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3 things you must know before you buy a condo on Maui - Part 3

By
Real Estate Agent with Aloha Group Maui

In the previous posts we described condominium associations in Maui http://activerain.com/blogsview/2403151/3-must-knows-for-buying-maui-real-estate

And how much your association fees should be http://activerain.com/blogsview/2404863/3-things-you-must-know-before-you-buy-a-condo-in-maui-part-2

You should carefully review the condominium documents before buying, but what should you be looking for?

What to look for…

The first thing I look for is the financials, the profit and loss statement and the balance sheet.  If you are not comfortable reviewing the financial statements, have your accountant look them over for you.  We’ve received P&L’s with sections, such as the manager’s salary, whited out.  We’ve received statements that were 2 years old.  Of course, those are exceptions.  Usually, the statement will be in order.

Next you want to see the budget.  Again, if you are not comfortable with budgets, get your accountant to look it over.  You are looking for reasonableness.  In order to determine how reasonable these numbers are, it will be helpful to have the reserve study.

The reserve study tells you the useful life of capital items such as roofs, pools, parking lots, etc.  They also tell you the estimated replacement cost for those items and tell you how much money should be held in reserve. 

By law, condominium developments in Hawaii must choose one of two methods for establishing reserves.  They are required to hold a either a minimum of 50% reserves determined by the reserve study or the so called cash method which means they will have enough cash in the account to cover capital expenses in the upcoming year. 

Many realtors and buyers rely on the law.  However, it is not all that unusual to find that a development is under reserved.

Being under reserved doesn’t necessarily mean you should reject the property, but you should proceed with caution because the lack of adequate reserves can result in an assessment or cause some needed maintenance to be deferred. 

An assessment is levied when the reserves are not adequate for necessary repairs or replacements or sometimes, just to get the association back in compliance with the law.  The assessment can range from a few hundred dollars to tens of thousands of dollars per unit. 

If you are buying a foreclosure or in a complex that has had a number of foreclosures, there are other things that you need to look out for, but we’ll cover that in another article.

If you are planning to use your new Maui condo as a rental, you will want to read the next blog on 3 things you must know before you buy a condo on Maui. Or read the entire article 3 things you must know before you buy a condo on Maui.

And visit our website for other information about owning real estate in Maui and Hawaii, www.AlohaPotts.com.

Lahaina Lee Potts

Lee@AlohaPotts.com

 

Comments (1)

Simon Webster
CRE Credit Services - Plano, TX

Good information! 

Jul 18, 2011 05:43 PM