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✌🏼