If You're Buying A Condo, Watch This First

In this episode, Jennifer talks about the critical financial risks when buying a condo, especially regarding assessments. She explains how HOA fees inevitably rise and how unexpected special assessments can be incredibly costly, potentially over $100,000 per unit. Jennifer shares a shocking example of an undisclosed assessment that made a building ineligible for traditional financing. She stresses that buyers must do their own thorough due diligence, checking budgets, reserves, and HOA meeting notes, as these vital details are often not formally disclosed.

Transcript

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If you're thinking about buying a condo, today we're going to talk about assessments and what you need to know. This is an incredibly important topic that people do not talk about enough. I feel like if you're buying a condo, there should be a pamphlet that goes to everybody that tells you all the potential risks. With loans, we have to do that. If you're doing an adjustable rate mortgage, you get this whole little in-your disclosures additional paperwork that tells you the risks of an adjustable arm. I think that should be happening with condos as well. Now, if you're new to the channel, I've been a lender for close to two decades. My team is one of the top purchase teams in America. Yes, we can help you across the country. 786-933-2077. I want to start this video off by saying I don't hate condos, okay? I do worry about them quite a bit. And there's two big reasons. The first one is HOAs. What I see a lot is I'll see a home buyer who's buying a condo for one or two reasons. Number one, they can't afford a house in the same area. Or number two, they just don't want the maintenance, they don't want a deal, and they feel like a condo, everything gets taken care of for them. They're comfortable with the payment, but if the payment goes up, that could be a problem. That's your first red flag on condos. HOAs always go up, guys. It's that simple. No matter how high, you're like, but it's already $1,000. Yeah, it could be $1,500 in two years. You're like, wait, what? It could be $2,000 in two years. It could be $2,000 in six months. They can do that. Yeah, they can do that. They can do that. The way the HOAs with a condo work is if the building needs stuff done to it, they either need to raise HOAs or they need to do an assessment. Okay? Raising HOAs is scary enough, but an assessment is very scary. I feel like an assessment is a rich man's game. And I say that because in many cases you have to have a lot of money on hand in order to pay for it. I'm gonna use an example. Um, kind of by where I live, there's a condo development. It is a block away from the beach, guys. The location on it is amazing, and there's two bedroom, two-bath units for sale right now for $300,000. Wow. For the market, that is very cheap. That should be at least $550,000, $600,000. The HOAs are higher though. They're $700 plus dollars a month. So I was looking at it from an investment angle because I've already said in this video, I don't hate condos. You just have to know what you're getting into. So I was like, gosh, like I'm not sure why this is so inexpensive. Now, because I have two decades of experience, I know there's something I don't know that I need to find out before I write an offer on that house. Whereas a first-time home buyer goes, wow, that's great. It's close to the beach, it's a good price, I can afford the HOAs. Yeah, beach house. Not so quick. So I started doing some digging and I asked my real estate agent to get some information. Well, what's about to happen to that entire condo building is a huge assessment. And the assessment is a hundred thousand dollars a unit. That's right, the building has a ton of deferred maintenance and it has over seven million dollars in repairs that need to be done yesterday. Seriously, yesterday. And I say yesterday because the property is already ineligible for financing with traditional financing. That means the big boys, Fanny, Freddie, Ginny, if you try to do a normal loan, they're like, not there, not there, kid. Uh-uh. And it's because of the level of work that needs to be done. So what happens in a situation like this is the homeowners find out that they have to pay $100,000. And you're like, well, what if they can't? Well, if they can't, they have to sell, guys. They either have to sell so that someone can pay that money, or they have to do a cash-out refinance, or they have to do some level of financing. Sometimes condos will arrange some sort of financing that people can do. But if you're already maxed out between your mortgage payment and the HOA and property taxes, and then suddenly you're having to finance $100,000 more dollars, you're toast. You're toast. It's that simple. So the reason why, why, excuse me, right now, that building has units that are so inexpensive is because it doesn't qualify for traditional financing. So anyone who's looking at buying those properties has to put more down. They have to go with a non-QM lender, which may or may not do it. I was talking to one of my friends that does a lot of those loans. I don't do them. The reason I don't do non-QM condo loans is because the clients I work with, as soon as I explain the level of risk, they go, uh-uh, no thanks. Because the bottom line is that you're killing. If you had to resell that property, you're losing a huge part of the market because anyone buying your unit has to agree to pay a higher interest rate than they would if they were buying a condo that didn't have this issue. Okay. So I was talking to her and she's like, hey Jen, you know, I'd be buying it as an investment, I'd be putting 30% down. She's like, look, best case, seven and a half with a point. Worst case, probably 10%. She's like, the seven and a half is pretty picky, so realistically, you're gonna be closer to 10. Woo! Okay. And if you're like, well, maybe it's worth it. Here's the thing. My next