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Is condominium living right for you?

By Chuck Miller

Education & Training with Chuck Miller Education Services LLC

April 25, 2008 02:09 PM

Condominium Living Offers Convenience, Amenities and a Good Return on Your Investment.

Is condominium living right for you? According to the National Association of Home Builders (NAHB), condos are now an important housing option for home buyers nationwide. At the height of last year’s wave of new condominium construction, condos represented nearly half of all new multifamily building, with that rate forecast to stabilize at about a third of the multifamily market by late 2008.

Why are people choosing condominium ownership? Many home buyers find that condos offer advantages that a traditional single-family home doesn’t.

Many empty nesters thinking about enjoying their freedom now that the kids are out of the house are purchasing condos. Active seniors—especially those who once lived in urban areas—are returning to downtown areas, leaving behind the larger house, yard maintenance and the daily commute. If you fall into this category, you may want to opt for a smaller, easier-to-manage condominium home that’s not only close to your job, but also near shopping, dining and entertainment.

Baby boomers anticipating retirement frequently purchase condominiums or townhomes in areas offering a favorable climate, a variety of recreational opportunities, cultural attractions and easy access to good medical facilities. Some purchase condominiums or townhouses near their grown children and grandchildren. These may be primary residences or secondary homes. Keeping a second home tidy and undisturbed when you are not there can be a hassle. However, when you purchase a condo most of the unit’s upkeep is covered by your monthly condo fee, whether you are there or not.

As I have noted in previous blogs, most of the rapid unsustainable appreciation in the price of houses in the past few years was the result of increases in the cost of land. An NAHB study on construction costs for single-family homes in 2007revealed that the raw land cost represented 10% of the cost of a new home. Because condominiums and townhomes projects typically are higher-density developments (more living units per acre) than single family detached home projects, the raw land cost is spread over more units. For this reason, the cost of condominium is generally less than that of a single-family detached home of similar size and quality.

Even though rates have risen slightly, mortgage interest rates are still near a 45 year low. Young people may find that purchasing a condo as their first home can be both more financially attractive and more feasible than you might have anticipated. They may consider the purchase as a step towards affording a more substantial residence later. Many of today’s condos are located in downtown in neighborhoods where young professionals congregate.

Condo can also be a good stand-alone investment. You might find that it makes financial sense for you to purchase a condo in a university community like Boise as an investment – one that can be used by your child during his or her college career, then rented or resold after graduation. You could purchase a smaller used single family home, but multifamily developments built to be sold as condominiums often feature value-added amenities and services not found in older existing neighborhoods.

I don’t know about you but I have can think of much more enjoyable ways to spend my evenings and weekends than mowing the lawn, pulling weeds, or cleaning the gutters. That’s why I chose a condominium. When you invest in a condominium, many everyday maintenance activities are no longer necessary, and the few that are generally are covered by your monthly condo fee.

Are you empty-nesters or soon to be empty-nesters? Is your current home larger than you need or will it soon be? Are you retired or nearing retirement? Do you travel frequently on business or vacation? Are you busy professionals who value your free time? Are you a younger buyer looking to purchase their first home? If you answered yes to any of these questions, condominium living might be a good bet.

If you think condominium living might be right for you, I know of two very nice new condominium units in Hidden Springs with more on the way. You can view them both right here on BuildingCredibility.com or you can visit my website.

Interested in a more urban lifestyle, check out Bryant Forrester’s blog right here on BuildingCrediblity.com visit his website http://www.boisecondosandlofts.com/ or contact Bryant directly at (208) 342-2700.

Chuck Miller _{GMB CGB MIRM CMP MCSP CSP}

President / Builder – Chuck Miller Construction Inc.

(208) 229-2553

http://www.chuckmillerconstruction.com/

Comments(3)

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Yogesh Karki

Samson Properties - Alexandria, VA

Nice Chuck

Apr 25, 2008 02:19 PM

Richard Newquist

3 Minute Video Ads.com - Jacksonville Beach, FL

3 Minute Video Ads

The condo association is almost never considered when people buy condos. The conversion projects start out with low fees established by the developer but when the association takes over the fees go up....A LOT! The financial condition of the association is paramount and the propensity of the association to desire to run your entire living-breathing life has to be looked at. It seems like some people who have been wanting unlimited power end up on association boards.

