Test-drive your dream condo
With condo prices down -- way down in many places -- you can now afford an oceanfront or golf course condo that was out of your price range just a few years ago.
But that doesn't mean you should rush out and buy it today.
We think it's smarter to test-drive the condominium of your dreams by renting a unit similar to one you'd like to buy in your favorite building or development.
The median condo price fell to $176,100 last year, down 16.1% from 2008, according to the National Association of Realtors.
Although the economy is improving, economists predict at least 2 million new foreclosures will be added to the already substantial list of bank-owned properties this year.
That's expected to push home prices even lower in 2010, with property values bumping along the bottom for several years after that.
You'll probably pay less -- or at least no more -- by pushing your purchase off another year.
You'll also find rentals -- often foreclosures or units that investors haven't been able to flip -- are abundant and affordable in most places.
Checking out the place before buying wasn't an option during the condo craze of the early 2000s, when developments were being sold out before construction began and investors were bidding up prices.
But now you can discover whether the development delivers the lifestyle you're expecting before risking hundreds of thousands of dollars on a unit.
Renting also allows you to avoid all of the nasty surprises that can turn any condo into a nightmare.
Go ahead. Sign a one-year lease and:
Watch how the property is managed. Observe how quickly and effectively the management company or homeowners association deals with neighborhood issues such as fallen trees or excessive noise, and chat up the neighbors to see what their experiences have been. Watch for signs of deferred or inadequate maintenance such as peeling paint or weed-filled gardens. That could be a sign that too many owners are not paying their condo fees.
Analyze the condo association's finances. Check out how many property owners are late with their fees and the size of the reserve fund. As a rule of thumb, no more than 10% of owners should be late, and the association should have the equivalent of 25% of its annual gross income in reserve for major maintenance or emergency repairs.
Attend homeowners' association meetings. They can provide valuable information about potential problems such as aging roofs, heating or air-conditioning units. That's the kind of work that can lead to big special assessments over the next several years -- especially if the reserve fund is tapped out.
Find out how many units are rented. Any more than 10% is a concern. Investors are more likely to stiff the condo association and allow their units to fall into foreclosure. Since banks tend to be wary of condominium communities with lots of renters, it could also be more difficult to obtain a mortgage.
Watch sales trends. Are units sitting vacant for a long time before they sell? Are prices stabilizing or going down? Are there foreclosure notices on several doors and short sales, or do traditional sales dominate? As a renter in the thick of things, you will be in a unique position to observe local trends.
Crunch the numbers. Even if everything checks out, you may decide it still makes more financial sense to rent than to buy. The value of your dream condo might still be falling a year from now or the cost of renting may be lower than home ownership.
Our "Rent or Buy" calculator can help you make that call.
Either way, you'll be well-prepared to make the call on whether to buy, renew your lease or find a new dream home.
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