Resale packages can take much of the risk out of condo investments. As a buyer, you are investing in a place to call home or you might be buying a property to rent to others. In either case, you are investing in a community of people. This community includes the management company, the on-site maintenance team or company, and the other owners in the complex. These people work together to make the community a great place to live or in which to invest, and the resale package is a telling reflection of how well they are doing.
At minimum, the resale package includes: Bylaws (rules that contain the procedures for conduct of the affairs of the association); a declaration of the legal structure of the condominium; monthly common charges; any unpaid charges the seller owes the association; any restrictions on the sale price amount; the owner’s right to use, occupy, and/or lease the unit for sale; financials including the reserve for capital expenditures; a disclosure of approved capital spending greater than $1,000; the number of unit owners who are at least sixty days delinquent in paying common charges; number of foreclosure actions brought or pending by the association.
I advise my clients to view the resale package as a treasure chest of important clues. Associations often provide many items in the resale package that go well beyond the minimum requirements and are a reflection of how well a condo community is managed. Clues are often found in the following:
- List of board members, schedule of meetings, and meeting minutes
- Detailed rules and regulations in addition to a schedules of fines
- Annual budget and 5-10 year financial projections
- Specific information or details about capital projects planned or in process
- Specific information regarding any law suits against the complex or community actions that might impact the complex.
When reading the resale documents, take notice of the board members, schedule of meetings, and meeting minutes. Owners on the board of directors get together on a regular basis to make decisions about condo management, maintenance, and improvement projects. Boards are regulated by the CT State Department of Consumer Protection and must perform certain functions according to their bylaws and state laws. Researching board members or even speaking with them can give you insight as to how decisions are made.
Rules and fines for breaking the rules indicate what is not tolerated in the building community. A consistent application of fines ensures that management is indeed cracking down on owners and renters that perform activities that are detrimental or costly for the building or its reputation.
It is also very important to read the annual budget for the complex. Just like a business, buildings have balance sheets with revenue line items (from things such as common charges, fines, and interest) and expenses and they should generally not be spending more than they take in annually. The difference between what is spent and what comes in as revenue should also be saved or invested in the right financial products. Planned capital projects should also be clear after reading the resale packages. Every community has shared spaces that deteriorate. Condo boards will plan for the replacement of things such as a roof, carpeting and parking lot repaving based on the life of the item. If it seems like a building does not have the capability to plan and maintain itself, this is a red flag and more research should be done before moving forward with your investment.