question then was, okay, the seven million dollars, does this cover everything? They don't know yet. They don't know until they start removing the siding off the building. So already you've got a uh development where there's seven million dollars worth of work that needs to be done. They haven't even taken off the siding. Look, there's gonna be more. I know that. There's no way you're that close to the beach and you haven't done repairs in forever and you take off the siding and everything's cool. That leads to more. So you're like, wait a second, Jen, are you telling me that these homeowners could have to come up with $100,000 and then in six months they may have to come up with more? Yeah, of course. Guys, if they start doing that work and they find out that more work needs to be done to have the building be structurally okay, guess what? Hands go back out to the homeowners. And if you're like, well, I just won't pay. Guys, most buildings can foreclose on you if you don't pay. It's very important you recognize that. People see the beauty of condos, they see lower maintenance, someone else is taking care of the pool. Cool, I don't have to worry about the insurance of the building. Thank goodness. But what they miss is that you also are paying for this whole building. So assessments. If you're looking at buying a condo, I would recommend you read the budget to see if they have any reserves. If there's any bids on the property, that's what this one had. This one had a bid, but there's no formal assessment yet. They have a bid, they have an idea of what the assessment's gonna be, but it hasn't totally rolled out. I only found out all the information because my real estate agent knows someone, right? Crazy. And I've had clients, same thing. I had a client in Hawaii where I'm like, just tag to the neighbors and find out if there's any upcoming assessments. Because until it's in writing, it doesn't have to be disclosed to you as a buyer in most states. So it's important that you realize that. Because if you're like, well, wait, they knew there was one coming and no one told me until it's in writing, until the amount is perfectly laid out and everything is formalized. No. So in this building, the two listings that I looked at, did either one of them say there was this huge assessment coming? No. No, they had the documents there so someone that was incredibly savvy could treasure hunt it, but no. And if you're like, won't my real estate agent do that? No. Won't my lender do that? No. No, I mean, look, as a lender, if you came to me because you were trying to buy this property, because I was looking at this property as an investment for myself, but also for some friends who want to move to the area, I couldn't finance it. I would look up the building and be like, yep, can't do it. You know, call a non-QM lender. Here's my friend that does it. You know, she'll give you the real deal, but you are taking a higher risk. So it's really important that you recognize that condos do have that risk. Now, look, once this development gets through all of this, do I think those units will be worth more? Yeah, totally. But like personally, as an investor, would I buy one right now? No. At the time I said no, I'm like, there's gonna be more to the market. There's already another one on the market. So there's three on the market now. None of them are moving. It's gonna push the prices down. So the last thing I want to do is buy at a higher mark because I know the prices are coming down because of this big assessment that's on its way. So look, this video I hope opens your eyes to if you're looking at a condo, they they could knock on your door and ask for a very big bill. They could know this is coming and not disclose it to you. So please review the budget, look for any bids, have your real estate agent, see who they know, anyone on the HOA board, are there any upcoming assessments? Ask the seller in writing, are you aware of formally or informally any upcoming assessments? Now look, could they lie to you? Yeah, sure. We see people lie all the time, like in every facet of life, right? Like there's a lot of honest good people, but there's some liars, let's just be real. So I would also recommend getting the HOA meeting notes. So that would have been my next step. If I hadn't already figured out there was an assessment, if I was looking at this building going, you know, this is priced cheap. What's happening here? And I didn't see anything in the immediate documents, I would be looking at those HOA meeting notes. Um, we actually had that with a client where there was nothing in the docs, but then in the HOA meeting notes, they were talking about having to redo all the plumbing in the building because of backups. Thankfully, the client reviewed the HOA meeting notes because they had talked to me and we had said, like, always do this. So they're like, hey, like I just read this in the meeting notes. Like, what do you think? And I was like, run, run. If a building's gonna have to redo all the pipes in the building, they're talking about potentially having an assessment. You can barely afford your mortgage and your HOA, and you're not staying on a stack of cash. Run, okay? Questions, comments, as always, reach out. Uh 786-933-2077. I wanna be really clear on this, guys. You can't trust your real estate agent or your mortgage lender to do all this due diligence. It's not within what they're supposed to do. As a mortgage lender, there's certain stuff we do, but we do not go down the rabbit hole. Even if you're working with me, like we don't go past what we're supposed to do because then you start getting into potential lending issues. You know, there's a limit to what we can look for. But you guys watch this channel, you know, budget, reserves, any bids, ask everybody. Any assessments coming, find out the gossip from the neighbors, meeting notes. The gossip is always there, and that is what will tell you what will affect your wallet. Thanks for watching.