Before buying a condo review the HOA documents carefully. These documents reveal the financial health and governance of the community you are joining.
Key documents: 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 rates and excessive special assessments.
Essential Documents
Required reading: CC&Rs (governing rules), budget (annual operating costs), reserve study (long-term repair plans), meeting minutes (recent issues), insurance (master policy coverage), and lender questionnaire (occupancy ratios delinquency).
Red Flags
Red flags: reserves below 50% of recommended funding, pending lawsuits against the HOA, delinquency rate over 15%, recently announced special assessments, and planned major repairs without funding.
How to Interpret Financials
Key financial metrics: operating reserves (3-6 months expenses ideal), replacement reserves (should fund at least 70% of reserve study recommendations), delinquency rate (under 10% good 10-15% watch over 15% bad).
Reserve Study Importance
A reserve study analyzes the remaining useful life of major components (roofs elevators parking lots) and recommends annual funding. Well-funded reserves mean fewer special assessments. Poorly funded reserves mean future bills for you.
Litigation Concerns
Pending litigation is a major red flag for lenders. Construction defect lawsuits are common in condos. If the HOA is suing or being sued ask what it is about and whether insurance covers it.
Budget Health
A healthy budget shows adequate reserves no large deficits and reasonable annual increases. Check for line items like management fees maintenance insurance and utilities. Compare to similar properties.