an asssesment was done at my condo project, and it turns out tons of emergency repairs are needed. estimates range from $2-400k. Also non emergency repairs / phase II repairs costing up to $12,000,000. They'll be taking out a loan. I'm not sure if this will be considered a mortgage as I question if a bank would consider this dump a security (wow, I just truly realized why the term 'security' is used for stocks assets etc.) , but I will consider this loan a mortgage as I am now obligated to an amortized commitment to my home that I bought outright with no mortgage 2 years ago. Although not using the word "mortgage" the letter sent out by the hoa seemed to define this 'loan plan' as such. I wonder if we'll get approved? And if we do, what LTV will we be capped at? Oh boy.
Anyone have any experience with something like this? I don't know exactly but I'd say my complex has 75 units, 1 and 2 bedroom places. Current HOA fee is $300 a month. If i'm now on the hook for lets say 150,000 of a 12 million dollar debt not including what I'm sure will be a hefty initial payment by all owners, I'm looking at a sizable monthly payment / increase in my hoa fee. Is it possible we'll all be paying another grand on top of our HOA due?? I just can't fathom how this is going to work. I have a tenant in there now and I'm wondering if I'm going to even break even at this point. I wonder how she'll react when I tell her they are planning on ripping the exterior siding off every building to inspect for termites and water damage. How they may have to replace drywall. I'm sure the place will be a noisy construction site for at least a year.
I want to avoid pointing fingers, but we put our trust in an HOA to take care of things, to separate and insulate ourselves from the emotional responsibility of maintaining and protecting the value of our property. We pass this duty and responsibility onto the organization by making our monthly payment; so it would seem. But we really don't when it comes down to it. Trust can lead to ignorance, and when it comes down to it, I am the owner and am responsible for repairing the dilapidated home that I purchased. Before my purchase, the home inspector advised I apply some calk to the corner of the tub, that the AC might need to be replaced in 5 years, and all else looked pretty good. I wonder how many of my fellow homeowners will walk away from their mortgages?
Sorry to hear that Chris. HOAs in condos can be very tricky bests indeed via membership dues and special assessments. I am not able to fully answer your question but I would suggest that you get a copy of your condo bylaws and insurance policy ASAP and read them. They will break out who is responsible for what and how special assessments and major repairs/betterments and improvements go.
@Chris M. OK let me make sure I am clear you have a property that has repairs of $12 million dollars, correct? And what is the value of this property?
@Chris M. Ask questions. I sold my condo just before they took out a loan. The person who handled the loan was on the condo board and did NOT report that to the owners. He pocketed a hefty commission and quickly sold his place. Three years later they are still doing the repairs that they got the loan for and many were not necessary and could have been done over time if the condo board had properly budgeted for them and saved. It was my first condo and until I got another, I didn't know how badly run it was. Yes they did special assessments quite frequently, but it wasn't always on things that were needed (replace the water pipes as they were old and kept leaky-yes, add a playground for the kids and spend tens of thousands on landscaping when it already had nice, low cost landscaping-no). We did vote some down. The new condos I have do renovations (new roof, new siding, new flooring in the halls), but there are no special assessments as they've budgeted for it in the fees and saved for it.
Talk to them and find out how much the payments are and what happens if you sell. I was getting ready to put my unit on the market when they had a meeting to discuss this. They didn't have the answers to those basic questions which sent up red flags. When there are 275 units in the complex, they should have known that information as there are always a few units for sale.
@David Wright I have no idea. It's a condo complex with maybe 75 units or so. My unit value before this was around 90k 1/1. I would imagine imagine now since the HOA will be in considerable debt the value of the property will decrease proportionately to the increase in the monthly due. They investigated selling the property to a developer as is but couldn't get enough money to âbuy out' existing mortgages.
$12M in repairs for a complex with 75 units is $160K per unit. Surely you could build an entirely new condo complex for that price.
Yes, it happened to me, I bought some condos in Springfield MA after a real estate crash, $125K condos went for $40K. The complex has 104 units. Held it for ten years. Then they were talking about $1,000,000 in roof repairs, expensive, as it was landmarked. They were discussing how to handle it, like getting a loan being one, and increasing HOA fees being another, or a special assessment being the third. By then, the condo prices went back up to $100K, so I sold it at that, gave the buyer $5K off for the risks.
wow sounds like if the units are worth 90k and you need 150k.. something is goofy.. you have a functionally obsolete building that should be torn down.. and rebuilt. ?
@Chris M. this is why I got out of condos. Had some nice ones but the biggest problem is board members usually don't know what they are doing and get intimidated by threats of lawsuits from the boards attorneys-so you will need a large engineering outfit to assess the situation and several very large contractors, architects, project manager to oversee the contractors and of course the attorneys will need to oversee everything and will dragout the contracts and negotiations and of course the board can't negotiate financing and before you now it a 1 million dollar project costs 10.
@Jay Hinrichs I know. That's just the math from what they said the project would cost / unites roughly. They said the repairs were extensive and very expensive so I'm not sure how it's going to work out and how it all exactly calculates. I have a smaller unit so my portion I assume would be a smaller proportion just as my HOA is lower.
@Frank Chin thanks for the post. My place has less units and the estimate is 12 times as much. I can't imagine being able to sell this thing with what I imagine is going to be a very high monthly HOA due and a balance sheet of debt.
@Chris M. This sounds like a horror show.
Are you investing more in repairs than the ARV of your unit? If so, I'd consider walking away. Tell the HOA they can take your unit. Why invest another $150,000 in a unit that's ultimately worth less?
Maybe rent it out for the time it takes for the HOA to foreclose and recoup some of your money.
But before you do that, I think it's time to get hands on with the HOA Board. I'd want to see an itemizes list of repairs and the cost estimates for each. Then I'd talk with some contractors to be sure that the estimates received are on the level. Make sure that none of the board members are in cahoots with a contractor and getting kickbacks.
This seems like a pretty radical case of mismanagement. Maybe buy an hour of an attorney's time and see if there's any recourse?
Best of luck. It sounds like you'll need it.
@Charlie MacPherson I found share unit which looks like my saw footage divided by the total saw footage x 12 million equals about $30,000. I'd guess logically that'd be my share. And yes a horror show and good idea to spend a few bucks on a lawyer. I always looked at the HOA due as insurance you pay a monthly amount pooled together with others to cover unforeseen costs. The whole thing breaks down though when you pay full price for something that is broken. Only in Florida, the land of ignorance, the punchline of the United States.
@Chris M. If it's 12MM, I agree with @Charlie MacPherson The capital loss from walking away--to offset other gains--may be the most value you can get out of it. Auction it to get whatever you can? Sell to your tenant? It's a matter of cutting your losses or waiting a long time before you make money again.
However, if it's 2-400K emergency repairs (~5K per unit?) plus other expenses that are still subject to discussion and voting among the owners, it might be worth voicing your concerns with other owners and holding on to see what happens. Maybe some of the non-emergency/Phase II stuff can wait. Maybe the loan won't get approved for the full amount.
@Chris M. that sucks man, that's really gross. It sounds like you're best bet is to walk away. If you don't want to do that, definitely look into quotes for what's wrong. Demand the HOA tell you what the repairs are for, use a lawyer to get that information if you have to.
Honestly, it doesn't sound like its worth the headache
HOAs and condo regimes can be tough, but plenty of people will warn Buyers. Best bet is to figure the fastest timeline pre assessment, then optimize your exit before that date. Maybe sell, maybe rent.
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