Checking out the HOA

When you buy a college student condo or a town home, you should check out the Home Owners' Association(HOA) that runs and maintains the community. You'll want to know about the financial health of the association, what the Rules, Declarations, and Bylaws say, and if there are any critical issues facing the HOA that might affect you as a new owner.

Once you make a written offer on a condo or town home in Colorado, you are usually provided this information by the seller, through the agent representing you. In the state approved Contract to Buy and Sell Real Estate, the buyer is given a certain amount of time to review these documents and cancel the sale if they contain unacceptable restrictions. You can, however get a head start on this process and gather some of this information before deciding which condo or town home you're interested in.

Many property management firms maintain web sites that give this type of information on the communities that they manage. This is how that looks on one of our local property management firm's site.

Northfield Condominium Association Homeowners Section

As you can see, this management company makes it easy to preview the important documents before you decide if a particular condo or town home community is right for you. You might find that your 70 lb. black lab won't meet the association's 25 lb. pet restriction, no matter what kind of a diet you put him on!

Another, less official resource, is the Neighborhood Link web site that some communities post to let their neighbors and potential homeowners in their area in on what's happening. These sites are usually posted by the neighborhood's computer/internet guru who is sometimes authorized by the HOA board of directors and sometimes not. If there is a Neighborhood Link site for the condo/town home community you are interested in, it can give you a more personal look into what is happening in that neighborhood. I have linked to one such page here:

http://www.neighborhoodlink.com/ftcollins/hillpond/

These resources can give you more details about the community than just picking a random neighbor or two to talk with, but thats not a bad option either.

What about HOA dues?

Every condo and town home comes with a Home Owner's Association(HOA) that has the responsibility to care for certain aspects of the development. The dues that an HOA charges the condo or town home owners, pay for the expenses that are shared.

Most HOAs cover expenses for these items:

• Monthly water, sewer and trash bills
• Lawn care & sprinkler system maintenance
• Exterior maintenance on the buildings and parking areas
• Snow removal
• Fire and liability insurance on the buildings
  
• Professional management of the association

Additional items(if applicable) that a few HOAs also cover:

• Pool and/or clubhouse maintenance
• Tennis courts
• Cable TV and/or high speed internet
• Heating cost of individual units

HOA dues for the typical items range from $100/month to $185/month. For HOAs covering items in the second list, monthly dues at various associations will range from $150/month to $285/month, depending on what the HOA is providing. Heat and pool/clubhouse costs raise monthly dues the most. The age of the development also affects the monthly dues with older developments generally having higher dues to pay for additional maintenance.

In most cases, HOAs don't like to raise monthly dues very much and we just do not see dramatic jumps in dues. Typical increases range from $5 to 15 per month and usually do not happen every year. HOA boards work very hard to hold their costs down to avoid increases because the board members have to pay the increases, too.

We'll talk about the operations and rules of typical college condo home owner associations in the next few posts, to answer more questions that frequently get asked when considering such an investment.

Where are we headed?

The National Association of Realtors just announced that sales of existing homes in December 2008 jumped by 6.5% nationally from the number of sales a month earlier in November. Now, any real estate broker will tell you that it is not normal to see a jump of any size in home sales in the month of December compared to the month before because we all get busy with holiday shopping, family gatherings, company parties, school programs and any number of other things that distract from the big decision to look for and purchase a home. And from the media reports on holiday retail sales, or lack thereof, one wouldn't have expected higher home sales last month.

More interesting news:
Existing home inventory, homes with "For Sale" signs in the front yard, declined 11.7% in December.
Regionally, in the West which includes Colorado, sales of existing homes for December 2008 jumped 13.6% from November 2008 and they were a whopping 31.6% higher than December 2007!
The median price of a home sold in the West region was 31.5% lower than one year ago in December 2007. But remember, the West region also includes places like Phoenix, Las Vegas and California, where home prices were severely over-inflated.

