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Before You Buy a Home for Retirement: 10 Things for Your Financial Due Diligence List

Category: Active adult communities

April 3, 2012 — So let’s assume for a moment that you have come pretty far down the line toward buying your dream home for retirement. Whether it’s in a 55+ community, an active adult community, a Continuing Care Retirement Community, or just a home in a regular neighborhood – what are the steps you need to take to protect yourself from a bad investment and unpleasant surprises? This article is Part I, which covers the major financial issues to look out for. Part II will address due diligence concerns relating to community and social issues. As always, before you make a major purchasee consult with your real estate professional, attorney, or financial advisor.

1. How solid is the financial situation of your developer or Home Owner’s Association?
There are a host of questions under this topic, but the basic one is this – can the organization you are about to join weather a storm, either physically (think hurricane, fire, flood, tornado) or financially. It is worth the time studying this issue before you write out a big check. Stability is what you want to see. Contingent liabilities are what you don’t want to see (possible lawsuits or claims).

2. Is there a reserve fund for maintenance, and how much is in it?
As a baby boomer you have learned by now that roofs wear out, and so do elevators, roads, swimming pools, and systems for air conditioning and septic. Balconies, maintenance buildings, siding, etc. need to be replaced. The smart organization has a sinking (reserve) fund that carefully plans how to pay for these eventualities on a schedule. The less savvy ones will be unprepared,or use what the funds to pay for non-essential projects. The all-too common result of bad planning is a big assessment that not all of your neighbors will have the money to pay. The age and condition of your development is very important – if you see signs of major maintenance being postponed and no plans to pay for it – look out!

3. What is the track record on condo or association fees?
Not that the past will always predict the future, but you do need to know the history for condo fees. Have the increases been regular and reasonable, or has something gone on that dramatically increased them?

4. What type of assessments have there been?
Look for stability and predictability. Sooner or later, almost every development that is community owned will have an assessment. But erratic, big surprises are a bad sign.

5. Have you examined the financial statements?
The first red flag is an HOA or developer that can’t put their hands on recent financial statements. Run, don’t walk toward the exit, if that is the case. Financial statements usually make the most serious flaws obvious. But sometimes the truth is obscured. If you don’t feel comfortable reading financial statements, hire a competent accountant or attorney to review them for you.

6. Read the Condo documents.
Every Home Owners (Community) Association is required to have documents that stipulate how the community will be organized and run. Different states have different requirements. All kinds of requirements and restrictions can be contained therein – and you don’t want to find out, after you have purchased, that you can’t live with some of them.

7. Read the HOA minutes – or better yet, attend a meeting.
There is no better way to find out what is going on in a community than to sit in on a condo meeting. You will get a chance to see how effective the volunteer leadership is, what the continuing problems are, and the overall chemistry of the community.

8. What are the foreclosure rates, and how many homeowners are behind on their dues?
Things are getting better, but it is still shocking to find out how many communities are in serious trouble because of unsold homes, foreclosures, and homeowners who are delinquent on their association fees. Empty homes or ones in the process of being abandoned are bad for real estate values. And when a significant portion of homeowners fall behind or stop paying association fees, problems ensue. Services are cut. Employees laid off. Fees go up as fewer people have to support the community. You definitely need to know these figures before you buy.

9. What is the reputation of the builder/developer?
Sometimes you might love the property and the concept, but the developer or the development is relatively new. In that case you need active due diligence, finding out everything you can about their past projects. In the case of a big name developer, you can go online and find out a lot by typing different queries about them into Google. Or you can demand references and ask them your questions. Caution: there will always be unhappy buyers. You have to look for signs where the developer did their best to resolve complaints. Happy customers are a good sign!

10. In a new community, who will own the recreational facilities and common areas?
Sales people can be guilty of being too glib when it comes down to the nitty gritty of who owns – and who pays for – what. In some cases the developer might continue to hold title to facilities like the clubhouse and/or golf course. Your association might have to pay a fee for them to manage those, and you might not have much control. On the other hand, your association might have to buy these facilities, and then manage them yourself. Either way can have advantages and disadvantages – you just need to know. This issue is generally more of a concern in a newer development.

Next Time – Social, Community, and Other Due Diligence Issues
We don’t want to come across as the prophets of doom. Many, many people live in well-managed, financially sound active adult or 55+ communities. We just don’t want our loyal members to be in the minority who bought too quickly or went into a purchase without their eyes wide open. The problems to look out for can be different, depending on whether you are buying into a new or an existing community. Next time, Part II: Social, community, and other due diligence items you need to look out for before you buy.

