March 11, 2015 — Whether you are in the shiny model home or the posh real estate office, it’s the positive that gets accentuated when you go looking at retirement real estate. According to the enthusiastic salesperson the amenities are great, the fees are low, and the neighbors – well, they are especially interesting and friendly. What’s more, there are only a few more great homes available before the whole project is completely sold out.
But unfortunately there are often things unsaid, whether you are looking at buying a new home in a brand new community or a pre-owned unit in a 55+ community that has been around for decades. This article will help you understand some of the potential pitfalls by pointing to situations you need to ask about. Mind you, most active communities are well run entities thoroughly enjoyed by their residents. This article is designed to help you identify the ones you want to avoid or treat very carefully. So here goes: 10 things Your new active adult community might not tell you – unless you ask:
1. The developer owns the amenities and does what they want with them.
Sometimes this works out great. The developer stays involved in the community and has a vested interest in keeping them in great shape. But other times they are uninvolved, maximizing fees and not investing in maintenance and improvements. Mind you, even when the community owns the amenities there can be problems.
2. It’s a land lease community and the average yearly increases really add up.
There are advantages and disadvantages to land lease communities, and you need to understand them. One of the big minuses is that the yearly rents continue to go up year after year, eventually adding up to big bucks in your final years.
3. The delinquency rate on community association (HOA) dues is going to cost you money.
There are a lot of financial ares you need to investigate when you buy into a community. While the situation is much better now than it was in the depths of the recession, there are communities where a substantial number of the homeowners are behind in their fees, which can cause problems as the association runs low on money.
4. The rules about pets, exterior decorations, parking, guests, renting, etc. are capricious and ever-changing.
Before you buy, ask a lot of questions. Are your needs going to be met for pets, parking, renting, etc. If not, better find another community with rules that fit your preferences and situation.
5. You can buy a resale for a big discount on what a brand new home costs.
One thing about the retirement market – there is a lot of turnover. People change their plans, they get sick or die, and homes change hands. So if you are flexible about what you want in a home and don’t absolutely have to move into a new one – check out resales. A wonderful but slightly used home might be available for much less than a brand spanking new one.
6. The transition between developer and Home Owners Association is up in the air and the process for that undefined.
This is perhaps the trickiest phase in a community’s life cycle. There are a lot of ifs and uncertainties about this transition – who will own the facilities and infrastructure, how will it get transferred and what does it cost, what kind of reserves and guarantees are there, what is the developer’s role in the future, etc. If the transition has not yet been made yet, it is wise to ask a lot of questions.
7. To get the features you want on a base home will it cost you more than you thought.
Generally it won’t take you too long into the buying process to get a bead on this issue. But be prepared and a careful shopper; sometimes deals are available if you ask.
8. The HOA has not put away enough in reserve funds to cover expenses that will be necessary in the near future.
This is yet another serious financial issue you need to be on top of. Failure to keep adequate reserves usually leads to the next issue (assessments). Stuff wears out: roads, elevators, roads, swimming pools, golf courses, etc. A responsible board has a long range plan that puts away money to keep them all in good shape on a reasonable schedule.
9. There is a history of unexpected assessments.
Occasionally an assessment is unavoidable, such as a reaction to a natural disaster. But any pattern of unexpected and large assessments is a pretty good sign that this community and its board is not doing a good job of planning.
10. The Board is dysfunctional.
Make sure you have read the recent board minutes. Are there good minutes, are the elections documented with new board members rotating in? Talk with residents and get a feel for how they feel the board works.
Sometimes even the most thorough investigation fails to anticipate a problem. But generally a solid job of due diligence into your new community will turn up the red flags you need to know about. Spend the time in advance, and avoid headaches and regret down the line.
Comments? What kind of difficulties or surprises have you encountered while shopping for a home in a 55+ or active adult community? Or were there unpleasant surprises after you bought that you wish you hadn’t encountered? Have you bought and later regretted it. Please share your thoughts in the Comments section below.
For further reading:
Home Owners Associations: Friend or Foe?
Part 1: Meet the New Boss, Your HOA
Part 2: What You Need to Know About Homeowners Associations?
Part 3: What Happens When the Developer Leaves and the HOA Takes Over