REI Condo Conundrums in WA State?

Question

Hi all,

I hope this is not an obvious "are you crazy" question.  Newbie in Olympia area looking at a possible condo that I would 1st live in for a year then either BRRRR or flip.  If I BRRRR I will need to be sure the HOA rules work.  It has other things to consider including a special assessment on the HOA for external refurbishing.   Is this a mine field I'm considering since the Washington Common Interest Ownership Act (WUCIOA) went live in July this year or have condos been good real estate investments in WA?   The special assessment is temporary but with it BRRRR is negative net income so it has to go before considering that option.

I would welcome input, thoughts here.

Thanks,

Scott

Robert Freeborn · Answer

Scott, condos can be a great way to get started in our high value state.  The key issue is what their rental cap is.  Does this condo association have a rental cap?   Where I live we have a 60% rental cap.  (we bought before we became investors.)  We got to number 3 on the list, then the management company sent out a survey to see how many were owners vs renters.  We then got bumped to 17 on the list.  There goes our plan to rent out the condo when we buy a home, right?

So, make sure you can rent it.  As for the WUCIOA, from my understanding, and I'm not a lawyer, it shouldn't drastically affect existing condos.  Where it becomes a huge burdon is on new condos.  So I don't think it will be a big thing.

It sounds, to me, like the assessment is the biggest issue.  Is this the only assesment? Do they have any other major work planned? Why isn't that coming out of the operating fund?  Does the association have a reserve fund or do they do all things through an assessment?  If they don't have an adequate reserve, I would be very wary.  Part of the dues should be going to the reserve fund.  If they aren't it isn't being managed properly, and thats a big deal.  (IMO).

Get a local realtor on board who knows the area and can dig into that complex and find those answers out.

Jason Lee · Answer

If more than 50% of units are rented then the condo is no longer Fannie compliant. That's why a condo would limit the number of rentals. There are some condos that don't set limits but then will fall out of compliance. There should be local and portfolio lenders that will still lend but the terms will probably be more conservative and that could shrink your buyer pool if you end up flipping. Percent of units owned by a single entity is something else to watch out for, lifespan of major building systems, elevators, roof, boiler, facade, etc. On the flip side you'd only need to renovate from the studs in. Get a condo questionnaire filled out (you'll probably have to pay for it) and that will answer a bunch of your questions, the most recent financials, bylaws, and the current budget. This is doable you just need a realtor and/or attorney that knows how to do due diligence on a condo.

Bjorn Ahlblad · Answer

@Scott Provost I'd do some research Scott, IDK if condos compare to SFR in terms of return...........as far as HOA I hate the thought of something useless between me and my tenant; but that's a personal pet peeve!

Kevin McGuire · Answer

According to

https://www.warealtor.org/resources/media/REmagazi...

"WUCIOA replaces the Condominium Acts (both of them), the Homeowner  Association Act and the Land Development Act but it ONLY impacts  communities with CC&Rs that were recorded AFTER July 1, 2018.  If an  association’s CC&Rs were recorded prior to July 1, 2018, the  association is NOT a Common Interest Community (“CIC”) as that term is  created and defined by WUCIOA"

which  jives with what Robert said.

Scott Provost · Answer

@jason lee - really helpful!  Thank you Jason!   I didn't know the 50% Fannie cutoff for eligibility.

Scott Provost · Answer

@ Bjorn Ahlblad - thanks Bjorn.  I'm doing my research now so that is good advice.  I'm not a huge fan of HOAs but for condos they are sort of part of the deal.  I need to consider this carefully.  Thanks!

Scott Provost · Answer

@ Robert Freeborn - Thanks Robert!  This is super useful info.  Good point on the rental cap.  I will find that out today.  So the rental cap at 60% seems like your saying that 40% of the units in a complex can be rented or is it that 60% of units can be rented?  RE the assessment: As far as the realtor knows that is the only assessment.  Its a good point to understand the management of the HOA.  My realtor was saying the same thing so need to check that too.  Thanks again!

Scott Provost · Answer

@adrian chu - Thanks Adrian.  This is helpful.  So I think you're saying that renting a condo I own is easier if my loan is not more than 75% of the value.  Is that what you mean?  I hear you on the purchase price - that is key.

Adrian Chu · Answer

Fannie/Freddie recently loosened up underwriting guidelines for condo HOA review. In the past, investment uses would have to go thru full HOA review, now if you are 75 LTV or less, you can get by with limited review.  That being said, you need to be getting a great purchase price in order for BRRRR to work.

REI Condo Conundrums in WA State?

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