All Forum Posts by: John Lynagh

@Aaron M. thank you for the recommendation! https://www.marylandcondolaw.c... looks like a great resource. I will add this to my bookmarks. 

 

@Andrew B. that's my mistake. I meant to write 1 YEARS worth of income in total assets. Sorry and thank you for catching that. I will update the original question to correct it. 

Thank you @Greg Scott and @Mike McDermott. Just realized I never gave helpful context that the Development has 240 Units and has been around for 30 years. I found out the the Association has no special assessments planned for the future and hasn't had one in at least the last 8 years that the property manager has worked there. In 2016 and 2019 I know they spent a good chunk of change (about 66% of yearly income, each time) on capital improvements. So that makes it seems like they have been managing, but I agree it does seem rather concerning. 

I'm in Maryland, so reserve studies aren't mandated, but legislation was proposed this spring to make it so. Given the position I'm in currently, I would appreciate such a law. And it just seems like it makes good business sense.

Again really appreciate you both taking the time to give your input. You have helped a lot with my decision process.

-John

@Greg Scott thank you for the insight! I asked if they have any future special assessments coming up, but will definitely ask about any recent ones as well.

A condo is all I can do at the moment, so I’m trying to make sure I do as much due diligence as possible.

Thanks again, Greg.

Hi Bigger Pockets!

The Condo Association I'm looking to buy a single unit in hasn't had a Reserve/Useful Life Study done in 14 years. They provided me a summary of the last study (done in 2006) but it was not very detailed. The association has a little over 1 month's worth of income in total assets. I know that it's generally recommended for an association to do these studies every 3-5 years. I haven't been able to find anywhere online if not having one for so long is much of an issue in this situation.

I would love to hear the community's thoughts on this! 

Thanks, John

I jut heard back from Property Management which said there hasn't been a Reserve Study since 2006. They seem to be doing okay, by all other accounts. Is this a significant red flag or a sign that I should walk away?

@Russell Brazil that’s a good way to think about it. I just wanted to make sure I wasn’t missing something because of not knowing what I don’t know.

Thanks for replying! Have read many of your myriad replies to other posts, so it’s cool to have you reply to one of mine.

@Ray Johnson thank you. That would definitely help explain things. I have asked for it, but last I talked to the main property manager she seemed a bit overwhelmed (understandably) by a potential COVID-19 case in one of her units and slightly annoyed by my questions. Will keep on it though. Thanks again 👍🏼

@Theresa Harris thank you for responding! It seems the Association is going over budget because they are allocating so much (~35% of income) to their reserve fund. If it weren't for that, then they wouldn't be operating at a loss. I'm just trying to figure out if this is a healthy financial practice or maybe an indication of something gone wrong. In the 2 years (2016 & 2019) for which I have balance sheet data, the Association has used a significant amount of the Reserve Fund to pay off a large Operating Deficit (I'm assuming b/c of some capital expenditure(s) in the previous year, but I wasn't given any documentation about capital expenditures, so I can't be certain. 

Thanks again Theresa :) I'm thinking of contacting a real estate lawyer or CPA just b/c I've heard the agent is not always fit to give this kind of advice and they might not be the most unbiased. 

Hi BP community,

I'm finally purchasing my first property (to start house hacking). I'm trying to do my due diligence in examining the Condo Association's finances and would greatly appreciate your take on my situation.

For the 3 years for which I have Budget data, the Condo Assoc. has been, or is projected to be, over budget (an Operating Fund Deficit) of 6% (2016), 0.5% (2019), and 1.2% (2020). Each of those years, ~ 35% of income is allocated towards funding the Reserve Fund. 

For the 2 years (2016 & 2019) of Balance Sheet data that I have, the Reserve Fund was used to pay off large net losses (I'm assuming capital expenditures?) from the previous year, if that even makes sense. The Reserve Fund currently stands at a little over 1 months worth of expenses. 

To try and preemptively answer some questions from the community, I haven't been given any record of capital expenditures/special assessments and the Useful Life study I have is from 2006, but I've asked for a more recent one.

Thank you so much for any advice, experience, etc. that you can offer. Please let me know if more/other info is needed or if there is a better source to go to for this question.

-John