Published February 2001

Research amenities, codes before buying condo

Buying a condominium unit with the intent of renting it out requires close examination of some issues that are unique to condominium ownership. Too often, investors overlook these key areas, leaving themselves with unexpected challenges down the road.

Amenities — Condominiums with a common amenity tend to hold their value better than those without. There’s a reason condominiums are built along golf courses, in swanky neighborhoods or along waterfronts. The theory is that buyers will buy a condominium to gain an amenity they otherwise would not be able to afford in a larger home in the same area. n

CC&R’s — These are the “Codes, Covenants & Restrictions” for the particular condominium owners association that all owners are required to comply with. They stay with the property even as owners change. Buyers who overlook these may be surprised to find out that some of the association’s rules and regulations governing the property have a direct impact on their plans for their particular unit. Make sure you read these before closing the purchase.

Ratio of owners to renters — There are subtle effects of the ratio of owner-occupied units to non-owner occupied units (rentals) that have implications for both types of buyers. Owners who occupy their unit frequently have natural conflicts of interest with those purchasing units in the same complex for the purpose of renting them out.

These conflicts show up in challenges to the level of reserves, for example, to be set aside in the condominium owners association budget each year. Owner-occupied types sometimes have a more long-term outlook and a heightened sensitivity for common-area operations than non-owner occupied units.

When the ratio exceeds 50 percent one way or the other, then the decisions made by the board of directors often will go the way of the majority. For example, if you bought a condominium unit with the idea of renting it out at a certain market rent, and a few months later, the association voted to increase your dues to build reserves for a new roof, you might lose any profit you built into your original underwriting.

Management — Savvy buyers know it pays to look into how the condominium association is managed. Most provide for a board of directors to be elected from among the owners, and this becomes the governing body. Sometimes, the board elects to hire professional management under them to execute the board’s directives. It pays to listen in on a meeting, ask for a copy of meeting minutes or visit with a board member or two before closing a purchase. If you sense that the board is in disarray, you should factor that into your purchase decision.

Condominiums can be solid investment vehicles — or just the opposite. Considering these often overlooked issues can help ensure success.

Tom Hoban is CEO of Coast Management Co., a property management company with offices in Everett, Bellevue and Boise, Idaho. He can be reached at 425-339-3638 or by e-mail to tomhoban@coastmgt.com.

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