Want to buy a vacation condo? Heres what you need to know first

0 4

This article is reprinted by permission from The Escape Home, a newsletter for second homeowners and those who want to be. Subscribe here. 2021. All rights reserved.

Do you love the idea of a second home but not the thought of taking care of two houses? Maybe mowing the lawn, fixing leaky pipes and picking leaves out of the pool doesnt feel quite like an escape from your usual.

Enter the vacation condo: A second home without the responsibilities of a second home, and a place its okay to be gone for weeks or even months at a stretch. According to a recent report from the National Association of Realtors, 21% of vacation-home buyers purchased an existing condominium or co-op, much higher than the 12% they represent of all real-estate purchases, in the first quarter of this year. Overall, the number of condos purchased as vacation homes has fallen (it was 30% in 2016) but mirrors trends in the overall real-estate market, and is partly due to COVID.

More recently, the tragic collapse of the Surfside complex in Miami has people questioning the reliability of condominium associations. Condo complexes find themselves under the microscope, and the news is being flooded with negative stories, including about how many are in a state of disrepair.

The Escape Home spoke with several experts who are pro-condo but caution buyers to weigh several important factors before purchase.

First things first, know what you are buying. What exactly is a condo anyway? Richard Aaronson, board president of a Chicago condominium building laid it out for us. The units the apartments are exclusive responsibilities of their owners. The catch, he explained, is that there are common elements that are owned by everyone: outer walls, windows, common spaces, plumbing, risers and large mechanical elements. These elements are governed by a volunteer board comprised of condo owners, who then hire management firms and engineers and enter any necessary contracts in order to preserve and enhance the value of the property.

The board requires that owners pay monthly dues on top of their personal responsibilities. These include, but are not limited to, insurance for the building structure, a contribution to the reserve an accumulated sum, ideally calculated by an engineer, that will pay for foreseeable future repairs and the management firm that maintains the common areas day-to-day. This includes managing the finances and insurance of the building, making sure the building and grounds are up to standards, and tending to mechanical, electrical and aesthetic issues when necessary.

The management firm is key to your peace of mind, says Candy Lee, owner of a condo in a complex in St. Croix in the U.S. Virgin Islands.

You dont want to spend your vacation making everything okay, working on the exterior of the place, on the landscaping, or fixing broken lights outside, she said. All of that is taken care of for you.

This combination of shared and private can be great if its well-run. Tim Wallace, owner of a condo in a Lake Tahoe complex, found it to be the perfect second-home situation for his lifestyle. As his primary home sprawls over several acres of grounds in Northern California, a turn-key, lock the door and leave, not so big, easy to manage residence was ideal. The management firm mows the lawn, shovels the snow and repairs the roof when the time comes. Wallace found a condo complex that had a good and long-standing relationship with its management firm, responsible, amenable and respected board members and like-minded owners.

Its a strange kind of freedom, said Connecticut-based real estate agent Alexa Kebalo of owning a condo. But with the perks come certain limitations. Unlike owning a single-family residence in which you can choose the contractor that does the work and can decide how timely it gets done, she said, you must collaborate and compromise with other owners. You dont have as much control you [might] want something to be done and maybe its not being done in the way you want it done. Youre only as good as the association thats managing your property.

Phil Lee, another condo owner in St. Croix, recalls the labor of when he was a board member from 2010 to 2016. He said that often, condominium complexes have provisions that say expenses over a certain amount of money have to get approval from a certain number of owners. Lee remembers members of his board trying to avoid the democracy of a vote by insisting that expenses over the cost limit could be split up into multiple items of smaller costs. One year, the board tried to avoid a $50,000 limit by proclaiming that a $100,000 electronic gate installation was actually two purchases: a $50,000 gate, and $50,000 in electronics. Unsurprisingly, events like this often caused large arguments.

Notably, the risks can be much more dangerous than disagreements. Kathleen Klech, long-time real estate agent in New York City, has encountered condo builders who neglected to disclose that a firewall didnt go all the way to the top of the ceiling a huge fire hazard.

The questions to ask before you buy:

  • History of the developer/builder: Klech suggests going through public records to find any potential misdoings in the companys past.

  • Management and engineering firm: Research their histories to find any potential misdoings in their past as well. Aaronson also recommended looking for a building that has continuity with its management firm it shows they know the building well and that the board has a good relationship with them. You should also be able to find plans in place for consistent repairs. Wallace noted that his management firm repairs the roof every six years, no matter how good condition they are in. Thats a sign of meticulous care.

  • Reserve study: All of our experts stressed the importance of examining the reserve fund. A healthy reserve means owners dont have to pay out of pocket for special assessments Kebalo said. Reserves can predict what will be required to be replaced up to 20 years in the future. However, Bob Hartman, a New York City-based real estate lawyer, pointed out a crucial element to think about: the amount of money in the reserve fund is irrelevant unless you know what needs to be done. $2 million might seem like a lot until a letter comes saying the building needs $13 million in repairs in the next couple years. A reserve study must be looked at in tandem with the history of the building repairs.

  • Board minutes: They are your window into how the board and complex function. Aaronson insisted that robust communication and transparency by the board so that owners know what is going on at all times is one of the most important elements to a successful condo complex. Dan Bachrach, a board certified condominium lawyer and partner at Foley & Lardner LLP, suggests that minutes should be a few pages per hour at a minimum. If theyre less, theyre not communicating enough. The content of the minutes should tell you if there have been bed bugs in the past, if owners are all paying their dues, the budgets for the future and the general rules and regulations of the building and management firm.

  • Who is living there?: Hartman recommends avoiding buildings in which owners are not often present. If a disaster happens and a decent amount of owners are simply investors rather than dwellers, there is a high chance that they will say screw it and just sell, leaving the rest of the owners to cover for them. Hartman says that the amount of occupiers indicates the strength of a building.

Finally, turn to experts.

  • Hire the best attorney you can find. Klech said she has had clients opt for cheaper attorneys after she recommends the best one and its usually not worth it. You dont want to be penny-wise pound foolish. You want someone who really knows what theyre doing youre about to sink some money into something and you want to do the smartest thing. If it entails spending more than youd like, its worth it. Theyll help you research the history of the building, the developers, the management firm and the engineering firm in order to ensure there are no flaws. They should also be able to help you go over all the financial documents.

This article is reprinted by permission from The Escape Home, a newsletter for second homeowners and those who want to be. Subscribe here. 2021. All rights reserved.

source

You might also like
Leave A Reply

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More