When deciding where to live, it is more important than ever to read the fine print
When you are looking to purchase a property in a common interest development, you aren't just buying your unit. Instead, you are becoming part of a larger entity that works together to protect and maintain the building, the parking lot, the communal areas, the pool, the gym, etc.
Before you decide to become part of any community development, it's important to determine if that community is the best investment for you. As you review your options, it is essential to navigate through the association's guidelines and determine which potential association is most in line with what you're seeking.
Be sure to ask questions regarding the following items and request and review any associated documentation:
1. Evaluate the financial health of the association
Like any governed organization, the association must keep its operating expenses in line with revenue. If the expenses exceed revenues, this shows that the association might not be well managed and that regular assessments will increase. It is common for regular assessments to increase with the cost of living, but you do not want to be responsible for irregular increases because the association is not keeping costs in line with revenues.
2. Review the demand statement
The demand statement will tell you if there are any unpaid fees or unity violations that still need to be resolved. This piece gives you a bird's eye view on the current state of the relationship between the association and their tenants.
3. Inspect the reserve study
This will tell you how much money is on reserve for any potential long-term repairs. Your fees are meant to cover operating expenses and long-term initiatives such as roofing repairs, repainting the building, etc. The reserve study will tell you how much is saved for such repairs. How much is on reserve will also tell you if the association is able to fund larger, long-term projects or unplanned repairs without going to the tenants to split costs.
4. Read the insurance master policy
This binder of information will tell you exactly what the association's insurance covers. We recommend you have your insurance agent review this information to determine what isn't covered in case you need to get proper coverage yourself. The association should have a proper amount of property and liability insurance.
5. Conditions, Covenants and Restrictions (CC&R) or The Rules of Regulation
These rules should include board meeting minutes and newsletters, alerting you to any special unit or building issues. It is important to review the information relating to short-term rentals, pet restrictions, building construction quality and the rules you will need to abide by when living in the development.
Other things to look for are whether you're able to operate a home business, rent out your unit and what the smoking restrictions are within your unit as well as in common areas. You should also be mindful of how often the Board of Directors meets and how you can get a copy of the minutes.
If you don't have the time to personally review these documents in depth, you should consider hiring an attorney, CPA or industry professional to review the documents for you. There will be several different guidelines you will need to review and compare, which can be incredibly overwhelming and time consuming. Take the stress out of the equation and let PeytonBolin help you come to a decision that makes the most sense for you.