This series of blogs has focused on giving you the necessary insights into making an informed condo-buying decision. We’ve already covered the association red flags and the Bergen County Condo Insurance details that apply to your new dwelling. All of these points are equally important when considering buying a condo, but there is another facet you might not even consider: now many renters are in the building. This might seem irrelevant, but, in fact, a lot of renters in the condo association can be a bad thing. Read on to discover why.
While condos were originally created to provide a more affordable housing alternative to traditional homes, the oversaturation of the market and the housing crash of 2007 has left a lot of these units vacant. Without adequate tenancy, the condo association cannot properly maintain the property or pay its dues. The solution? Renters.
The issue with a lot of renters is that they aren’t paying the HOA fee, which depletes the reserve fund for the condo association.
In fact, many financial institutions judge a condo complex to be risky if more than 25% of the units are rented out and refuse financing to new buyers. As a result, such condo complexes may become desperate. To attract buyers, they may start selling the vacant units at lower prices, adversely affecting the value of the other units within the same complex. As the complex makes the transition from mostly owner-occupied to mostly rented out, it enters a very dangerous stage: it may degrade itself to the point of depleting its budget and reserve fund, explains Market Watch.
In the worst-case scenario, the condo association would take out a loan just to remain in operation. Those fees, of course, trickle down to the owners, increasing their monthly dues. Not to mention, more renters in the complex reduces the overall worth of the association, which owners will feel first hand when it comes time to sell.
When visiting a complex, ask what percentage of the tenants are renters and how many are owners. Ideally, less than 25% rent. Otherwise, it might be worth searching elsewhere.
We also recommend these key points when it comes to finding the best condo association:
- The exception to the rule may be condo complexes located in popular tourist resort areas or heavily congested, major downtown hubs, with high rental demands.
- Carefully check the amount of common loan that the complex may be indebted to, as any debt above 25% of yearly budget may turn out detrimental to the complex’s survival.
About Tri-State Insurance Agency
At Tri-State Insurance Agency, we want to ensure your high-net-worth homes are protected during the holidays and year-round. Our homeowners’ insurance policies are designed specifically to protect affluent homes like yours. To learn more about our coverage options, contact our specialists today at (973) 579-6776.