Nightmare Condo Association- What to ask before you buy

[Kerri Forrest]

Hi everyone, I'm sharing this horror story to hopefully help other new investors, particularly those who are doing BRRR. I recently purchased a beautiful condo in a gorgeous location using a conventional 30 year fixed. My strategy is to live here 3 years, do some minor upgrades, then rent it out and purchase my next property. What I wasn't expecting is the COA is a DISASTER. No money in savings, roof is due for replacement, the previous administration cut a lot of corners, AND there's a hostile neighbor. Now, while some of this was unavoidable because the association did not provide factual documentation, and didn't disclose the rob-Peter-to-pay-Paul atmosphere of not requiring owners to pay their association assessments on time and in full, I am sharing what, in hindsight, I would have done differently:
1. In addition to asking for the last 2 years of meeting minutes and the bylaws, I would have asked for financial statements. If I'd had access I would have seen the discrepancy in the association assessments, among other things. 

2. I would have talked to the neighbors. I could have possibly gotten a heads up on the hostile neighbor. 

3. I would have asked how recently were the master deed and bylaws updated to sync with state law. My property was built in 2003. Although there were mentions of changes in the meeting minutes, none were filed with the secretary of state's office. In addition, many of the old provisions needed to be updated. 

4. I would have asked when the last reserve study was completed. It's pretty obvious that there hasn't been one since the association's inception which means the past administration was not being clear eyed about the future and the buck got passed ... to me and the other new, unaware owners. 

5. Tied to #4, making sure the insurance policies have enough coverage. The replacement cost 5 years ago v the replacement cost today, particularly in a market like Charleston, can have a significant bearing on the policy costs. 

There's more but I'd be curious to hear what others have encountered. The funny thing is, when I spoke with my realtor about the situation (post - close) and asked her what additional due diligence should have been done, she said, "you asked more questions than most of my clients." Scary to think that I thought I was doing my research and I still missed some big red flags. 

[Richard F.]

As a now retired PM that was Managing Agent for multiple Condo/HOA's over a ten year period, I can tell you some horror stories!

I try to always inform when anyone mentions the dreaded C word here, but rarely get any request for further info. You are correct, the Association Financials are critical, but most important are the actual Annual Operating Budget and the Reserve funding Plan for the current year. Reserve Studies are great, but keep in mind that a certain amount of the info in them comes from the project's own Board. Also, estimated costs of individual elements are often not realistic, for a variety of reasons; and the remaining life of elements is often "adjusted" to help the Board achieve their desired results of NOT increasing the monthly fees. Of course, this is contrary to their mandate, which is to "maintain, protect, and preserve ALL common elements", and plan the budget and reserve funding to accommodate that goal.