In this post, I want to share a “cautionary tale” and just a couple of the issues that should be top of mind when buying a condominium; specifically, the all important Homeowner’s Association (HOAs) that are such an important aspect of owning a condo. Recently I was working with my past and current client, Paul Stanwyck, in selling his Burbank townhome that I sold to him way back in 1991. We prepped the unit for sale, and it turned out beautifully, resulting in a great offer that we recently closed. However, before we got started marketing the property, I had to do some homework to find a suitable lender willing to lend on the unit and complex, and that’s where the plot thickens…
The complex is a very simple, self-managed 8-unit building, with no amenities (i.e. pool, tennis courts, fitness center, etc.) and consequently a very low HOA fee of only $200. A situation like this can be great and very cost effective if all owners are willing to do their fair share in assuming roles in governing the HOA and being proactive in terms of “keeping the books,” maintenance, insurance, legal, financial and other issues which all go into running a viable HOA. In our case, the challenge was back when the building was built in 1980, an engineer that worked on constructing the building, I guess liked his work so much that he and his wife bought 3 units for themselves and held them all these years as investment rentals. Well, most conventional lenders have a threshold as to how many units can be owned by one entity/party and have a maximum allowable number of rentals vs. owner occupied units in any given building. In our case, three units were one too many! The engineer husband had died several years ago and his elderly wife was still content keeping the three units as rentals. Fortunately, before we went on the market, I had found a lender that could do the loan as long as the Buyer had more that 20% down. Coincidentally, the Buyer, who put 70% down, was using the same lender… so it all worked out. But going forward, this current dynamic of one owner owning three units and the majority of the building being occupied by renters could prove to be problematic for the other owners that may want to eventually sell. The HOA should address this issue and perhaps change the CC&Rs (covenants, conditions and restrictions) to make the collective building more lendable, hence more valuable for everyone! This story is just one example of why if you own or are considering a condominium purchase, you must be involved with the governing HOA – it’s a HUGE part of what gives value and continued appreciation to a condo unit OR diminishes it!