Late last week the Federal Reserve(the Fed) announced that it had purchased $19 billion(that's with a B) worth of troubled, mortgage backed securities from Fannie Mae, Freddie Mac and Ginnie Mae, the folks who buy mortgages from lenders all across the country. By buying the up delinquent mortgages, the Fed has provided new money for Fannie Mae, Freddie Mac and Ginnie Mae to buy new, good loans from lenders like Well Fargo Home Loans, Countrywide Home Loans and lots of others. And the Fed has $500 billion(with a B) to spend doing this so more mortgage money is available to purchase and refinance homes. Thats why the 30-year fixed rate mortgage is down near 5% now and that's good news for buyers. HOWEVER, this action by the Fed, combined with the Economic Stimulus Package that congress and the new President want, could very well lead to inflation, and home prices always seem to lead the way in inflationary times. So, my prediction is that within the next two years we will see the start of a significant rise in the price of homes and condos again. That's what happens when the government prints too much money!

FHA Kiddie Condo Loans

One of the misconceptions that the major media outlets are perpetuating right now is that there is a lack of money for mortgage loans. Every bank and mortgage loan officer that I speak to, says that they are receiving call every day from would be mortgage borrowers asking if any money is available to buy an home or refinance a loan. And every one of those loan officers wants to get the word out that mortgage money is not only available, they have rates lower than we have seen in my lifetime, and I'm heading away from 50!

Probably the best alternative for parents of college students who are thinking of buying a property for their student to live in during school, is the FHA "Kiddie Condo" loan. This loan is available to anyone with reasonable credit and is not income limited in any way. It comes with a minimum 3.5% down payment, although you can make a larger one if you wish. The Kiddie Condo loan gets the borrower an owner-occupied interest rate instead of an investor interest rate and requires that the student who will live in the condo or town home be on the deed to the property and on the loan. This is how the loan qualifies for an owner-occupied interest rate. The non-occupying co-borrowers, that's mom and dad or any other blood relative of the student, actually qualify for the mortgage. The loans can be your choice of either fixed rate 30 year, 15 years, or adjustable. There is FHA mortgage insurance on the loan, which is currently tax deductible, just like mortgage interest.

FHA Kiddie Condo loans do require that a condo be in an area where the development is FHA approved & the owner occupied ratio to all owners be above 50% but a town home does not have the same occupancy requirement.

With current FHA mortgage rates in the low 5% range for a 30 year fixed loan, there is no reason to buy into the media hype of catastrophe in the mortgage markets. But, it's still a good idea to do your homework before you sign on the dotted line, just to be sure you are getting a competitive rate and closing fees.

To buy or not to buy, that is the question

I get a lot of questions from parents of CSU students about the wisdom and practicality of owning a condo or town home for their student during the college years. Usually, they want to know if owning is a better choice than renting, and my "it depends" answer is rarely what they expect. But lets take a moment to look at the pros and cons.

Renting is certainly easy in some respects. Houses and apartments are readily available in the current market, although that can change rather quickly. You can find some really cheap places to live, too, although they may be on the ugly side. And if you are not sure you will be in school or in Fort Collins for at least 2 more years, renting can make good sense.

However, renting also has it's drawbacks. Most of the apartments are more crowded than condos and town homes resulting in more noise, partying, neighbor nuisances and some forms of crime. Student renters also tend to move every year which is a sizable task and with each move come the risk of losing that damage deposit to the landlord who never thinks you left the place in as good a condition as when you moved in. Three deposits lost in three years adds up!

Now, owning a college condo or town home has a couple of drawbacks, as well. Your student can't just decide to move after a year if he or she decides the unit or location isn't a good fit so taking time to make a wise choice is highly recommended. And students who leave college early could force an early sale or rental of the unit.

Owning a condo or town home for a college student has the big advantage of making the housing part of the college expense tax deductible for most parents. It also provides more choices for the environment and location you would like your student to live in. Most often, condos and town homes are nicer & more secure places to live and may have more amenities than a typical rental. Your student can also begin to take some responsibility of ownership of the condo or town home and learn to manage both money and people by selecting the roommates and negotiating rents, which help make the mortgage payment. If a student owns the condo or town home with parents, he or she gains a more established credit rating, as well. Finally, owning a college condo or town home has historically been a very good investment in Fort Collins, with the price of residential property increasing at an average annual compound rate of 6.1% over the last 33 years. Many parents sell the unit for a profit after their student's graduation while others opt to keep it as a rental indefinitely or until another of their children come to CSU.

I'm always available to answer more questions on kiddie condos, as they are called, so if you have others that I haven't addressed, post a comment or shoot me an email. I'd love to hear from you.