Condo/Self-Managed Bldng
Hi, My wife and I are first time buyers and we have had an offer accepted on a beautiful 2br condo. Trying to learn as much as possible about condos, brownstones etc, but I do have a few concerns about this place! It is a 3 unit, self-managed building. We got the finances and they…
Hi,
My wife and I are first time buyers and we have had an offer accepted on a beautiful 2br condo. Trying to learn as much as possible about condos, brownstones etc, but I do have a few concerns about this place!
It is a 3 unit, self-managed building. We got the finances and they are currently about $500 in the black. The building was gut renovated about 15 years ago and my broker and attorney assure me that since it has such minimal costs the finances are in good shape. Also, there are no assessments on the horizon.
Is that a typical sort of scenario? I am happy to move into a self-managed building, but are there any other questions that we need to be asking?
Any advice much appreciated 🙂
Thanks.
You can tell a lot by just doing a walk-through. If everything looks in good condition and well maintained, I wouldn’t worry too much.
I’d definitely at least demand to meet the other two owners. You should be able to get an idea of what type of people they are just by having a short conversation.
Usually, it really is possible to judge a book by it’s cover — at least in real estate, that is. . .
I am in a small condo where we self manage. Our “Reserve Fund” is generally for things like future projects we want to do, i.e. upgrading common area elements, facade work etc. and it is also there for unforseen repairs. We try to maintain around 10K in the fund but it could be significantly more or less depending on what projects we have completed or are in the pipeline.
In general, anything major like a water main or accident is covered by our insurance policy. If we need to repair the roof or something similar, we will have to all pony up the funds through an assesment. If one cannot pay, obviously a situation arises where we would be forced to invoke power of attorney rights all owners have over each other. Worse came to worse, we would go forward with the repairs and then sue the non-paying party even resorting to foreclosure if need be.
This is a remote but still possible risk in owning a condo. However it is no different than the same risk you take on when buying an entire property yourself, only in this case you are spreading these costs out bewtween multiple parties. There is no way you will get any meaningful finacial info on the other owners prior to purchasing as this is not something that would ever be disclosed. The only useful info will come from an inspector’s/Engineer’s report on the building.
Wait, so is this a co-op or condo? “Maintenance” is typically a co-op term and “common charges” is typically the analogous payment for a condo, but without the tax portion since you pay your own. You called it a condo but refer to maintenance.
In any event, you can ask for minutes to see if any upcoming work was discussed, but I imagine in a 3-uit building, minutes won’t be formal or exhaustive, if they exist to do anything besides record votes. People just talk to each other as the need arises. Doubt you’ll see “vice president reminded us we need to replace the boiler before next winter” in the minutes.
Rely on the inspection and then ask questions. $500 reserve is low. $20k is excessive. Good rule of thumb is $1-2k/unit. $500 reserve means you essentially need to reserve your own funds as if it were your own home.
Good luck.
“Self-Managed” means you three owners do all the maintenance. Meaning, put out the garbage, shovel the snow, clean the common areas etc. Also someone has to deal with all the finances. This is a condo? sounds like a coop. If its a condo and you think the taxes will be 4800 a year, is that for just the unit or the whole building. As far as having a reserve fund for whatever comes up, even an inspection is not going to predict the future. ANYTHING can come up and that is why you have a reserve. If you really love it, buy and then sell it in 2 or 3 years to a place more secure.
well, I kind of disagree. in a building this small, a 20k reserve fund might be appropriate but it would also really give you a false sense of security. since it’s a condo, I’d be more focused on whom you’re getting into bed with. say there’s a water main break AND a facade issue in one year. A 50k combined expense. Can everyone pony up their share? Can everyone just generally afford the place? I’d want to look at when the other people bought in, if they’ve done a cash-out refi, and their employment history. Honestly, if the inspection doesn’t turn anything up, if the other owners bought in at conversion (and have a low mortgage), and if they’ve all been working at the same place for 10 years, I wouldn’t be too worried that everyone will be able to kick in if something comes up. Just bcs it’s self-managed doesn’t mean they’re aren;t financials and minutes. Look into them.
In trying to predict future assessments, you might want to ask if the seller will allow access to the board’s meeting minutes. I believe this is statutory for coops but I don’t know about condos. Anyway, if you can read a year or two of minutes they may flag some ongoing issues that have been discussed (which the broker is unaware of, and which the inspection may not turn up).
ditto comments above. having no reserve fund is scary – but as denton said – if they just exhausted the reserve fund it needs to be replenished.
I was treasurer of an 8 unit coop in park slope in the 90’s, and we included a deposit to the reserve fund every month until we brought it up to about $10,000. You certainly don’t need that large a fund – but its got to be a few thousand – or everytime you need to buy a new snow shovel you’ll need an assessment.
As for assessments down the road and the opinion of the board – there are only 2 other members of the coop board besides you should you buy. They probably have no idea – until or unless they realize that they have to replace something and are short the cash.
It sounds like a good building for you – but suggest you consider volunteering to become the treasurer to get them on a proper financial footing, and fast!
“Is there any definitive way to find out if anything is coming up? I guess having the unit/building inspected is the only way.”
You’ve pretty much nailed it, if there’s nothing that can break, there will be less need for an assessment. However, if there’s no reserve fund, even the smallest expense will need to be assessed. Check that out.
Maybe there’s no reserve fund cuz they just used it to buy a new boiler. That would be cool, but they’ll need to replenish it.
If you’ve done your due diligence as suggested above, and you like the place, and can get financing, by all means go for it. Just keep in mind that these days there’s a lot of 2br condo inventory available, if you’re not satisfied with what you see walk away, there’s plenty else available.
There’s nothing you’ve posted that can classify you as sheep off to slaughter.
-A reserve fund is essential, and should be several thousands of dollars, not 500. As part of maintenance on my 2-fam 4-storey, I put aside 2000/yr.
-If it was truly ‘gut’ renovated, 15 years is fine. It’s practically new. Even roofs last 25-30 years with maintenance. Boilers can last 40. Plumbing and electrical also. The engineering report will soothe (or not) your fears. Also remember engineers tend to blow up small issues.
-Why not just ask the board about special assessments at the interview? or sooner? Assuming reasonable people, there’s no reason to hide it.
Due diligence is good. Being terminally risk-averse is not.