Amy Silk has been renting her extra large one bedroom apartment on Village Boulevard in North Palm Beach, Florida for the last two years. She loves it there – the location and amenities of the property fit her needs perfectly. The rent is affordable and she likes her neighbors and the security the property affords. Without warning, Amy received a letter from the apartment Management company, informing her that the property is going to be converted to condominiums. As Amy went on to read the letter, she noticed that existing renters were going to be given the opportunity to buy their apartments (called a “first right of refusal”) before any other offers from potential Buyers were to be considered. The existing renters were to be given a price reduction before the apartment was offered to the general public for sale.
While Amy was relieved that there was an alternative to moving (buying the apartment), she wondered what she should do to prepare for the purchase, and what information she should gather before she committed to a purchase. The first consideration would be the asking, or Sales Price, of the unit. Next Amy would want to ask about the monthly maintenance fees (to the Condominium Association that would be established), and if there were any assessments coming up. She would want to ask to review the Articles of Incorporation of the Association and the Condominium documents, governing what can or cannot be done at the property. Since insurance is usually included in the monthly maintenance due, Amy would be responsible for insurance for her individual items (within the unit itself). If Amy decided to buy her apartment, she would be buying the walls and interior of the unit, together with a percentage ownership in the common areas of the building or property. Amy should also ask what percentage of the units would be allowed to be rented out (and for what length of time). Many condominium projects limit renting out your unit to once a year, or once every two years. Many lenders also limit the percentage of units which may be used for rental purposes.
The biggest advantage to Amy of buying her existing apartment is knowledge of what she she would be buying. Since she has lived in the property for two years, she is familiar with the location, construction, and over-all environment in the complex. She should be aware of the neighboring properties as well, and have a feel for the direction the neighborhood is taking. Is it on the up-swing, with owners improving their properties, or is it declining in value and desirability? Another advantage is her ability to qualify for a mortgae. A lender would probably look favorably on Amy’s past history of paying rent at the property (assuming she had paid rent on time during her occupancy). The development company handling the conversion may be offering “owner financing” to existing renters, which may be a consideration for Amy. Most lenders issue financing on condominiums, so Amy could certainly also look for other financing options from banks.
One last option that Amy can consider is staying put and hoping that the new buyer will allow her to continue to rent the unit. If this is a possibility, Amy would want to ask the new owner what the rent would be, and what length of time the rental lease agreement would cover.
Copyright © 2005 Sandy Gadow. This article may not be resold, reprinted, resyndicated or redistributed without the written permission from Escrow Publishing Company.
How will the condominium association determine the monthly fee for each unit?
Often the monthly fees set up by the developer are based on the square footage of each unit. This means that the largest units will pay a higher monthly assessment than those a smaller unit. This is somewhat similar to how property taxes are assessed by the county tax assessor: the higher priced units will pay a higher tax than the less expensive units. The association’s covenants, conditions and restrictions determine how the monthly homeowner fees must be assessed and the method of determining the monthly dues can be changed only by a vote of the membership.