Evaluating townhomes and condos with HOAs when running numbers

[Eddie Wright]

Hello everyone!

I just moved to Miami just under a month ago, and I'm currently living in Miami Beach (renting). I'm looking to buy my first property using conventional financing (have VA loan as an option or would be willing to do 20% for the right deal). When looking at townhomes and condos, most have HOAs. My questions on that are:

1.) What does the homeowner's insurance typically look like? Does it take into account having HOAs? I'm seeing a fair number of townhomes between 200K-300K, so I'm curious what insurance rates are looking like right now.

2.) How do you factor maintenance/capex into your analysis when a HOA covers certain parts of the property?

Thank you all!

-Eddie

[Bo Bond]

Eddie,

Most condo associations have coverage typically referred to as "bare-walls", "walls-in / original design", or "all-inclusive" style coverage per the governing docs of the association. Depending on what the community has in place will determine how much insurance you buy, and how expensive that coverage might be.  If the condo community has a bare-walls style policy you'll be insuring more items within your unit, where if the condo association has an all-in style coverage, you'll be insuring significantly less items within your unit.  

When it comes to townhomes, that's a completely different ballgame.  Some townhomes can be insured like a single-family home where you as the owner insure the entire dwelling inside and out, while some townhomes are insured more like condos.  I would certainly keep this in mind when looking to buy a townhome or in a townhome community, especially when those townhomes have condo style insurance.  

Below are insurance terms that may (or may not) be found in the governing docs of a condo or townhome association.  It usually depends on how old the documents are. These insurance types spell out what each unit owner is responsible for insuring, versus what the condo / townhome community is responsible for insuring.  Always remember that neither a condo or townhome association will ever be responsible for your personal property / contents as an owner, nor that of any tenant.

For simplicity, "walls-in" is the least amount of protection from the condo association. This insurance type simply means that the condo association doesn't insure anything on the "inside" of your unit. Thus you must insure the entire finish-out of your unit (flooring, cabinets, appliances, wall coverings, fixtures, etc.).

The second type of condo insurance is called "walls-in / original design". This is the most common form of condo insurance today.  This usually means that the condo insures the outside and inside of your unit back to it's "original" finish out by the developer (or at first conveyance). In this insurance type, the condo association would be required to insure your flooring, cabinets, fixtures, wall coverings, and certain appliances back to the way they were at first conveyance to the very first owner.  This would be with similar kind and quality of products in todays marketplace.

The last type of condo insurance is known as "all-inclusive" insurance. The only difference between "walls-in / original design" and "all-inclusive" type insurance is that the condo association's policy would actually pick up coverage for any upgrades made within your unit. This would be for "any upgrade" made by you or any prior owners.  This type of condo insurance obviously provides the "most" coverage to a unit owner, but is also the least likely insurance in most areas of the country. You usually see this style of condo insurance more up in the northeastern and mid-western states.

Hope this helps!  Good luck!