Quick Answer
Before buying a condo, review the CC&Rs, budget, reserve study, meeting minutes, insurance certificate, pending litigation, owner-occupancy ratio, and delinquency rate. Red flags include low reserves, pending lawsuits, high delinquency, and excessive special assessments. Ask Patrick how condo HOA documents would apply to your situation.
The money problem with a condo is that you are not just buying walls and floors, you are buying into a shared balance sheet with every other owner in the building. The HOA documents are that balance sheet, and they will tell you whether your fees stay reasonable or explode into special assessments.
Before you commit, review the CC&Rs, the budget, the reserve study, the meeting minutes, the insurance certificate, pending litigation, the owner-occupancy ratio, and the delinquency rate.
Red flags live in the fine print: low reserves, pending lawsuits, high delinquency, and excessive special assessments. A thorough review can save you from surprises that arrive after closing, Patriot Nation.
Essential Documents
The core documents are the CC&Rs, the budget, the reserve study, meeting minutes, the insurance certificate, pending litigation, the owner-occupancy ratio, and the delinquency rate.
The meaning: each document answers a different question about the community. The CC&Rs set the rules, the budget shows the money, and the minutes show what the board is actually doing.
The money consequence: together these papers reveal the true monthly cost of owning the unit, including the assessments that are coming whether or not you budgeted for them.
The real-world play: I tell condo buyers to treat this stack like the inspection report, because a community's finances can cost you more than its plumbing.
Red Flags
Low reserves, pending lawsuits, high delinquency rates, and repeated special assessments are the warning signs that a community is living beyond its means.
The meaning: red flags are patterns, not single events. One special assessment can be legitimate, and a steady stream of them is a different story.
The money consequence: a community without reserves funds its repairs through your pocket. Every shortfall becomes a fee increase or an assessment on your unit.
The real-world consequence: buyers who skip this review learn the cost the hard way, through a $10,000 assessment for a roof they never saw. Do the homework first.
How to Interpret Financials
The budget shows how the association spends money each year. Compare it to the reserve study to see whether the community is setting aside enough for big future repairs.
The meaning: the budget is the annual plan, and the reserve study is the long-term plan. A healthy association funds both.
The money consequence: when the reserve study shows a big roof bill ahead and the budget shows no money saved for it, the difference lands on the owners as an assessment.
The real-world play: I look for the gap between the two documents. A funded reserve is the difference between predictable fees and surprise bills.
Reserve Study Importance
The reserve study is the plan for major repairs like roofs, elevators, and parking structures. A healthy reserve fund means fewer surprise assessments down the road.
The meaning: the reserve study is the community's maintenance forecast. It tells you what big items are coming and whether the money is being saved for them.
The money consequence: a well-funded reserve spreads big repair costs across years of fees. A thin reserve concentrates them into one painful assessment.
The real-world consequence: the reserve study is your clearest look at the future, and the only one the seller has no reason to sugarcoat.
Litigation Concerns
Pending or past lawsuits against the association can drain reserves and raise fees. Ask what the litigation is about and what it could cost.
The meaning: lawsuits are a claim on the community's money, and that claim comes out of the same pool that pays for your building.
The money consequence: a big judgment can empty reserves and trigger assessments, and even a settled case can leave higher insurance costs behind.
The real-world play: ask the direct question about pending litigation and read the answer in the minutes. The cost of a lawsuit is a community cost, and you are joining the community.
Budget Health
A healthy budget covers operating costs and still funds reserves. An unhealthy one leans on special assessments and fee increases to stay afloat.
The meaning: a healthy association runs like a business that saves for the future. An unhealthy one lives month to month and passes every shortfall to owners.
The money consequence: the difference between the two shows up in your monthly fee and your occasional assessment, which means it shows up in your budget.
The real-world consequence: read the budget the way you would read a company's books before investing. Your condo fee is a subscription you cannot cancel.
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