Real Estate Investing Basics

What Everyone Should Know About Condo Ownership (But No One Tells You)

2 Articles Written

I took one look at the sparkling new kitchen and fancy mosaic backsplash, and I was ready to sign my life away. Like many buyers, I had a list of criteria for my new condo: one bedroom, washer and dryer in the unit, assigned parking, and it had to be pretty. As a responsible homeowner of a pretty condo, I attended my first annual meeting. I was nominated and elected to serve on the board as president. Fast forward one year later, and I'm less than enthusiastic about my title as homeowner and president.

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After eights years on my board, I started my career as a community association manager, and I was shocked to discover how other buildings operated. There’s a lot I didn’t know when I purchased my condo that I wish someone would’ve told me. Whether you own a condo or plan on buying one, there’s more than shiny countertops you need to be aware of. Let’s begin.


They Can’t Do That!

You’re right, they can’t — but that doesn’t mean they won’t. Unfortunately, I hear this all the time. Either management, the board, or both are sidestepping the rules or the law. Homeowners often reference their governing documents and the law as though they’re enough to inspire compliance. That’s like assuming that speed limits will stop people from speeding.

Who is to blame for this? An apathetic group of homeowners that left the burden of managing the association to a select few — or worse, management. It’s not management’s job to serve as your board. The only group that can effectively “enforce” the rules are the owners, and if they stand back and do nothing, they’re just as guilty.

Related: What Investors Should Know BEFORE Selecting Condo Insurance

If you suspect that your board or management isn’t meeting their obligations, it will be up to you and your neighbors to correct the problem. This may result in the removal of board members, management or both. If you’re “phoning it in” and assuming someone else will take care of it, you have no room to complain when your treasurer skips town with your money. This applies to investors as well. You’re not exempt from serving on the board and protecting your investment.

Joe Blow is Running Our Board

Congratulations, you elected him! Are you having trouble remembering when that was? I’m sure you had a good reason for skipping the annual meeting; everyone always does. In most cases, the association is required to have ONE annual meeting of the members. Typically, the timeframe is specified in your bylaws, so it should not come as a shock when you get the notice every year. I said “notice”; it’s not an invitation for you to consider.

When owners skip meetings, sometimes the guy in the back volunteers for the board because there’s NO ONE ELSE IN THE ROOM that’s willing. More often than not, associations barely make a quorum. Sometimes it’s the same people that show up month after month, year after year, and many of them have already served on the board. That, my friends, is how Joe Blow becomes Mr. President Blow. All he wanted was free refreshments, and now he’s in charge of your non-profit corporation.

You don’t need to possess any skills to serve on the board, and typically there are no qualifications other than ownership. Scary. In the corporate world, board members are generally highly educated, professional individuals who have obtained specific educational achievements that qualify them to be in the position to which Joe Blow was elected. I’m not suggesting that board members obtain a business or finance degree.  However, familiarity with the laws that pertain to the Association is prudent.

The bottom line is that your absence is what allows this to take place. If you don’t plan on volunteering for the board over the course of your ownership, do us all a favor and buy a house.


Related: Why I Choose to Invest in Condos & Townhomes Over Single Family Residences [With Example Analysis!]

Self-Managed is Self-Destructive

I once took over a self-managed building that hadn't tested their fire systems in seven years. In most states, this is an annual requirement. Fire testing reports aren't included in the resale certificate, and most people assume tasks like these are being taken care of. Can you imagine the liability the board would face if owners perished in a fire that could've been prevented? Associations cannot afford this kind of risk nor can you as a future homeowner.

Without the guidance of a community association manager like myself, board members may not know what’s required to operate a building resulting in serious oversight. In this case, no one on the board knew that annual testing was required.

Managing your own building is like doing your own taxes — you save professional fees, but you’re likely to pay for all the errors you make by simply not knowing.

If you're thinking, "That's it?!" then stay tuned for part two. I'll discuss another round of topics that even the best real estate agents can't prepare you for.

Are you a condo owner? What would you add to this article?

Leave your comments below!

