Our latest installment, “When Active Adult Communities Go Bad“, might have put the fear of the Lord into many of our readers. This week’s article is intended to provide the basic steps you can follow to minimize your risk in buying into an active adult community, and help you take advantage of the many bargains out there in the market.
The topic is particularly important in 2009 because the housing market is in such turmoil. As the expression goes, a rising tide lifts all ships; unfortunately the converse is true today. Things can go very wrong in a down real estate market, so extra caution is well-advised. Here are our top 10 Self-Defense tips (and of course start with this one: Find an ethical, knowledgeable real estate agent and use his or her advice wisely).
1. Don’t be the first buyer (or one of the first). These days there are no guarantees a community will ever get finished, or sell out. If it doesn’t get built the way it’s promised, you could be living in a ghost town.
2. Go with reputation. America’s top builders with solid financial numbers are generally a safe bet. They have the marketing and financial muscle to finish their communities, and you have less chance for getting burnt. Not to say there aren’t many local developers with blue chip reputations.
3. Practice your due diligence. Regardless of who you buy from, dig into the company financials. Interview current residents and neighbors. Has a 55+ community been renting to anyone just to pay the bills (and jeopardize its age-restricted status or have undesirable neighbors)? Google the project to look for controversies or legal issues you might have overlooked.
4. Consider a resale unit. In many active adult communities today local real estate agents have a long list of attractive properties. Their owners are eager to sell, usually at a lower cost than a comparable new unit. Often these homes have the kinks worked out, and there might be additional improvements you won’t have to pay for. On the downside, you might not qualify for a warranty or have little recourse.
5. Scrutinize the Home Owners Association (HOA). Effective HOA’s are a lifesaver. Well-run associations run a tight financial ship; they won’t ignore bills that could lead to your community going bankrupt. They enact meaningful and fair rules to protect everyone’s assets. They fight for the community’s legal rights vs. the developer to make sure that the community’s interests are served. The converse is true too. Inbred, lazy, or unskilled associations drop important balls. Everything is fine until one day you find out that bankers have foreclosed and you are about to lose your golf course or community clubhouse. If you want to see what can happen when condo associations go bankrupt, read this article: “Condo Associations in Bankruptcy“.
6. What is the Reserve (Sinking) Fund status. A reserve fund is essential. It puts away money every year to pay for future major capital costs like a new roof, road resurfacing, or utility lines. If inadequately funded, some day you could face a bankrupting assessment.
7. Assessment History. Find out if there have been assessments in the past, and for how much.
8. Relationships with the Developer. Research and interview to find out how the relationship between owners and the HOA is going with the developer. There will always be issues, but look for a relationship that is cooperative and friendly.
9. Home Inspection. Always, always pay a professional for a home inspection. Even a new home can have serious problems.
10. What else could get built nearby? Too many people have bought into an idyllic setting, only to smell the bulldozers clearing that forest across the street. Find out what protections there are for any views or undeveloped areas.
Finally, invoke all your common sense. There are many excellent bargains to be had today. Careful buyers can make some smart investments. Just make sure you do your homework before you turn over that deposit check!
For Further Reference:
Community Associations Network (an excellent resource about HOA’s)