Avoid surprise expenses when investing in a condo

How do I protect myself against surprise expenses?

The best way to protect yourself is to be sensitive to the warning signs of potential future surprises. Ask yourself these questions when buying a unit.

How do the monthly dues compare to other buildings in the area? If they are lower than others, is there a reasonable explanation that does not involve cutting expenses to the bone?
Examine the balance sheet for the condo association. Is there a healthy bank account to cover unforeseen repairs and a reserve account with steady savings for big-ticket items like a new roof?
Are there any unpaid bills that seem to be older than thirty days? If such bills appear on the balance sheet, the association may have problems with cash flow. That is usually a sure sign that a dues increase is in the future.
As long as you are looking at the balance sheet, also look at the "receivables" account. Is there a large number for "dues receivable"? Owners are supposed to pay their dues on the first of each month. Unpaid dues show up in the receivables entry. A large figure in receivables can mean a dues increase, because the money has to come from some source to pay the bills.
Ask for the monthly profit and loss statements for the last two years. Is the association running at a deficit every month? Are there large expenses for legal fees? Are the actual repair expenses fairly close to the budgeted numbers or not? All of these things can tip you off to potential trouble.

Someone told me their condo association charges an "impact fee" for all units with tenants and a separate move-in and move-out fee. Is that legal?

This practice is becoming more and more common. It is legal as long as the condo documents - the bylaws and the Covenants, Conditions & Restrictions (CC&Rs) - allow it. Fees such as these are intended to discourage absentee landlords.You will have to review the documents I mentioned for the presence of any such fees before you buy. You might also want to read minutes of the condo association meetings for the last year or so. This will alert you in case there is a move to amend the CC&Rs and introduce such landlord-unfriendly fees.

Can I be held responsible for my tenant's actions in a condominium?

You should be very careful about tenant selection when investing in condo units.You, as the owner, are the one responsible for complying with all rules and regulations. Failure to follow the rules can result in fines, some of them daily fines that quickly add up to hundreds or thousands of dollars.

Protect yourself by knowing all the rules, checking tenant compliance often, and staying in touch with the local association in case there are any complaints against your renters. Attach a copy of all rules to your leases, and make your tenants responsible for following the rules or paying you a fine.

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