From The Desk of Linda Strasberg

Questions You Should Ask Before Buying A House, Condo, Town Home or Las Vegas Strip Condominium in Las Vegas, Nevada

Many first-time buyers are unprepared for the financial burdens of home ownership.

Lenders tell them the maximum they can afford based on their incomes with little regard for the “extras” such as utilities, upkeep and improvements.

You’re told what your monthly nut for principal, interest, taxes and insurance — the all-important PITI — will be. But likely because you won’t know exactly what the other costs will be until you actually move into your new place, they are rarely mentioned. And as a result, borrowers who mortgage themselves to the hilt often find themselves “house poor.”

They own a home, all right, but they can’t afford anything else. Sometimes not even the heat or hot water.

Rookies who are transitioning from an apartment are usually better prepared than those who are making the move from the family nest. Renters probably paid at least something for their utilities, whereas those leaving the friendly confines of Mom and Dad’s house for the first time probably have never ever had to dig into their pockets for food, let alone electricity.

As owners, though, they will be responsible for electricity and/or gas, water and sewer and trash removal. Then there’s the phone bill if you want a landline, and cable if you expect to watch television.

Utilities are a big add-on. According to the U.S. Department of Energy, the typical family spends $1,900 a year — $158 a month — on home utilities.

Another frequently overlooked expense is association dues. There isn’t any hard data, but estimates are that four of five housing starts in metropolitan areas are part of “common interest” subdivisions or condominiums. That means residents not only own their homes or apartments but also a share of the community’s public areas — the streets, parking lots and walkways — with all the other owners.

Some 60 million people nationwide live in 305,000 homeowner and condo association-governed communities, all of which collect fees usually monthly or quarterly, according to the Community Associations Institute (CAI). Even if you don’t use the pool or golf course, you have to pay your share.

Whatever the amount  — it shouldn’t be overlooked. “I don’t think we’ve properly addressed it in terms of the real cost of housing,” said Steve Melman, director of economic services at the National Assn. of Home Builders (NAHB).  Indeed, as Melman rightly points out, the tax benefits of ownership — annual mortgage interest and property tax write-offs — are often offset, at least partially, by the cost of association dues. Not only are dues not deductible, he notes, they “add a significant amount” to the monthly outlay.

Another significant expense all buyers, not just first-timers, tend to forget is what they’ll spend for furnishings, appliances and property alterations.

A 2007 study by the Harvard’s Joint Center for Housing Studies shows that consumers spent an average of $14,206 on home improvements during their first two years of ownership. But according to NAHB’s research, most of the extra spending — 60% — occurs within the first three months after taking occupancy.

The spending doesn’t stop there, though, especially if you’re buying a previously occupied house. There’s also the cost of upkeep.

“Whether you are moving into a new or old home,” says Mark, president of a home-inspection company, you “need to be aware of the ongoing maintenance any home requires.”

Buying a condominium unit can be more involved than buying a single family home. This is because you have to worry about both the unit itself and the condominium project as a whole.

To borrow from a famous phrase, not all condominiums are created equally. Some condominiums are very well run; some are quite poorly run and underfunded. Buyers interested in purchasing a condominium unit must do their homework:  not only about the condition of the individual unit they are interested in purchasing, but on the financial health and governance of the condominium as a whole. Remember, you are buying into the entire project as much as you are the unit, and your decision will impact your daily living and your ability to re-sell.

Here are the 10 questions buyers should ask when deciding to purchase a condominium unit:

1. What is the monthly condominium fee and what does it pay for? The monthly condominium fee can range quite dramatically from condominium to condominium. The fee is a by-product of the number of units, the annual expenses to maintain the common area, whether the condo is professionally managed or self-managed, the age and condition of the project, and other variables such as litigation. For budgeting and financing you need to know the monthly fee and exactly what you are getting for it.
2. What are the condominium rules & regulations? Condominium rules can prohibit pets, your ability to rent out the unit, and perform renovations. Make sure you carefully review the rules and regulations.  Needless to say, the buyer's should review and approve all condominium documents, including the master deed, declaration of trust/by-laws, covenants, unit deed and floor plans to ensure compliance with state condominium laws as well as Fannie Mae and FHA guidelines, as necessary.  Ask your Realtor for these documents required for your review.
   
3. How much money is in the capital reserve account and how much is funded annually? The capital reserve fund is like an insurance policy for the inevitable capital repairs every building requires. As a general rule, the fund should contain at least 10% of the annual revenue budget, and in the case of older projects, even more. If the capital reserve account is poorly funded, there is a higher risk of a special assessment.  Review the last 2 years budget, the current reserve account funding level and any capital reserve study.
   
4. Are there any contemplated or pending special assessments? Special assessments are one time fees for capital improvements payable by every unit owner. Some special assessments can run in the thousands.  You need to be aware if you are buying a special assessment along with your unit.  It's a good idea to ask for the last 2 years of condominium meeting minutes to check what's been going on with the condominium.
   
5. Is there a professional management company or is the association self-managed? A professional management company, while an added cost, can add great value to a condominium with well run governance and management of common areas.
6. Is the condominium involved in any pending legal actions? Legal disputes between owners, with developers or with the association can signal trouble and a poorly run organization. Legal action equals attorneys’ fees which are payable out of the condominium budget and could result in a special assessment.  Ask your Realtor to run a search of the condominium association in the court database to check if they've been involved in recent lawsuits.
   
7. How many units are owner occupied? A large percentage of renters can create unwanted noise and neighbor issues. It can also raise re-sale and financing issues with the new Fannie Mae and FHA condominium regulations which limit owner-occupancy rates. If your buyer is using conventional financing, check if it is a Fannie Mae approved condo. If FHA financing, this link provides immediate access to the FHA Condo Lists and the VA Condominium Portal.  For those condominiums not appearing on the list, the link provides you access to a FREE pre-screening service that will give you reasonable certainty that the condo complex can be approved for either FHA or VA.  This free service is provided under an agreement with Condo Approvals, LLC.
8. What is the condominium fee delinquency rate? Again, a signal of financial trouble, and Fannie Mae and FHA want to see the rate at 15% or less.
9. Do unit owners have exclusive easements or right to use certain common areas such as porches, decks, storage spaces and parking spaces? Condominiums differ as to how they structure the “ownership” of certain amenities such as roof decks, porches, storage spaces and parking spaces. Sometimes, they are truly “deeded” with the unit, so the unit owner has sole responsibility for maintenance and repairs. Sometimes, they are common areas in which the unit owner has the exclusive right to use, but the maintenance and repair is left with the association.  Review the Master Deed and Unit Deed on this one.
   
10. What Does The Master Insurance Policy Cover? The condominium should have up to $1M or more in coverage under their master condominium policy. For buyer's own protection, they should always buy an individual policy covering the interior and contents of the unit, because the master policy and condo by-laws may not cover all damage to their personal possessions and interior damage in case of a roof leak, water pipe burst or other problem arising from a common area element. Ask for a copy of the master insurance policy and don't forget to check the fine print of the by-laws.  Sometimes, there's language that would hurt a unit owner in case of a common area casualty.  Condominiums over 20 units should also have fidelity insurance to protect against embezzlement.

Contingency clauses within the purchase contract enables you to review the CCR's and make sure satisfactory answers are received. 

Condominiums on the Las Vegas Strip are starting at only $139K!  Off the strip condos are even less. If you're looking for a great deal, I welcome the opportunity to be of service.

Oh, by the way, if you have any friends or family who are thinking of making a move and would benefit from our service, I would love to talk to them.  Just give me a call with their name and number and I would be happy to follow up and take excellent care of them.

'Get Moving With Linda!'

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