Homeowner’s Associations (HOA’s) are, and have been the cause of much grief for many over the years. They exist for a communal benefit of a group of property owners. But who could have guessed that one HOA could stigmatize a property so badly that the retail value would plummet overnight? The only other issue that could cause a similar stigma that I could conceive would be a double murder suicide. That could cause a property value to plummet, but to cause an entire complex to be stigmatized? I’m sure there are others with their stories.
I will speak about my particular experiences, the reasons HOA’s exist and why they are important, why HOA’s are so hated, and welcome others to comment.
For those that don’t want to read the entire story here it is in a nutshell: the members approved a special assessment to paint the building and do some balcony repair. My part was $12k. I immediately put my unit on the market to cover that surprise assessment. Shortly after the work started the construction crew discovered severe structural issues with the concrete floating balconies. The estimate came to an additional $31k. Nobody will buy that condo now.
The members in an outrage, plus a lot of discussions of alternatives discussed such as staggering the timeline, looking into other materials an other solutions, all to be a waste of time an energy as an additional assessment of $31k was levied and approved by the board, without the need for member approvals.
The entire complex devalued overnight. Nobody will buy into that complex with that stigma and without years of proof that the building is sound.
Background
I’m not afraid to invest in condominiums. I’ve had some great luck buying, rehabbing and selling condo’s for a profit. Plus I’ve been very generous to my private cash investors. I can list a few that were slam dunk, easy peasy and highly profitable deals. But there is a reason most experts say to avoid condo’s. This is one of them.
Not wanting to put blame anywhere, I tend to listen to what others want and I watch out for those types of opportunities. Sometimes I get stuck with the property myself, as they changed their minds, or the numbers weren’t as profitable as we originally thought. That’s OK with me as I’m the one that saw the opportunity and bid on it.
In the back of my mind, I remember my strongest hard money lender telling me to watch for a condo for him in Florida, as he was based in Michigan and very tired of the cold. He wanted something rather large, close to the beach, and the view wasn’t as important as the location. And voila! About a year later one appeared and the profit margins were solid.
I secured the property, and since it was a milder winter than when he first suggested that I look for a property like this, he wasn’t as motivated. No problem, the spreads were still pretty darned good. I took it on myself.
The Property
This is a 3 bedroom, 3 bath, 2,167 square foot oceanfront property in a peaceful setting of the Treasure Coast in Florida, surrounded by high dollar high rise condominiums. The unit I bought was in bad need of cosmetic updating. Built in 1982, it had all the original kitchens and bathrooms and it was in need of a major overhaul.
A new area for me, I vetted several contractors and agents, all saying that I needed to budget $60k for a rehab. Sixty thousand dollars for a condo? A house with a gut rehab in Chicago, maybe, but not a Florida condo.
Off I went to Florida to hire the necessary help to rehab the property to the area’s standards. I was able to negotiate less than the $60k the locals estimated, but still the salt air destroyed any metal and there were unforeseen costs.
I was so pleased with the support I got from the condo board as I tried to get into the unit and get access to the various tools I needed, such as security codes, garage openers, etc. I was so fortunate to have the best condo association work with me on this property. I even told them they were the best I ever worked with. The response? “Well…a new board is coming so I can’t say that will continue…”. {ENTER JAWS MUSIC HERE}
The Timing
Delighted to finally get the property ready to sell, I ended up with an agent that wasn’t anywhere near the property, knowing nothing about the area and didn’t even respond when the HOA contacted the agent for issues like, the HotWater Heater broke and was flooding the garage. Dang. And she was insulted when I didn’t renew the listing agreement.
In that time period, the property right next door sold for well below it was worth, totally ruining my ability to reach the sales price I wanted. What more can you do but rent it out for a year, which is what I did.
The Assessment
The new board members in charge, they immediately campaigned for an updating and refreshment of the building, often blaming the previous board members for their deferring maintenance and not managing the property correctly. OK, so I got talked into approving the $12k assessment, yet I made it very clear I would have to sell my unit to pay that fee. The response was that I just needed to show some effort for paying on that amount due. Come to find later we both misunderstood each other since now I’ve been told they will impose late fees and interest on the unpaid amount. SMH. They can do it. It’s in the condo docs and the HOA is protected by Florida law. What isn’t necessary is to deliver that message from a position of power as a looming dictator, as opposed to a fact. But that’s why we have the word “bully” in the dictionary.
The construction started with the 2 buildings closest to the ocean. Shortly into the process they discovered some severe issues with the structure of the balconies. Not only had the concrete deteriorated due to “tile floors” allowing moister to seep into the concrete, therefore rusting the rebar and basically turning the concrete into powder, the post tension cables had gone bad and some even broke. This is a very serious issue as this kind of environment could cause extreme damage and lives could be harmed.
The construction issue had to be totally reevaluated. The balconies aren’t safe.
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The Conflict
Given I wasn’t liquid enough to pay the initial $12,000, you can imagine my shock that they claim another $31,000 was required and that it was my responsibility to pay for incidental issues involved with the construction, such as removal and replacement of the hurricane shutters, etc.
To be successful as a real estate investor, you must be able to come up with alternatives to complicated issues such as these. Do we need to replace these floating balconies with the same? Can we use steel? Can we prop them up with posts? What about wood balconies? How can we reduce this amount? Can it be spread over time?
All of these options were discussed and overruled. At this point the board is in charge and it doesn’t matter what the members propose, and even though we thought we could have a say, we couldn’t. The board is protected by law and they all unanimously approved that assessment. That assessment, by the way, had a budget of $40,000 for legal fees as they expect they will have to sue a few people that may withhold payment. Geez.
Where was that nice board I worked with before? The one that looked for the win/win to uphold the fabric and enjoyment of the somewhat small community?
Polarization amongst the owners has begun. Distaste from the current board members to the previous board members obvious, the position of power stance the current board members exercised and promise to uphold a clear statement to the rest of this previously harmonious community.
The HOA Laws in Florida
Believe it or not, my handyman, who was once a president on an HOA board, could explain things to me that helped me understand why HOA boards are often put in such a difficult situation, imposing such unreasonable demands on innocent people like myself trying to make a living. There is the law, then there are people’s personality embellishing their perceived position of power.
The Florida laws are there to protect the HOA. The HOA must follow and enforce their own rules, regardless of unforeseen issues, in order to continue to be protected by the law.
One example I saw was an HOA ordered fines for someone installing a door that wasn’t the correct color. It went to court and the HOA lost because the previous board members allowed others to have different color doors. Therefore, if the HOA doesn’t enforce their own rules, they aren’t protected by Florida laws.
The Silver Lining
I’m stuck with a property that is stigmatized so badly there is no selling price that is possible. I don’t have the liquid resources to bring to the table to sell it, as there is so much owed between the mortgage and HOA fees, let along getting any of my investment out of it. So I decided to furnish the unit and rent it to snowbirds, if possible, as there are strict rental criteria according to the condo docs that can’t be changed even with the level of construction and inability for some to pay.
The silver lining is that it is in a beautiful location, on the beach and big enough for my entire family to visit when we want. It may be a struggle and the payments to the HOA will always result in a loss for me, and I will suffer a slow bleed for years to come. Give the beautiful location and close proximity to the beach, I guess I’ll enjoy it to it’s fullest extent.
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