Benefits of Condo Ownership

Tax Advantages

The U.S. Government provides tax incentives that make it possible for many homeowners to exceed their standard yearly deductions. For example, condo owners can take advantage of the tax deduction for annual interest paid on their mortgage. This amount represents a large piece of your total mortgage payments during the first few years of your loan term. You can also deduct the total amount of your annual property tax bill.

If you refinance to consolidate other debts, the interest on the home equity loan is also tax deductible.

Homeowners Have More Stable Living Costs

Monthly homeownership expenses remain relatively constant whereas rental fees are often more unpredictable.

Appreciation of Your Condo Investment

Historically, most real estate increases in value over time. If you are careful about your selection, and maintain your condo, it will likely be worth more in the future than it was the day you bought it.

Your initial cash investment may be as little as 5% (or less) of the condo's sales price, but you are the one who benefits from any appreciation in the unit's value.

Your Equity Grows Each Month

Even though interest makes up a good portion of your initial monthly mortgage payment, the amount paid toward the principal increases each month. Equity buildup is also affected by the type of mortgage product you select. Generally, the shorter the loan term, the quicker you build equity.

Keep Your Condo as an Investment

As your space requirements grow and your lifestyle changes, chances are you may be interested in trading up to a bigger living space. Keeping your condo in your investment portfolio can be a great long term investment decision. As rental rates increase, there may be a point in time where you can collect your expenses back and let someone else pay off your condo. 

Condominium owners have exclusive ownership rights to their unit and the right to share the common elements of the condominium project with the other co-owners. The development is privately owned and maintained by the co-owners, unless the local government agrees to take responsibility for maintaining a portion of the development. Roads are an example of a portion of a condominium development that may become public. The master deed will designate the percentage of ownership of each condominium unit in the development. This percentage of value will determine your obligation for payment of monthly fees, assessments, and may determine your voting percentage at association meetings.

The bylaws should be read carefully as they contain provisions outlining your rights as an owner. Modifications or repairs to your unit may require approval of the co-owners association. There may be restrictions on pets, renting, use of recreational facilities, and other prohibitions in the bylaws that you should be aware of before signing a purchase agreement.

Association of Co-owners (Condominium Board)

Initially, the developer appoints the board of directors, who govern the development until the first annual meeting. The provisions for holding the annual meeting and designating the voting procedures are included in the condominium bylaws. The association of co-owners is elected by the co-owners and is responsible for governing the development and maintaining the general common elements. The general common elements may consist of hallways, lobbies, building exteriors, lawns, streets (if the roads are private), recreation facilities, heating, water and electric systems. The association has authority to determine the monthly maintenance fee and the amount of any special assessments. The association of co-owners may hire a management company to provide services for the development. Each co-owner must pay a monthly fee for these services and any special assessments.

Rules governing the association are written in the bylaws of the condominium development. After the association of co-owners is created, it may adopt bylaws for the operation of the association. Meetings of the co-owners association are meetings of a private entity, and not subject to the Open Meetings Act, which requires government agencies to allow public attendance at meetings. Associations are required to maintain a reserve fund for major repairs and replacement of common elements. The minimum amount is 10% of the annual budget on a non-cumulative basis.

You should receive a disclosure statement itemizing the association's budget at the time you are given the master deed. The monthly assessment is considered a lien on the condominium unit and you cannot be exempt from assessments and monthly fees by non-use of any common elements or by abandonment of the condominium unit. Co-owners must notify the association if they rent or mortgage their unit.

If you have complaints with the association or other co-owners, review the condominium bylaws to determine what recourse you have. Generally only professional arbitrators or the courts have jurisdiction over complaints between these parties

Limited or General Common Elements

Limited common elements are property with usage restrictions. A carport space assigned to a unit is a limited common element. The yard of a unit that is a single family detached home may be a limited common element for use by the owner of that unit. General common elements may be roads, open space areas and recreation facilities. They are available for use by everyone in the development. The master deed specifies which parts of your condominium development are designated as limited or general common elements. Use of the common elements is governed by the bylaws for the condominium development.

Condominium Documents

The condominium documents include the master deed, condominium subdivision plan, bylaws for the condominium project, and any other documents referred to in the master deed or bylaws. In addition, the developer is required to provide a disclosure statement. Once the condominium association is established, it may adopt another set of bylaws pertaining to the association's operation. The association or management company must keep books and records with a detailed account of the expenditures and receipts affecting the project and its administration, and which specify the operation expenses.

Preliminary Reservation Agreements

A preliminary reservation agreement gives you the opportunity to purchase a particular condominium unit for a specified period of time upon sale terms to be determined later. The developer must place the payment you make in an escrow account with an escrow agent. If you make a payment under a preliminary reservation agreement and cancel the agreement, the developer must fully refund the money. If you subsequently enter into a purchase agreement, the developer must treat the payment made as if it was made under a purchase agreement.

