The Seven Most Dangerous Aspects of Buying and Selling Condos

Buying and selling condominiums (condos) can be lucrative or very risky. Condos are unique investments that any buyer should understand before he makes a commitment to purchase one. An individual condo may be very inexpensive relative to the others in the complex, but may have hidden issues that are not all that obvious to a perspective buyer.
Condos are generally associated with towering buildings and tightly packed apartments owned by elderly retired residents who downsized from their single family homes. However, they can also be in vacation areas that are essentially extended timeshare properties, or they can be villas and townhouses, or even single-family homes that are in gated and guarded communities.
Their common element is that they are deed restricted to stay a community regulated by a board of individuals who are elected by the residents to the Homeowners Association (HOA). The project developer may have control of the HOA initially but ultimately turns over control to the HOA with a Board elected from residents. Many complexes have strict rules about who can own a unit or live in the complex.
The most common problems when buying and selling condo units are:
1. The HOA can change its rules for ownership at any time - including previewing the financial and credit worthiness of a buyer. This is tough for investors who will be flipping condos for wholesale profits.
2. The HOA can change its rules for rental at any time - so an investor who buys a condo to rent, may not be able to if the rule changes after he owns the property.
3. The HOA has to issue an Estopple Letter for the property to be transferred which can be expensive, time consuming, or not granted at all. The Estopple Letter basically says the seller of the condo is current on his HOA fees and HOA assessments, or a certain amount of money must be paid to the HOA at the closing
4. The HOA will not allow rehabbing of the property unless all permits are pulled and the work is only done during certain hours of the day.
5. Recent legislation has empowered HOAs to foreclose on condos not paying fees or assessments and take over the property so it can be rented by the HOA and the income used to offset the former loss of revenue when the owner wasn't paying.
6. The HOA can go into receivership because of a lack of income to maintain basic necessities or repairs. This usually happens somewhere after 18% of the homeowners stop paying their dues, fees and assessments and can make it nearly impossible to resell the property.
7. The property insurance premiums may not be paid for a lack of revenue and a catastrophic event (fire or water damage) may not be covered despite the homeowners paying their HOA fees.
In summary, before investing in condos, an investor must do his due diligence at a higher level than when he is buying a single-family, non-HOA property. He should talk to existing owners and talk to Board Members to see if they are investor friendly and what their attitude is about renters. It is also imperative to determine if the HOA has a "first right of refusal"