Top 3 Questions To Ask Before You Buy a Condo

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1) What Kind of Insurance Do I Need?


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-Master vs. Individual Policy

Imagine coming home to your new condo and opening the door to your furniture floating in the living room. What do you do or who do you call? Knowing what the Condo Master Policy covers and what your Individual Unit Owner policy covers can be deceiving. I’ve had some condo associations that covered all plumbing lines up to the faucets, and I’ve had some that only covered the main water line feeding a row of buildings. The lines going from the mainline to each unit were the Owners’ responsibility.

Your Insurance Agent will always request a copy of the master policy to write your Owners Policy around it. I can’t tell you how many owners I’ve met in my career that didn’t know or thought they knew what the association covered. Reading the Governing Documents for the Association and learning what you are responsible for in an emergency is just being a good owner. What if in the above scenario you were in a high rise? You could damage the unit below and its furnishings. Again, knowledge is key, and making sure your agent writes the correct policy is in your best interest. The worst end scenario is you don’t have enough coverage and face a lawsuit from the other parties’ insurance company.

2) Does the Condo Association have a Reserve Study?


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Condominium Capital Reserves

Capital Reserves are to a Condo Association as Blood is to the Human Body. It’s what keeps the Condo an excellent investment by making sure that it takes all preventative maintenance and common element maintenance responsibilities. A portion of the monthly Association dues should be put into a capital reserve account for future repairs. A Reserve Study is a long-term guide that determines when Capital Improvements will need to take place and how much money they will need. It then breaks down how much the association should save each month to pay for the repairs. When a Condo Association isn’t managed properly and doesn’t have adequate funding the Board Members might vote to take out a Common Loan.

Common Loans

A Condo Association takes out Common Loans when Capital Improvements need to take place and adequate reserves aren’t available. They are guaranteed by the dues each owner pays on a monthly basis. These loans can be harmful if they exceed 25% of the annual budget to the association. Most lenders review the financial balance sheets of the association, and if they see a high debt to income ratio, this could hinder prospective buyers from purchasing in the association. They typically take common Loans after Special Assessments have been passed, and they are now exceeding what the unit owners can afford


3) How many Rental Units are there?

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Renters aren’t good for the community spirit and financial well-being of a condo association. They don’t have a personal interest in the property and most come from the apartment sector and feel they may live the way they wish. Not all renters are bad, they just need to educate themselves on the responsibilities of living in a condo association. Many lenders deem an association too risky if it has over 25% rental units. Sometimes buying a condo with a majority of rentals is ok. If it is in a thriving downtown city district or vacation area that is majority-owned by investors, lenders will see the value.


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About the Author

Born and Raised in Nashville, TN I've seen the Good and the Bad when it comes to the Nashville TN Real Estate Market. I've worked in this area for the past 15 years and helped it recover from the Housing Crisis of 2008 and Rise from the Flood of 2010. I have a Strong background in Digital Marketing and can help give your home the edge it needs in today's Digital Real Estate World. 

Buying a home presents many challenges that require a keen eye and knowledge of the area to avoid buying a Money Pit.  I can help you avoid those pitfalls and sleep well knowing your investment is secure. I work with several home builders and if finding that perfect piece of land is your goal. I can help you Build Your Dream Home 🏠.

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