Condo Investing Warning!

[Moses Moreno]

We had a pleasant emergency HOA special assessment meeting this week. Due to updated CA codes & regulations, coupled with the lack of foresight & planning by the HOA Management & Board, our complex has to update 400+ balcony railings in order to maintain our insurance policy.

The railings are integrated into the stucco and balcony weatherproofing, so it’s not an easy remove & replace project.

HOA board received 5 bids and started using Capital Reserves to start this process. 1 year in and the HOA has nearly depleted all reserves! We're now in-line for a $4mil loan to complete the project and replenish the reserves. This equates to a $24k special assessment for each owner ($35k after interest on a 15 year loan).

The clubhouse chaos would have made Jerry Springer blush! The room was packed with people from every demographic - first time home buyers, RE investor, seniors living off SS & families struggling to make ends meet…especially with inflation and the always increasing San Diego Sunshine tax/costs. $24/$35k is a lot of money for anyone, but it will be a crippling financial blow to a lot of people!

This is our primary residence, but we having invested in Condos in the past & I was left thinking, what if this happened to us back then? It would have wiped out any/all cash flow & reserves for those investments. Wanted to put this out there for first time home buyer’s and new investors as a heads up and offer up some tips that have been shared on several other forums.

1. Have plenty of cash reserves!

2. Due diligence. Review the overall complex & financial status of the HOA prior to purchase. (Ours was solid up until a year ago)

3. Be conservative when evaluating properties & always include vacancy & capex allowances

Would I ever buy into a HOA again? Yes, they have been very good to us with tax benefits & appreciation (Not so much with cash flow).

Just throwing out my 2 cents into the BP world. Hope it helps someone✌🏼

[Don Konipol]

I have owned numerous condos as investments and lived in a couple of others.  Any high rise building having structural issues is going to find solutions VERY EXPENSIVE.  But, here are the two biggest problem areas with “special assessments”

1. Many condo associations do not collect anywhere near enough dues to create sufficient reserves to pay for either anticipated capital expenses/improvements or unanticipated problems.  It’s always very unpopular to significantly raise monthly fees especially to create a fund for FUTURE expenses.  I saw a recent survey that stated that 60% of the condo associations in Arizona do not have sufficient reserves to meet anticipated maintenance/repair items  it’s important to understand the financial condition of the condo association before you invest in purchasing a unit

2. Most buyers hire an inspector to inspect their unit only.  It takes both a structural engineer and a mechanical engineer, NOT AN INSPECTOR, to inspect a high rise building.  The fact that in the unit you’re buying the toilets flush and the stove gets hot is wonderful.  The big expenses are when the roof leaks, the balconies need replacement, or the chillers go out.