For further reference:
Falling Dominoes Endangers More Home Owners Associations
Home Owners Associations Struggle with Delinquencies
Seven Steps to Follow for Finding the Best Active Adult Community

Comments? We look forward to your insights. Please tell us your ideas for financial due diligence in the Comments section below!

Addendum: After we published this article a member asked if we could add more due diligence tips for people who were buying a home in a general community, not a 55+ or active community. Although the focus here was on retirement type communities, because there are so many more due diligence items to consider, we’ll try our best to add a few general tips. Here goes:

– Get a home inspection from a competent professional. Realtors often know who does a good job.
– Hire a lawyer to represent you with the contract. In some states a realtor can help you with contracts, we would recommend getting a reputable attorney to help you avoid unpleasant surprises.
– Understand any contingencies you might face.
– Get copies of bills for taxes, heating, cooling, electricity.
– Find out what is being conveyed in terms of extras and appliances. What kind of shape are they in?
– Get a radon inspection.
– Ask your attorney and realtor what else you should know and be on the lookout for.
– Get your accountant or financial advisor’s advice on what type and terms of financing you might seek
– Check out the neighbors.

What else did we miss? Please contribute to this list, which we are sure is only a partial one.

Posted by John Brady on April 3rd, 2012


  1. A car – and don’t forget that gas and insurance – can be a big expense. Look for a walkable community as well. Check out and see how walkable a potential community is. Besides having a sound reputation, the builder should be instituting universal design features into the housing.

    Jan Cullinane, The New Retirement: The Ultimate Guide to the Rest of Your Life (Rodale) and The Single Woman’s Guide to Retirement (Fall 2012)

    by Jan Cullinane — April 4, 2012

  2. 12. Stay far away from HOAs and avoid steps 1-11. Live free or die!

    by Michael Lewis — April 4, 2012

  3. In the introductory paragraph, you say this article is about buying a “home for retirement. Whether it’s in a 55+ community, … or just a home in a regular neighborhood …”. But so far, very little you said applies to a “regular neighborhood”. Please add more info to Part I about buying homes that are not in adult communities.

    Editor’s Comment: Good point Marty. Since we did mention regular neighborhoods we have just added a number of important due diligence points for that situation (they are at the end of the article). Who else can add more?

    by Marty Barnett — April 4, 2012

  4. 1. Alluding to Mr. Cullinane’s “A car”: check out the public transportation provided, by both the community and the local city/county. Here, in West Palm Beach, Century Village (and your COA fees) provides extensive busing; and Palm Beach County’s PalmTran, for $3 each way, comes to your door and takes you anywhere in the county. In addition, the regular county buses are reduced fares for seniors.
    2.Check insurance rates, especially near the ocean in Florida and the Gulf Coast.
    3.Real estate tax. May rise for new owner.
    4.Homestead tax exemption for primary residence.
    5.State’s financial status. lists every states’ present tax burden.
    6. For rental information, go to trulia or

    by oldnassau'67 — April 4, 2012

  5. Wow, thanks Jan! That seems to be a great tool!! How is it I’ve totally missed hearing about it! Great alternative, since not everyone has unlimited funds to sink into a new retirement home.

    by Victoria — April 4, 2012

  6. John, great article. I’m writing about your comment 6, urging people to read the HOA docs before they buy. I’ve been researching several communities and I just assumed their homepages would have links to their HOA docs. Boy, was I in for a surprise. I contacted one of the places in FL that you recommended and asked them for a link to their HOA docs. I got the link alright, along with hefty price tags to pay to open them! Of the communities that do have links, I found that many only have a portion of their docs online. Is this a common business practice among the 55+ communities? Are these docs not public records? I think their policies of non-disclosure is a slick and very unprofessional sales tactic. They pressure people to buy then whip out all the rules. It’s like buying a ticket on the Titanic; its “practically unsinkable,” but then again…… My position is no disclosure=no sale. Thanks again for a great article.

    by Eileen — April 5, 2012

  7. […] items to be considered as well. Please add them as Comments to this article. For Further Reading 10 Things for Your Financial Due Diligence List Posted by Admin on November 20th, 2012 Comments (0) Entries (RSS) and Comments […]

    by » Hurricane Sandy Can Teach You about Buying A Home for Retirement Topretirements — November 20, 2012

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