Condos and town homes come with many different aspects to the real estate business. Here are a few potential pitfalls that you need to be aware about on both sides of the transaction.
One primary determinations to be made when buying or selling condos & townhomes is whether financing is available and,
if so, what type of financing.
FHA places some strict requirements on loans for these types of housing projects. The development may need to be on the HUD approved condominium list, or an analysis of the property by the lender for the endorsement of a spot loan if it is not on this approved list.
There are several other requirements. These are just a few examples. It may be required that a specified percent of the development by occupied by the owner, and not a rental dwelling. While this could limit the property's appeal to investors, it could be an attraction for those buyers who want to occupy the units. It could also be required that the entire development is complete, including the common facilities and areas. Also, there could be a requirement that a specified percent of the units be under contract or sold. Generally, the project documents, such as the CC&R's, should not place any restriction on conveyance (transfer) of the property.
If FHA financing is not available for the project, this limits the number of buyers who will qualify, and alternative financing can prove costly and require larger down payments. Today, a good portion of multi-family dwelling purchasers are often retired and paying cash when purchasing the unit.
The stability of the development's HOA is an important consideration. Homeowners pay dues, usually monthly, to the HOA. The dues are used to maintain amenities, common areas, and usually also the exteriors of the units. They also include items like trash pickup, snow removal, and possibly other utilities. In the current economic environment, many HOAs today are suffering due to unemployment (homeowners can't pay their dues) and foreclosures. This can result in large increases of dues. If the HOA cannot collect sufficient dues, maintenance may fall by the wayside. This could lead to additional drops in property value. If possible, look at a historic trend of dues collected to properly evaluate the HOA's stability.
The HOA association or any property management company the project has hired should be able to advise you whether the project is eligible for FHA loans and also discuss the solvency of the HOA accounts. Gather this information before proceeding with an offer or putting your unit on the market.
There are many advantages to buying a unit in a development. Usually maintenance requirements by the homeowner are limited to the unit itself, allowing more spare time for the unit owners. There may also be amenities such as barbeques, heated pools, fitness facilities, club houses, tennis courts and other items not usually available in single-family homes. The development may sponsor occasional social gatherings as well.
Some of these multi-family projects are also associated with a nearby resort, and may offer discounts to the resort's amenities, such as discounted rates for green fees or fitness facilities.
Gathering the facts before putting your unit on the market, or beginning negotiations for purchase, will help ensure no surprises in buying or selling condos & townhomes.
