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    Suze Orman on Buying a Condo

    Just in case you haven’t heard of Suze Orman, she was Oprah Winfrey’s money management guru who has become super famous giving hard-hitting “tell-it-like-it-is” financial advice to millions. She has offered up some tips for making a smart investment in a condo. Condos can be tricky, especially if you are using FHA financing, and since DC is one of the few areas of the country with a strong condo market, this is useful advice. We’ve paraphrased Suze’s words of wisdom below and thrown in a few of our own.

    1. Can you afford the maintenance fee?

    Many first-time owners don’t realize that a condo purchase means paying a monthly fee to the condo association. When talking with a lender about how much you are qualified for, be sure to ask how high of a condo fee you can afford as well. When deciding whether you can afford the monthly condo fee, ask your real estate agent what is included. The payment may seem high but include all the utilities, making it a better deal.

    2. What percentage of the units in the development are owner occupied?

    Suze suggests that 90% of the units should be owner occupied in order for it to be a smart investment. Well, DC has a robust rental market, so that may be harder to find. Why does this matter?  Because in the eyes of a lender, a high percentage of owner occupants is less risky than tenant occupants. In fact, FHA requires that the building be 51% owner occupied. So if there are too many rentals, it may make your unit harder to sell in the future.

    3. Has the annual increase in the monthly maintenance fee for the past few years not exceeded the general rate of inflation, or about 3 percent?

    Condo fees are like taxes. They may go up and substantially. You should be able to find this out when you receive the condo documents. Once you have a ratified contract, the seller must provide the buyer with copies of the condo association documents for review. The buyer has the opportunity to walk away from the purchase based on anything he/she may see in those documents.

    4. Are at least 97% of the development’s residents current with their monthly payments?

    Remember, it’s the other owners who must make up the shortfall when some owners are delinquent. This information should also be available in the condo documents. Your lender will require this information as well. And back to good old FHA. FHA requires that the delinquency rate be below 15%.

    5. Does at least 10 percent of the association’s annual budget go into a reserve fund?

    This means that the association is prepared to pay for any big emergency repairs such as the roof without imposing a costly special assessment or extra fee to the occupants.  Again, the condo documents will include the association’s annual budget for your review.

    6. Are the condo’s roof and major mechanical systems closer to five years old than they are to 15?

    Finding out how old the major systems are and whether there is a healthy reserve fund make the possibility of a costly special assessment less likely. Finally Suze suggests talking to a few of the residents. They can be your most valuable resource for learning about what’s really going on. Click here to read more.

     

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