5 Ways To Know A Condominium Is A Good Investment
A condominium purchase is a big deal and one of the first questions is whether this is a good investment. Like homes, the value over the years could go up or down, however many don’t know why. Some crucial factors to keep in mind are the location and the housing market itself, but one of the most important is the condominium’s financial statements.
It is expected that buyers request a Status Certificate from condominium management companies. It’s here where buyers should look to know for sure whether the condominium is a good investment. Specifically, buyers should check these five sections.
First is the certificate itself. It provides basic information such as maintenance fees and monies owed to the condominium as well as other useful information. Buyers should look at the list of any lawsuits that the condominium has gotten into. Lawsuits aren’t clear signs of bad investments, but they can result in extra expenses in the future. Furthermore, multiple lawsuits will indicate the board of directors is particularly litigious.
While it is no dealbreaker, this could be a factor in negotiations to consider. Especially if other parts of the investment look appealing.
Audited Financial Statements
With any financial statement, the most important statement to look at is the Income Statement. This shows the condominium’s financial health, and the audited financial statement will cover the previous two years of financial data. Noting the income and expenses as well as the total is a clear sign of expenses to expect as well as the expected profits.
If by chance the condominium experiences a deficit, this should not be a concern. Large deficits year after year though indicate rising maintenance fees. Furthermore, the types of expenses made also give buyers an indicator of what the condominium is spending money on.
If a buyer sees a lot of maintenance and repair costs, it could be an indicator that the condominium is old and needs more upkeep or is in an area where there is more weather-related damage. Overall, the various expenses tell the story of the health of the condominium, and these are all factors in determining if the condominium is a good investment or not.
Notice Of Future Funding
This document shows exactly how much money is meant to be invested into the Reserve account for the next 30 years. Seeing large spikes in the first few years is a clear sign the Reserve account does not have enough money. Those increases are directly connected to the maintenance fees, so seeing large increases means buyers will be charged more should they buy it.
Also, the audited financial statements will also reveal the Reserve account balance. Cross-checking that number with the number on this document is prudent. If there is a difference between them, this is a sign that there will be an increase in the maintenance fees.
Each Status Certificate will include an insurance certificate with it. This lists each item that is insured and deductible. The deductible is important to note as that could indicate the buyer may have to cover that deductible in the future. Generally, the lower the deductibles are, the better.
Declaration And Bylaws
Even though these documents are filled with long, legalese jargon, they do contain valuable information. Buyers should check any attached Schedules, as they outline the boundaries of the home that is being bought. These reveal to buyers what they are responsible for maintaining.
Also, reading the rules the condominium has outlined in these documents is important since it lists pet size restrictions, vehicle restrictions, noise restrictions, or other areas that could impact the life of the buyer. Reading the rules now helps to avoid surprises later.
Paying attention to condominium prices is important. If they appear low, they are likely low for a good reason. Checking these important documents provides a good picture of the condominium’s health and story. This is on top of guaranteeing that buyers do not walk in on anything unexpected.
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