I make sure that my clients are always aprised of the financial condition of the association for any condo they want to buy. Is the association solvent? They are aprised of reserves set up for eventual repairs as well as the potential for "special assessments" down the road for maintenance that hasn't been reserved (unfunded liabilities) before they buy.

Some of the special assessments here in Florida have left many a condo owner with huge added debt on top of the original mortgage.

Apr 25, 2008 02:35 PM

Anonymous

Chuck Miller

As with any real estate purchase, whether new or used, single-family detached or condo / townhome, I can't overemphasize the importance of carefully reviewing all of the documentation from the initial purchase agreement to and including ALL of the closing documents. Condominium Owners Associations, like any homeowners' association are set up as non-profit corporations. The documents that should be reviewed prior to entering into a purchase and sale agreement include the association's Articles of Incorporation and Bylaws. Among other things, the Bylaws should cover such things as classes of membership; voting rights; association administration; the make-up, powers and duties of the Board of Directors; the election, powers and duties of the officers; obligations of the members; and insurance. The documents should also include the Association Budget. Here is an example of items you might expect to see in the association budget:

INCOME

Regular Assessments

Commercial Assessments

OPERATING EXPENSES

ADMINISTRATION EXPENSE

Association Management

Misc. Administration

Accounting / Bank Charges

Legal Fees

Postage / Mailings

Printing / Forms / Copies

Federal / State Income Tax

MAINTENANCE

Labor (association employees)

Payroll Taxes and Insurance

General Repairs

Electrical and Lights

Alarm System Testing and Inspection

Landscaping

Snow Removal

Roof Repair

Walks / Parking

Insect Removal

Trash Collection

CLEANING

Common Area Cleaning

Window Cleaning

UTILITIES

Electricity

Water

Alarm System Monitoring

INSURANCE

Property & Liability Insurance

Fidelity Insurance

RESERVES

As a purchaser, you have the right and the responsibility to carefully review the budget and question anything and everything. Think about all the costs of home ownership. The association budget should address all those costs. If something appears to be missing from the budget, ask.

Since Property and Liability Insurance is a typically a significant percentage of the budget, you might ask for a copy of the policy or ask for the contact information for the agent so that you can have your agent contact him or her and address any questions that either you or your agent might have.

Specifically regarding Reserves, you should ask how the budget for Reserves was determined and for what items the Reserves are being set aside. These would typically be things like exterior painting, roof replacement, parking lot repairs, etc. Ask how they determined the budget amount? They should be able to provide a reasonable explanation. To illustrate using roof replacement, they should be able to tell you the current cost to replace the roof and the life expectancy. Let's say the current cost is $50,000 and the life expectancy is 30 years. To determine the adequacy of the reserves, you can use the formula FV=(rate,nper,pmt,pv,type) where Rate is the interest rate per period on the monthly or quarterly deposits, Nper is the total number of payment periods (in this case 30 years x either 12 months or 4 quarters), Pmt is the payment made each period; Pv is the present value, or the lump-sum amount that a series of future payments is worth right now. If pv is omitted, it is assumed to be 0 (zero), and you must include the pmt argument. Type is the number 0 or 1 and indicates when payments are due. 0 = at the end of the period and 1 = at the beginning of the period. Let's say the budgeted amount for the roof replacement reserve is $2000 per year, the reserves are deposited quarterly, and the interest rate is assumed to be 5% per annum. The formula would be FV((5%/12),(30*4),(2000/4),0,1) = $77,964.64.. That amount would cover the future replacement cost assuming no more than a 56% increase in the cost over the 25 year period. Of course, there are a number of variables including the interest rate and inflation. And the budget should be reviewed and adjusted by the association annually so that minor adjustments can be made significantly reducing the possibility of large increases in the future.

If you are considering purchasing a condo, you should also ask if the project has applied for and received project approval from FNMA. This could impact your financing options.

Any title company should be able to search the public records and notify you of any liens or actions that have been filed against the project.

In Idaho, liens filed by the association are inferior to any previously recorded lien, such as a mortgage.

Chuck Miller _{GMB CGB MIRM CMP MCSP CSP}

President / Builder - Chuck Miller Construction Inc. (208) 229-2553

http://www.chuckmillerconstruction.com/

Apr 25, 2008 03:30 PM