Purchase Agreements

A purchaser may withdraw from a signed purchase agreement without cause or penalty within 17 day. The buyer will deposit payments made under a purchase agreement in an escrow account with an escrow agent.

Before signing an agreement, it is advisable to seek professional assistance to review all condominium documents. Some issues to consider before buying include the following:

  1. The bylaws may contain a variety of restrictions. The bylaws may require you to receive association approval for certain actions. If you do not obtain prior approval, the association has authority to enforce any legal restrictions in the bylaws. 
  2. In the resale process there is a contingency period in which you have to conduct all your inspections and investigations. You need to review all condominium and association documents to ensure there are no pending or potential litigation or assessments that could result in an unexpected expense. 
  3. You may be subject to a binding purchase agreement before construction begins or is completed. Determine whether the agreements will provide you with adequate rights if the developer does not finish the unit in time to meet the occupancy date. 
  4. Review all restrictions, covenants, and easements that might affect the condominium project or your unit. 
  5. If buying new, determine if the developer has reserved any rights to alter the project. 
  6. Before signing a purchase agreement make sure you have financing, or that the agreement specifies it is dependent on your ability to obtain a mortgage commitment for the unit. 
  7. You may want to determine if the developer is contractually obligated to finish the development. The local government may have required the developer to provide letters of credit to complete elements of the project. 
  8. Do not rely on verbal promises, insist that everything be in writing and signed by the person who made the promise. 
  9. When buying a condominium in a structure that has been converted from an existing building, you may face a whole other level of inspections. Ask for an architect's or engineer's report on the condition of all building components and their expected useful life. Ask to see copies of the building maintenance records, and find out what improvements were made in the conversion process. 

Documents the Seller Must Provide

The seller must provide copies of the following documents to a prospective purchaser:

  • The association financial documents and budgets 
  • A copy of the minutes of the meetings for the last year or two 
  • The CC&R's and bylaws 
  • The condominium buyer's handbook. 

A disclosure statement that must include information about:

Advisory Committee

The advisory committee is established when one of the following occurs, whichever happens first:

  • 120 days after 1/3 of the units are sold to non-developer co-owners. 
  • One year after a unit is sold to a non-developer co-owner. 

The purpose of the advisory committee is to meet with the project board of directors to facilitate communication and aid in the transition of control to the association of co-owners. The advisory committee ceases when a majority of the board of directors of the association of co-owners is elected by the non-developer co-owners.

Election of Board of Directors for Association of Co-owners

No later than 120 days after 25% of non-developer co-owners have title to the units that may be created, at least one director, and not less than 25% of the board of directors shall be elected by the non-developer co-owners.

No later than 120 days after 50% of non-developer co-owners have title to the units that may be created, at least 33.3% of the board of directors shall be elected by non-developer co-owners.

No later than 120 days after 75% of non-developer co-owners have title to units that may be created, and before 90% are conveyed to non-developer co-owners, the non-developer co-owners shall elect all directors on the board, except if the developer owns and offers for sale at least 10% of the units, or as long as 10% of the units remain to be created, the developer shall have the right to designate one director.

If titles to 75% - 100% of the units that may be created have not been conveyed, 54 months after the first conveyance, the non-developer co-owners shall elect the number of board members equal to the percentage of units they hold. The developer has the right to elect the number of board members equal to the percentage of units that are owned by the developer, if the developer has paid all assessments for those units.

Documents the Association Must Provide

The association of co-owners must provide a financial statement annually to each co-owner. The books, records, and contracts concerning the administration and operation of the condominium project must be available for examination by any of the co-owners at convenient times. All books and records must be audited or reviewed by independent accountant annually, but the audit does not have to be certified. The association must keep current copies of the master deed, all amendments to the master deed and other condominium documents available at reasonable hours to co-owners, prospective purchasers and prospective mortgagees.

Amendments to Condominium Documents

If the condominium documents contain a statement that the developer or association of co-owners has reserved the right to amend the documents for that purpose, then the documents may be amended without the consent of the co-owners, as long as the change does not materially alter or change the rights of a co-owner.

The master deed, bylaws and condominium subdivision plan may be amended, even if the amendment will materially alter or change the rights of a co-owner with the consent of at least 2/3 of the votes of the co-owners and mortgagees.

The method or formula used to determine the percentage of value of each unit for other than voting purposes cannot be modified without the consent of each affected co-owner. Provisions relating to the ability or terms under which a co-owner may rent a unit may not be modified without the consent of the co-owner. A co-owner's unit dimensions or the limited common elements to the co-owner's unit may not be modified without the co-owner's consent.