The HOA Detective recently returned from an extended visit to the Aloha state where condominium development is booming. Many prospective buyers in vacation destination markets such as Hawaii and Florida are looking at condominiums as an alternative to detached single-family home ownership. Whether you are a year-round resident or a buyer who is looking for a second home, the choice of a condominium offers a low maintenance lifestyle for homeowners who would rather spend their free time enjoying all that these resort locations have to offer, rather than spending it maintaining a home.
For unwary buyers who do not undertake pre-purchase financial due diligence before finalizing an offer on a condominium it can mean trouble in paradise. Due diligence is particularly important when purchasing a condominium as it allows a buyer to gain insight into the fiscal stability of the homeowners association that is responsible for maintaining the common areas of the condominium, which in most instances includes critical components like roofing, exterior cladding, elevators and HVAC equipment, all of which can be very expensive to replace .
Simply put, if the Association lacks adequate financial resources to maintain the facilities under its control, maintenance will be deferred; the physical condition of the condominium will deteriorate and property values will decline.
If you are attracted to the low maintenance lifestyle often associated with condominium living then it only makes sense that the Association you are buying into must be financially prepared to perform the maintenance needed to maintain your investment.
Condominiums in locations such as Hawaii, Florida or any coastal region present additional challenges for a variety of reasons. Among the issues that condominium buyers in these areas should consider are:
- The age of the condominium development. Hawaii and Florida are home to some of the oldest condominium developments in the country. As any community ages, the maintenance of common area improvements will become more frequent and costly. If the building you are buying into is more than 20 years old it is highly likely that major maintenance and replacement of common area improvements will occur within ten years. If the Association doesn’t have a well-funded reserve account it is possible that maintenance will be deferred or a special assessment will be required.
- The large number of high-rise condominium developments in these areas. High-rise buildings are expensive to build; expensive to operate and expensive to maintain. With few exceptions high-rise structures that house residential dwelling space are the most expensive form of housing you can own. If you are purchasing a condominium in a high-rise it is all the more important that you perform adequate financial due diligence to ensure that the HOA is financially sound.
- The orientation of the property to salt water. Most people who dream of owning a home in a place like Florida or Hawaii are motivated at least in part by the desire to own a home that is close to the beach. However, the fact is that salt water and the salt which is present in the air are extremely hard on most exterior building components; as are the wind-driven sand and rain that are inevitable when you are close to the beach. If the Association you are buying into doesn’t have a firm grasp of the cost and importance of preventive maintenance in such situations then the dream of maintenance-free home ownership could end up being a nightmare instead.
- The high percentage of absentee owners typical of many condominiums in vacation destinations. Absentee ownership can create problems that a new buyer should consider before purchasing a home in any homeowners association. One of the biggest concerns when there are a high percentage of absentee owners in an association is: who is going to govern the community?
Successful homeowners associations begin and end with good governance and good governance requires that owners participate in the governance process by serving on the Board. If half the members of the HOA live hundreds or even thousands of miles away and are only in-residence a few weeks or months out of the year it can be very difficult to achieve the continuity in the long-term financial planning process that is critical to the success of every HOA.
Failure to plan is planning to fail and long-range planning efforts are often compromised when there is no one to attend to the business of the Association. If you are considering the purchase of a condominium as a second home it is all the more important for you to perform proper due diligence before you finalize an offer. If you are not well-versed in terms of how to proceed with this due diligence process then you should hire an expert like the HOA Detective to prepare a CRC REPORT for the homeowners association where your dream vacation home is located.
To learn more about the CRC REPORT please visit our website at: http://www.crcreport.com/. Or you may call our offices at 800-218-0302 to speak with the HOA Detective directly.