Never rush into buying a condo – here’s why
In this blog post we’re going to cover why it’s smart to Never Rush into Buying a Condo in Los Feliz or any other neighborhoods in Los Angeles. Joe Tishkoff, my preferred mortgage lender with Skyline Home Loans, just saved the day for one of my buyers and without Joe’s help I don’t think the deal would have even happened.
My first time condo buyers were buying a lovely condo in Los Feliz and started the lending process to seek the best rates and terms to meet their goals. They researched their own bank and sought other rate quotes online, but determined that working with Joe Tishkoff and Skyline Home Loans offered them not only the best rates but expert knowledge about the condo buying process that they felt they needed.
Once the escrow was officially opened, we experienced a nightmare dealing with the HOA management company, the HOA board members and an issue that the unit was occupied with a tenant. At the end of the day, we’re still in escrow marching towards the goal line but it’s important to me to share with my readership what we learned: Never Rush into Buying a Condo in Los Feliz or anywhere else in Los Angeles.
Joe and I put our thoughts together to help you better understand what is needed to know when buying a condo. The below is a testimonial of this real estate experience. Enjoy!
Introduction to Buying a Condo
A condo is basically like buying an apartment but you own the interior airspace. You own only the “air space” inside the unit you purchased, not the land below. That defines the difference between a condo purchase and a single family home. Both a condo and a townhouse share common spaces and sometimes amenities such as shared walkways, landscaping, parking, recreational facilities such as pools, gyms, steam rooms, and saunas, etc. All of those common amenities are shared by all of the unit owners in the development. Usually and in most cases, the more amenities – luxury or not – the higher the monthly HOA fees are typically.
To maintain the common spaces, the homeowners’ association (HOA) will require the payment of a monthly fee (called HOA dues), which hopefully will be sufficient to cover general repairs and common area maintenance of the complex as well as (hopefully) a build-up of cash reserves for future needs and property improvement. Think of reserves in the same way one might save up funds when you own a car for oil, mechanical and other scheduled services that your car might need. You can’t just expect that your car will never need to be serviced in the future and not allocate funds for maintenance and that’s exactly what reserves for a condo are allocated for – future repairs and replacement of mechanical and other items like shrubbery and grounds keeping maintenance. Most healthy HOA’s have tens of thousands or even hundreds of thousands of dollars in reserves.
Unfortunately, sometimes if funds are mismanaged or the homeowners association fails to levy a sufficient monthly fee to allocate for those needed maintenance items, what can result is in the imposition of one or more “special assessments” (a one-time charge assessed to each owner to cover some exterior maintenance or major repair such as a new roof, plumbing, or electrical). These special assessments often times can range from $1,000 to $10,000 per unit and can be divided over a period of time or due upfront at one time. The HOA monthly fee may be adjusted for a set period of time to help improve the community reserve funds. Homeowners are rarely thrilled with that news but it is needed and a part of condominium ownership that you should be advised of in advance of purchasing a condo unit.
Common Red Flags with Condos
Never Rush Into Buying A Condo because there are three typical problems faced by Los Feliz condo owners. The first is the potential for the HOA to levy a large special assessment against each and every unit in the complex if the building has been mismanaged for a significant amount of time or if lower than required dues have been collected for a significant period of time. So make sure you read over all of the homeowner’s association documents carefully and work with a mortgage broker or direct lender like Joe Tishkoff who can sniff out red flags before the ink is dry on your RPA (residential purchase agreement).
The second red flag to consider is the risk that an individual homeowner or an outside party will bring a lawsuit against the homeowners’ association, which can severely impact all other homeowners or the ability to sell or refinance their units. Ouch! Pending litigation can be as mundane as a barking dog complaint or as severe as serious construction defects.
And last but certainly not least, Never Rush Into Buying A Condo because of the third issue that can occur if needed repairs and maintenance is not completed and the property slips into disrepair. That often causes the property value to deteriorate over a longer period of time. Just like the car example, it’s much like trying to sell a used car that has been well maintained and shows little damage and wear and tear versus another car that hasn’t been maintained properly over time and needs a lot of work or is physically damaged. Which one do you think would sell for the highest price? So, don’t let this happen to your investment and be mindful as a unit owner to ensure all maintained that is needed or required is completed by the association on your behalf!