Nicole is a community association manager currently studying for her PCAM designation which is the highest professional recognition available nationwide to managers who specialize in community asso...
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    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied over 4 years ago
    Exactly! Nicole – you’d be surprised to know how many times Iv’e written about this, and how many people want to argue 🙂
    Nicole Sorensen Hull Community Association Manager from Seattle, Washington
    Replied over 4 years ago
    I know how that is @Ben
    Willem Botha Investor from Centurion, Gauteng
    Replied over 4 years ago
    For what it is worth, this is true for South Africa (and probably) the rest of the world. Owner always want to complain about everything, but they are not willing to spend a few hours a year to be involved. I stay in a “security complex” as known in South Africa and see it year in and year out. I also own a flat and as mentioned above – the 5 of us showing up for the annual meeting are “elected” by default to manage the building. The only good thing – if you get 5 people that have the best interest of the building at heart – you can turn it around (with time) and make a suspect investment a very good one. Thanks for the article / confirmation. I am in the process of getting money together to invest in the USA and condos is still on my list of option.
    Nicole Sorensen Hull Community Association Manager from Seattle, Washington
    Replied over 4 years ago
    @Willem, you’re right about that, there are good condos because there are good people running them. Good luck with your U.S. investments.
    Kara Haney Investor from new york, nj
    Replied over 4 years ago
    it is scary – many people prefer paying a few extra per month to hire a manager, but will not take any time to figure out what management is, or is not, doing. realtors sometimes aid and abet this attitude saying – oh it is a condo(coop) – managment does everything for you so you have no worries….
    Nicole Sorensen Hull Community Association Manager from Seattle, Washington
    Replied over 4 years ago
    @Kara you’ve made a good point, realtors can mislead buyers by telling them that everything is taken care of, that is a gross misrepresentation of how associations work. The ultimate responsibility lies with the board. Thanks for reading !
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied over 4 years ago
    We have a couple of condos, but we tend to avoid them because, well basically HOA’s equal the devil. Indeed, I prefer the one’s that just leave you alone, but then you do have to worry they might be negligent in some of the things you mentioned.
    Nicole Sorensen Hull Community Association Manager from Seattle, Washington
    Replied over 4 years ago
    @Andrew, thanks for reading! You make a great point, they are tempting to avoid but then it’s important for owners to remain involved so that there’s accountability.
    Debbie Lu Investor from San Diego, California
    Replied over 4 years ago
    Thanks for writing this, Nicole! Your posts and articles have been very valuable in helping me understand HOAs better.
    Nicole Sorensen Hull Community Association Manager from Seattle, Washington
    Replied over 4 years ago
    Thanks @Debbie! I recall your post in the forums. I hope all works out well for you, thanks for reading.
    Paul Salmela
    Replied over 4 years ago
    Nearly all my rental properties are in an HOA and there is a big difference on the competency of the various boards. Some of the boards are run top-notch, others could be run better by a pre-schooler! I have found that It\’s very difficult to get this kind of detail before purchasing a property in an HOA unless you really do your due diligence.
    Nicole Sorensen Hull Community Association Manager from Seattle, Washington
    Replied over 4 years ago
    @Paula, thanks for reading! You hit the nail on the head. It’s hard to know what you’re walking into.
    Nicole Sorensen Hull Community Association Manager from Seattle, Washington
    Replied over 4 years ago
    Correction, @Paul
    Philip Kauppila from Oklahoma City, Oklahoma
    Replied over 4 years ago
    I was on the board of a HOA (single family homes, not condos) for 6 years. I think the main thing I learned is if the board is taking care of business prudently. Example, we had several homes on sale that were delinquent with their dues. The real estate agents did not even know that there was an HOA and that their clients owed dues. We started faxing the agents the correct information. We also started taking severely delinquent residents to court. Once we were taken seriously, our delinquent rate was less than 5%. (And, oh by the way, our annual dues ran about $150-200 per year with private security an extra $50 per year. Even with that, we had some owners delinquent by $1000-2000. ) I think I would want to get a record of the treasurer to see how the budget looks. I would think that this is even more important in a condo, since repairs and maintanence comes from these funds. And oh yes, you need to get a sense of how strictly the covenants are being followed. This can go both ways, from being extremely picky to ignoring real problems. Also, some boards will just throw money at a problem to shut up some extreme complainers. Actually, now that I think about it. I think I would go to a few board meetings to get a sense of what they are doing before I decide to invest in condos in a particular building. It would give you an inside look at how healthy the finances are in that development.
    Nicole Sorensen Hull Community Association Manager from Seattle, Washington
    Replied over 4 years ago
    @Philip I think that’s a great idea if the board will allow a potential investor to join the meeting. I wonder how that would work, I will have to do some investigating. You make excellent points though. Thanks for reading!