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9 Steps to Buy a Great Townhome or Condo

From the Lender to the HOA, there is a lot more to investigate when buying a townhome or condo.

Here are the Top 9 items to evaluate when buying a townhome or condo

1)      Lender: There can be extra rules about townhome and condo lending!

Lenders have extra rules when it comes to townhomes and condos. Some lenders require two-thirds of the complex to be owner-occupied, others require no more than 10% of the units rented out. Talk to a few lenders before you go shopping, and make sure to work with one who can finance the type of property you want.

2)      Rules and Restrictions: Read them before you buy

Living in a Home Owners Association (HOA) means abiding by community rules and restrictions: where to park additional vehicles, number and type of pets, and limits on modification of your unit to name a few. There may be rules about renting out your unit too. Rental restrictions also help maintain complex stability, which can help keep property values higher. But tight rental provisions may cause you trouble if you want to move later but can’t or don’t want to sell.

In shared ownership, you can be fined for not following the rules. In some cases the HOA can even foreclose on your property for failure to pay the fines. It’s hard to change the rules, so make sure that they work for you before you buy.

CC&R’s are the conditions, covenants, and restrictions including the architectural requirements. The Bylaws explain how to run the association. Ask questions about anything in this material that you don’t understand. Make sure to get responses in writing from the proper authority.

3)      Owner Responsibilities versus Shared Responsibilities: The division of labor can differ in every complex.

Find out whether all the utilities are separate and paid by you alone or whether they are shared and paid through the HOA. Are you responsible for maintenance and repair other than the inside of your unit? The yard or driveway might be yours to tend to for example. In some townhomes, roof repair may even be your expense.

4)      Check the financials: Reserves, insurance, litigation history, and trends in assessments and rates are all important.

Request and review HOA information on reserves, insurance, litigation, past special assessments, and the history of rate increases. Seek an accountant’s advice on the material.  The association’s reserves must cover it’s responsibilities. Insufficient reserves will lead to unexpected special assessments or large rate increases. Special assessments are one-time or ongoing fees assessed to compensate for an association budget deficiency.

If there have been special assessments or large rate increases in the past, inquire about them. Regular, moderate rate increases are normal. But a history full of special assessments is a warning sign. Litigation is also a warning sign that should be carefully investigated. The association also needs to carry sufficient insurance to cover the complex at all times in case of a catastrophe. Check to make sure that sufficient insurance is currently in place and has historically been in place without fail.

5)      Reasonable Monthly Fees: Fees should be good but not “too good”

Operational costs for common area maintenance, reserves, utilities, parking, legal costs, and other necessary expenses are funded by monthly fees. If the building is older, then the plumbing, electrical, foundation, and other major systems throughout the complex are more likely to need repair or replacement sooner, so association fees are often higher in older complexes. A new complex may offer lower fees, but you take a risk of whether the Board will run smoothly.

The bundled rate you pay for services in an HOA may be less than what you would pay in a single family home. But if the cost seems too good to be true, it might be. If association coffers run dry, services and maintenance suffer and the property values in the complex decline. The alternative is a special assessment or rate increase levied against you to cover the deficiency. So make sure the monthly fees adequately fund operating expenses and reserves.

6)      Location: Complex within the community and unit within the complex

You can usually buy a townhome or condo in your favorite location for less money than for a single family home. Select the location that is most convenient and enjoyable for you!

The unit’s location in the complex can affect your lifestyle, the price you pay, and your resale value. Is the unit close to the entrance/exit of the complex or close to the pool? More noise. Is it near parking and laundry facilities? Less hassle. Does it have a great view? High resale. The quietest locations farthest from the entrance/exit, most convenient to needed facilities, and with the best views tend to cost more but are the easiest to resell for the best price.

Examine the flow of traffic in the complex too. Come by at rush hours prior to purchase to see whether traffic flows easily and whether there is enough parking.

7)      Neighborhood: Talk to the neighbors!

There is only one way to really know about a neighborhood – talk with the people who live there. If you plan to move in, you want to know that you’ll enjoy the community.  Neighbors are usually happy to talk to you and will give you the good with the bad about the complex management, facilities, and services – just knock on their doors and ask

Consider safety too. Make sure the complex is fully fenced and ask what additional security measures are in place. For more details ask the HOA to turn over any incident reports or call the police station for a detailed record.

8)      Appearance: Appearance says a lot about the management of the complex

Weeds, overgrown shrubs, peeling paint, and broken equipment can be warning signs. Deferred maintenance usually mean that the Board is not functioning properly. A rundown appearance often indicates bigger problems than what you can see on the surface.

Exterior condition is just one measure of the HOA, but it’s a good one. You need a Board that runs properly to make sure the maintenance is carried out dependably.

9)      Physical Condition: Make sure your investment is in good shape!

Always hire a professional home inspector prior to purchase. The inspector should carefully examine the physical condition inside your unit as well as the common facilities that service your unit. If there are problems, the repairs should be completed prior to closing. If everything is running just right, you can complete your purchase with confidence.

Consider also physical appearance and amenities inside the unit. If it’s a little outdated when you buy it, it will be really outdated by the time you sell it unless you remodel. Consider the kitchen, bathrooms, lighting, flooring, doors, and trim. A useable layout is also very important because it usually cannot be changed. If there is no washer/dryer hookup in the unit, it usually cannot be added later on. Most importantly does the price match the condition?

Follow these 9 steps to buy a Great Townhome or Condo!

For more information, check out the previous blog on the differences among condos, townhomes, and houses.

When you’re ready to buy, we would love to help. Call or text anytime 719-581-3115.

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