Before You Sign on the Line
Never Rush into Buying a Condo in Los Feliz or anywhere in Los Angeles. We know it’s exciting and this list is not meant to scare you off. Its intention is to prepare you for what to look out for and to ensure you’re working with a savvy Realtor and mortgage lender. Okay… Here we go with a punch list to recap what to look out for to help you make a more prudent and informed decision:
Pending Lawsuits
Check for any pending lawsuits against the development and/or the homeowners’ association as such can lead to large special assessments levied against each unit. If a lawsuit is pending, be sure to review the documentation to determine what the dispute is about, its likely impact on the development, and consult an attorney to evaluate the matter to ensure your pocketbook won’t be affected by the outcome. Some bank will simply not provide financing on a condo project with pending litigation so always seek your lender’s opinion about the nature of the lawsuit and whether or not the bank would be willing to lend on the property.
CC&Rs and Rules
Read the condo’s covenants, conditions and restrictions (“CC&Rs”), and any other rules adopted by the board of directors which may place restrictions on renting your unit, improving the interior of your unit, painting the exterior of your unit, the color or type of front door you may install, the impact on having visitors stay in your unit or where they can park, operating a home-based business out of your unit, the types of pets you can have and their size or weight, use of the common areas, having band practice in your garage and noise restrictions on the loudness of the music you enjoy and at what times you can play loud music, etc. When reviewing the CC&Rs pay particular attention to the size of the board, any requirements for reserves, pets, voting rights, and what constitutes a quorum.
Make sure the development is separately incorporated. If not, you could be headed for a world of pain if your unit is an unincorporated association which occurs and carries some risk to you as a unit owner.
Insurance
Find out about the type of insurance for liability, fire and other perils that the HOA maintains. Do they carry a separate policy of earthquake insurance? Remember you only own the air space, so if the HOA doesn’t maintain earthquake insurance, your individual insurance will only cover your personal affects, not the reconstruction of your unit, and certainly not that of the building itself. The failure of a Homeowners’ Association to maintain adequate earthquake and standard “hazard” insurance, especially in California, can lead to the entire structure becoming bank owned. And that of course would not be good.
Renters vs. Owners
Find out how many of the owners live in their units, and how many of them are actually rented out. If 25% or more of the development is rented, it is likely that the complex will not be as well maintained or cared for and there may be additional problems with noise, maintenance and possibly an effect on the resale value.
HOA Finances
I cannot stress the understanding the importance of the HOA’s finances enough. Make sure you do your homework on the finances of the homeowners association. It is very important to determine if the HOA is in debt, or has a balanced budget and has sufficient reserves to cover normal maintenance, emergency situations that may arise and a carefully planned budget for major items such as a new roof, new plumbing, common or shared air conditioning, new stucco, painting, etc… Ask to see the HOA’s financial statements including a professional prepared prior year’s income statement and a future forecasted budget and the minutes of the last HOA’s meeting to review if any major expenditures for the past three to five years has occurred to determine what upkeep has or has not been done.
Ask about, or review the minutes for, any planned upcoming expenditures and the last two to three dues increases (date and amount or percentage increase) so you can plan your own budget accordingly and know or expect if there are any future increases in your monthly HOA dues. Don’t count on the property seller or their agent to disclosure any of this to you – do your own homework and review the information carefully with a professional such as Joe Tishkoff who has a thorough knowledge about condo financing and what to seek out when reviewing the condo’s CCR’s, budget, by-laws, articles of incorporation and insurance.
Maintenance Company
Find out the name of the building maintenance company and not only ask your potential neighbors how responsive the maintenance company is to their requests, but also research them online. Yelp! Research the quality of the HOA’s management company too. Some are poorly rated because they don’t do a careful enough job at running and managing the association properly.
Future Value
What is the noise level above, below and outside your proposed unit, and the building, at different times of the day? Is the parking adequate not only for the residents, but for visitors? Is that important to you? How many condominiums are for sale in the complex? How big is the complex? How may units have sold in the past two years? Are newer condos being built nearby that may affect your unit’s price?
And, in conclusion….
To reiterate, Never Rush Into Buying A Condo and this list is not meant to make you run for the hills. If you’re seriously considering buying a condo it is important that you understand all of the documents, including the bylaws, the CC&Rs, and the condo rules, and it is a good idea to meet your potential neighbors too if you get a chance. Bring them flowers or cookies. It will pay dividends for sure.
If you are unsure about something, do not hesitate asking your Realtor or mortgage lender for their opinion. It’s our job to make sure you’re protected and happy with every step of the condo buying process.
Los Feliz Condo For Sale
I’m a local real estate agent with The Shelhamer Real Estate Group, and It would be my pleasure to help you find the perfect property to call home in Downtown Los Angeles, or if you’re thinking about selling a house, condo, or multi-family building in, Los Feliz, Silver Lake, Atwater Village, Glassell Park, Mount Washington, or Downtown Los Angeles, it would be a privilege to help you get top dollar for the sale of your property.
Let’s chat sometime. 310-913-9477 or contact me
