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©
2002 Ruth E. Campbell. |
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Frequently Asked Questions Investing
in Real Estate - Q & A Q: How do you choose between condos and single-family homes?
A: Using appreciation as a measure, condominiums in
some areas have been as profitable an investment as single-family
homes in the last five years. And in some markets, condos appreciated
even more, according to some experts. While single-family homes have been the preferred investment
by home buyers, changing demographics are helping make condos
more popular, especially among single home buyers, empty nesters
and first-time buyers in high-priced markets. Also, the condominium community has worked hard in the last
few years to overcome image problems brought on by homeowners
association and developer disputes as well as all too frequent
construction-defect litigation. Q: Are condominiums risky to buy?
A: While condos never had the kind of appreciation experienced
by single-family homes in the go-go 1980s, most ultimately have
not lost value, say some experts. And with high prices in many
urban markets and more single home buyers in the market than
ever before, the market for condos is strong. As with any home purchase, you should do your homework about
the neighborhood or development before you buy. In the case
of condominiums, it is important to read the past six months
of homeowners association minutes to see how effective the board
is and to learn about any possibly detracting issues (such as
protracted litigation with the developer). The condominium community has worked hard in the last few years
to overcome image problems brought on by disputes and lawsuits.
Associations are becoming more sophisticated about property
management and taking steps to prevent legal problems and disputes. Other resources:* Community Associations Institute, 1630 Duke
St., Alexandria, VA 22314; (703) 548-8600. * "The Condominium
Bluebook," Brained E. Backed, B&B Publications, San Francisco,
CA; 1993. Q: What do you think of a vacation home as an investment?
A: You can buy a vacation home today for investment
purposes as well as enjoyment. And yes, there are tax benefits. Some people buy a vacation home to use as a permanent retirement
home later, which allows them to get ahead on their payments.
Another benefit is that the interest and property taxes on a
vacation home are tax-deductible. Some real estate experts predict that vacation homes will appreciate
in value due to rising demand from the aging Baby Boom generation.
You also can depreciate the property if you live in the house
less than 14 days a year. You also need to consider whether you can afford to carry two
mortgages, pay for the extra utilities and maintenance costs,
and how this investment fits into your total personal finance
picture. Q: What do you think of get-rich-quick real estate schemes?
A: Most real estate experts say there is no such thing
as getting rich quick in real estate. But there are no end of
get-rich-quick programs presented to the public as alternative
methods of buying real estate. Some are reputable while others depend on your financial circumstances
to work. A handful are simply scams. Many get-rich-on-real-estate programs offer advice on how
to buy government foreclosure properties and participate in
other government programs. Most of this information can be obtained
by calling the government offices involved directly. Anyone interested in real estate investments would be wise
to explore a variety of sources. Most investors view real estate
as a long-term investment. Deals that sound too good to be true
often are. Q: Do condos have to be made accessible to the disabled?
A: The 1990 Americans with Disabilities Act does not require
strictly residential apartments and single-family homes to be
made accessible. But all new construction of public accommodations
or commercial projects (such as a government building or a shopping
mall) must be accessible. New multifamily construction also falls
into this category. In all states, the Federal Fair Housing Act provides protection
against discrimination for people with physical or mental disabilities.
Discrimination includes the refusal to make reasonable modifications
to buildings that aren't accessible to the disabled. Two educational brochures, "Housing Rights" and "Discrimination
is Against the Law," are available through the Department
of Fair Employment and Housing by calling (800) 884-1684. Q: Can condos ban smoking?
A: A homeowners association's board of directors can
restrict smoking if it applies to indoor common spaces such
as hallways or recreation rooms. Outdoor spaces are a different
story, say legal experts. Any restriction would probably hinge
on local laws (i.e. if a city banned smoking outdoors, a homeowners
association probably could restrict smoking in its outdoor spaces). Typical covenants, codes and restrictions (CC&Rs), which
govern condo associations, give the board authority to make
and enforce reasonable rules for the use of common property.
But that would not apply to interior spaces owned by smokers
themselves. Resources:* Common-interest development brochure
available free from California Department of Real Estate, Book
Orders, P.O. Box 187006, Sacramento, CA 95818-7006; (916) 227-0938.*
Various Internet sites specializing in common-interest developments,
such as those operated by the Community Associations Institute
and CIDNetworks. Q: Are condos a good investment?
A: Condominiums have held their value as an investment
despite economic downturns and problems with some associations.
In fact, condos have appreciated more in the last few years
than when they first came on the scene in the late 1970s and
early 1980s, experts say. While there are lots of reports about homeowners association
disputes and construction-defect problems, the industry has
worked hard to turn its image around. Elected volunteers who
serve on association boards are better trained at handling complex
budget and legal issues, for example, while many boards go to
great lengths to avoid the kind of protracted and expensive
litigation that has hurt resale value in the past. Meanwhile, changing demographics are making condominiums more
attractive investments for single home buyers, empty nesters
and first-time buyers in expensive markets. Q: How do I project rents on a rental?
A: If you are buying a rental income property and applying
for a loan to do so, the lender will require an area rent survey
by a certified appraiser. The amount a landlord can expect to
receive in monthly rent largely depends on what the property
has rented for in the past, the condition of the building, its
location and the current housing market. Lenders also look at other cash-flow considerations. They
want to know if you have enough reserves on hand to cover predictable
and unforeseen expenses, such as property insurance, taxes,
regular maintenance and repairs. Q: Are one-bedroom condominiums a good investment?
Q: How do I figure out the homeowners association?
A: Learn everything you can about the homeowners association
before you buy into a development governed by one. The association's
financial, political and legal conditions are very important
to your investment and quality of life. When run properly, homeowners associations maintain the common
grounds and keep civility in the complex. If you follow the
rules, the association should not intrude on your privacy or
cost you too much in association dues. Poorly managed associations can drag down property values and
make living there difficult for residents. Start by studying
the association?s covenants, codes and restrictions, or CC&Rs,
and find out if you can live by them. For example, if the rules
prohibit loud music after a certain hour and you like to play
your CDs late at night, this may not be the place for you. Don't
move in thinking you can get away with violating the rules or
change them later because you may find yourself in turmoil with
determined neighbors firmly in control of the association board. Find out all you can about the association's finances. Beyond
reviewing the budget, talk to the association treasurer and
find out if dues are expected to increase and if any special
assessments are planned. Ask if special inspections have revealed
problems with roofs or plumbing that may cause a dues hike or
special assessment later on. Call and meet with the association president. If you are the
type of person who despises intrusions into your private life
and the president seems more interested in gossip about the
residents than maintaining the property, this may not be the
right condo complex for you. Speak with residents to get their views on the association's
finances, its property manager, how it operates and any politics.
Associations are volunteer organizations with elected boards,
like a mini-government, so politics can enter the picture and
spoil a good thing. Lastly, take some time to understand how homeowners associations
are organized and how they conduct business. Like all real estate
investments, the more you know the better off you are. |