Association Fees for Condos and Co-Ops in Real Estate Investing

real0

 

Rules and bylaws are abundant when dealing with condos and co-ops. Although you can encounter covenants and restrictions attached to typical single family homes, you can count on a long list of rules for condos and co-ops. For example, you might not be allowed to alter the address numbers on your exterior door or change a light fixture by your exterior door. Your choice in paint colors for the exterior of your unit might be limited. And having pets in your own space might be prohibited. The power of the rules is strong, and the number of rules can fill pages of paper. Once you are ready to buy a condo or co-op as a real estate investor, look closely for all of the restrictions that may affect your plans.

Association fees (charged for maintenance of a condo or co-op development) and special assessments (levied when some improvement or repair is needed or desired) have the potential to ruin your investing budget when you own a condo or co-op. You have no real control over the amounts of association fees and special assessments, which might have a disturbing effect on a building’s cash flow. You may have to vote in how things will be done, but your vote will not, by itself, allow you to control your own destiny with a condo or co-op. All you can do is hope for the best. You can look at historical data to build a reasonable assumption of what to expect in fee increases; unfortunately, a development that has been stable for the last ten years could go fee crazy after you buy into it. You simply have no guarantee, unless it’s in your purchase agreement, to prevent fees from increasing regularly. This one factor alone is enough to scare some investors away from condos and co-ops.

 

Association fees usually are fair. They cover a variety of needs and relieve property owners of maintenance headaches. This is an advantage to investors when the fees are realistic and stable. However, because most developments don’t have an annual cap on association fees, owners are at risk. And it’s entirely possible that the fees could be raised on a more frequent basis than annually. For these reasons, be very careful of the fee structure if you buy a condo or a co-op. When you review the documents on a development, determine what the association fee covers. For example, do snow removal and lawn care for the development come out of the fee? Dig deeply to see exactly what your money pays for.

 

Special assessments usually are levied only for big ticket items. If a building needs a repair that is costly and outside the scope of association fees, the price of the repair is placed on the shoulders of the owners of condos and co-ops within the development. Sometimes improvements are not necessary, but desired. For example, if the governing group decides to install a swimming pool, you could be required to pay for a portion of it, even if you don’t support the decision or plan to use the amenity. In some cases, the debt is divided equally, but it also may be divided on a percentage basis, based on the degree of ownership. Have your lawyer pay close attention to all documents, but get a particularly strong opinion on association fees on special assessment regulations.