have caused him to change his mind (not to mention the "possibly cheaper than a house" aspects). We are waffling.

So, we are on the fence and my opinion varies from day to day. Some days I think that renting might be good. This morning I am thinking that buying a cheap house on a small lot, and then having the entire lot paved over (and "eating" the lowered property values due to having that done) might work. Or maybe I could do the same, but then remove all landscaping but grass, and have someone just mow. Maybe the key to lowering other repair and maintenance costs is getting a very small, very new house. Or maybe we should look into patio homes. Something like Audrey's new house but without the RV amenities might work for us. Or maybe a 55+ high rise condo. I am so unsure.
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Old 05-23-2010, 12:27 PM   #16
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We've done the house thing and have had enough of yard work. Also would like a place that we could lock and leave without worrying about it. Definitely do not want to be landlords.
You sound like my wife and I. We're living in the home now though and having to deal with all the upkeep and we're getting tired of it already after nine years here. Siill have eight more to go before our youngest is out of college. Anyway, if you're tired of the upkeep then I'd buy a condo now. If you have the cash and/or credit to make it happen you can drive some especially good deals now. I would however buy only from something that is completed. I don't think there is ever anyway to be 100% sure about a developer and their latest project, especially in this business climate.
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Old 05-23-2010, 12:34 PM   #17
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I am looking at condos, but only quality reinforced concrete, or more modern and likely better steel frame high rises.

This is for various reasons- I have friends, a romantic "old places are good" couple paid $400,000 for an old 2 bedroom coop in a 1917 building. But when they did a reserve study it was discovered that $1mln was needed to stop water seepage around the windows and through deteriorated mortar joints. It is a 12 unit building, so do the math- they were looking at a huge assessment.

Realtors usually are not good sources of information here. I think the mls listing must show assessments already made but not satisfied, but they are usually silent on what may be lurking but not yet written down.

I have found that these big buildings like the ones I am interested in have high class on-site managers who are happy to show reserve studies, maintenance plans, budgets, reserve balances, etc.

Another reason is that close-in districts single family homes are frequently broken into even in very high priced areas. At least where I live, if you want to be close to the action, you are also going to be close to crime. An area of expensive homes next to a depressed area spells burglarly and car prowls, and you hope it stops at that.

Some of these good high rises are like Fort Knox, which is quite appealing to me.

So I will buy in one of these buildings, or stay put in my apartment which is both at some remove from crap and also a harder target than the typical SFH.

Ha
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Old 05-23-2010, 12:45 PM   #18
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As a condo owner, my advise would be to not buy a condo. You may end up sharing a wall on all 4 sides.
That would suck. How would you get in or out?
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Old 05-23-2010, 12:45 PM   #19
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Some of these good high rises are like Fort Knox, which is quite appealing to me.
That is very appealing to me, too, if their security is complete. Here, often it seems as though parking arrangements can be the "chink in the armor", so to speak. Secure parking seems to be the exception rather than the rule (here).
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Old 05-23-2010, 12:53 PM   #20
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I just realized that with all of the recent construction in downtown Austin, it is easy to calculate the price-to-rent ratio for comparable properties in adjacent blocks... right next door. Unfortunately, my two closest comps are at either end of the overpriced/underpriced range.

Compared to another high rise next door I calculated a price to rent of 15 , based on
(rent - HOA)*12/floorspace
Compared to a low-rise also next door I get a ratio of 19.

All three buildings are less than 3 years old. All comparisons on 2bdrm, 2 bath units of similar floorspace. The two comps are in 100% apartment buildings. Both very nice, but the more expensive one is the super-trendy place in town, and priced accordingly.

And then there is Austin's punitive 2.2% property tax rate, which I didn't figure in to the price to rent ratio.

With 20% down and a 30 year mortgage, including HOA and property tax, the monthly cost for the condo would be about 10% cheaper than the expensive building and about 25% more expensive than the cheaper building.

Since there isn't an appropriate emoticon for my state of mind right now, I will just borrow an avatar
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