In the Boston area, new condo developments appear to be springing up all around us. Traditionally, owning a condo instead of a detached home has allowed more people to purchase real estate that they could not otherwise afford, or in a location where detached homes do not exist, such as in Boston’s Back Bay or along the waterfront. There are upsides and downsides to condo ownership, so this article will help you to decide whether you are cut out for life as a condo owner.
In addition to your mortgage, condo owners must also pay condo fees, which are the owner’s proportionate share of the common expenses. Depending on the condo, the fee might only be to cover the master insurance policy and a reserve fund for maintenance of common areas. For others, however, the fee goes toward landscaping, snow removal, and a swimming pool for the complex. For luxury condos, the additional share of fees for amenities such as doormen, swimming pools and health clubs can bring your condo fee into the thousands of dollars. And unfortunately, unlike your mortgage interest, condo fees are not tax deductible.
Oftentimes, the master insurance policy does not contain what’s known as “walls-in” coverage. If this is the case, then in addition to paying your share of the master policy, you will need to purchase a policy for your unit contents (called an HO6 policy). This will provide coverage for damage or theft within the unit.
In addition to the above budgetary items, it’s important to consider the social aspects of condo living. Trying to learn a few things about the people who already live there – your future neighbors- can help you determine whether it will be a good fit for you. Certain condo developments can have a personality, depending upon location, attributes and other factors such as its owner-occupancy rate (a big issue for mortgage lenders). If you’re a person who works from home, requires peace and quiet, or likes to go to bed early, you might not want to buy in a building occupied predominantly by undergraduate students. Walk around the complex, knock on some doors and try to engage your potential neighbors in a discussion about living there, the responsiveness of the trustees or management company, and their likes and dislikes about the development. Spending some time poking around a little will help you develop a sense of whether this is the right fit for your lifestyle.
Reviewing the Condo Documents
In Massachusetts, the common areas are typically owned in a condominium trust. The trust, recorded with the local registry of deeds, spells out the management structure, i.e. whether it is managed by owner-trustees, a smaller board of trustees, or an outside property management company. Condo trusts have by-laws and/or rules and regulations that govern things such as parking assignments if the spaces are not deeded, storage areas, the size, types and number of pets allowed, remodeling restrictions, and even rental of units to tenants for minimum lengths of time. Some trusts contain detailed rules and regulations, and list the types of fines that may be levied against unit owners who violate the rules. Within the last few years, some large condo management companies have begun requiring pet owners to pay $80 for DNA samples to be taken of their pets’ waste and added to a database. If an owner does not clean up after his or her pet, DNA from the offending sample may then be taken and fines levied in case of a match!
It is very important to review any condo’s budget, and to get your hands on the records of the last few annual meetings of the condo association. This will give you a sense of the financial health of the condominium. You can see whether a sizable proportion of owners are delinquent on their condo fees or assessments (a big issue for mortgage lenders), and whether a large repair or construction project is contemplated. You can usually also gain insight as to other issues, such as whether there are any pending lawsuits involving the association, by looking at the financials and meeting minutes.
Condos can be great places to live, but taking the time to consider the financial aspects as well as how life will be like in your future complex will avoid surprises down the road.
For more information, contact Brooks and Crowley.