Your Condo, Your Money Pit?

Condo Associations Can Be The Pits

These associations typically are run by residents, not professionals. So, all kinds of nightmares can ensue. Petty personal spats can turn into fines that turn into liens or lawsuits that can even turn into seizures and auctions. Even seemingly innocuous issues can become full-fledged battles.

It's nice not to have to mow the lawn yourself and to have someone else clean the pool. But many condo associations do a poor job of keeping up with maintenance and repairs. One out of three associations, according to Association Reserves of Calabasas, Calif., doesn't have enough money in the bank to pay for needed upkeep. And that affects your bottom line. If your fellow residents let the complex go to pot, your unit's resale value will suffer.

Your investment is in your neighbors' hands in another way, as well. If enough of them become landlords, you could have trouble selling your unit. Lenders often balk when renters make up more than a third of a condo complex's occupancy.

Condo owners in hard-hit Southern California learned about this potentially vicious cycle during the last recession in the early 1990s. As real estate values started to drop, those who couldn't sell their units for what they owed on their mortgages often decided to rent them out instead. That made it harder for those who remained and wanted to sell. The more values dropped, the more renters appeared, and the more lenders refused to offer mortgages to potential buyers.

If you're still determined to buy a condo, take the following steps to protect yourself:

• Read the codes and covenants. These outline what's allowed and what's not. Many restrictions are designed to preserve the complex's value, but you may find the lack of freedom stifling. Make sure you know what you're in for.
• Talk to other occupants in any complex you're considering. A high number of renters or complaints about the condo association should be a red flag.
• Ask about the association's operating budget and reserve fund. Bad signs: More than 10% of owners are late paying their condo-association fees, and more than 50% of maintenance liabilities aren't funded.

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