Condominiums are essentially single family homes or apartments that are usually governed by a board. Some investors avoid these properties because of past bad experiences. While the cost of these properties varies greatly depending on the location of the condo community, they can have very specific issues in common.
There are exceptions to all of the statements that will be made below, but in many cases if you are involved in buying and owning one of these properties, you can be getting into a major headache and lose tons of cash very quickly. Following are some of the unusual aspects of these types of properties that investors must be aware of:
- The condo association rules can change at any time by a majority vote of the board members. This means that renting units was OK on one day and the next it is not.
- Condo association boards can be sued but in most states the board members have no personal liability, so they can be outright vengeful in their actions against owners and not have to fear prosecution.
- Condo associations can literally go bankrupt if condo owners don't pay their assessments and monthly fees. This can result in the building falling into disarray and a substantial loss of equity for the remaining owners.
- The regulations for renting units vary greatly. In some cases there are no regulations; in other communities the owner must have owned the unit for two years before renting it. There also can be regulations on how many times a year a unit can be rented, for example once in 18 months.
- Assessments are unlimited monetarily if other unit owners decide not to pay. The remainder unit owners have to pick up the slack; or the reason for the assessment (new roof) may become serious to the wellbeing of the unit owners.
- Legal fees to fight a condo board's action are charged to all the unit owners, so the board has no legal fees or their fees are reimbursed by the association when the law suit is completed.
- Most associations require a buyer to be screened and this can lead to abusive actions by keeping a qualified buyer out of the community.
- With great power comes great responsibility, and this power is often abused by one or two unit owners who use the association's rules and regulations in an abusive manner. No children in the complex can be enforced so that even grandchildren coming to visit their grandparents have to leave the same day - no overnight stays!
It is safe to say that anyone looking to purchase a condo for the reasons of security, lack of maintenance or as an investment, should carefully look at the association's bylaws and rules and regulations so there are no surprises later. While it is a generalization, the older the board members, the less flexible they are in dealing with unit owners so interview the board members before you make a purchase.