FHA Condo Approval – the fiscally responsible option

Pushing your association to go for FHA condo approval can open up many options to you as an owner. This is true no matter if you plan to sell your unit, or if you plan to stay in it long term. A list of FHA approved condos for cities such as Houston is available on the FHA website.

FHA Condo Approval

FHA Condo Approval means a broader buyer pool

When you have FHA condo approval, you expand your buyer pool by 60%. It is a known fact that most American buyers use FHA approved loans, and Houston is no exception. It is also a known fact that most buyers look at your approval as a seal of quality in fiscal responsibility.

FHA Condo Approval means eligibility for reverse mortgages

Even if you don’t plan on selling your condo, consider this, as you age you may want to take advantage of a reverse mortgage. An FHA condo approval allows you to consider a reverse mortgage to supplement your retirement income if needed.

Approval says we are more fiscally responsible

The financial crisis of the past hit the country hard, even Houston felt the heat; increased delinquency and foreclosure rates for many condo associations. Because of the strict rules in place by FHA, FHA condo approval reflects a much stronger financial platform. Reserve fund requirements, rental to permanent resident requirements all build a solid financial platform for your condominium to operate on and give you and any potential buyer or lender peace of mind.

If FHA condo approval is so great, why aren’t all condos FHA approved?

Most condominium projects when new seek FHA condo approval because quite frankly, it makes the units easier to sell. If for some reason there is no approval in place, the condo association normally is not likely to seek it at a later date unless residents overwhelmingly insist.

Oddly enough, most condominium projects would have little challenge in FHA condo approval, but due to lack of interest by the majority of owners, they never seek it.

Requirements for FHA condo approval vary with the type and size of complex, and most of the process actually has to do with acceptable documentation and procedures because protecting residents against financial trauma is really what the approval is all about.

You also should consider that Fannie Mae and Freddie Mac have condo requirements that are very similar to those of the FHA, so again you can open up financing opportunities for buyers and owners, capturing a larger percentage of the Houston market.

Check with your condominium association today and see if your condominium complex has FHA condo approval, if not, consider being the driving force that gets your complex headed down that path. The pros definitely outweigh the cons and provide financial peace of mind for you as an owner.

Hurricanes and Windstorms; Texas Facts of Life

The folks at RISE in Houston will tell you, evacuate when told and be certain your condo insurance is current prior to the Gulf hurricane season. Advice that is important to follow, particularly with condo insurance. You need to know what your HOA provides and what is your responsibility. Houston not so many years back had issues with massive flooding after a hurricane hit the coast; even the large medical centers downtown suffered.
Hurricanes and Windstorms condo insurance
Hurricanes and windstorms are a fact of life if you are going to live in the great state of Texas and have advantage of coastal recreation like Houston. What exactly does condo insurance including wind and hail coverage actually pay for and where do you get it? For starters, we suggest you refer to this handy chart from the Texas Department of Insurance.

Buying Windstorm and Hail Condo Insurance

Condo insurance in any one of the 14 coastal counties and certain parts of Harris County on Galveston Bay can require the purchase of windstorm and hail insurance through the Texas Windstorm Insurance Association (TWIA). Policyholders in the balance of the state have the option to purchase wind and hail coverage in their normal condo insurance policies. So if you live anywhere but the above, contact your insurance agent and they can guide you through the process; for all others, contact TDI at 1-800-252-3439 or www.tdi.texas.gov

What does condo insurance cover?

Condo insurance that includes windstorm and hail covers direct physical loss cause by a windstorm or hail. It does not cover physical damage caused by floods, rain or storm surge, whether wind driven or not. There is a little cavort here, if the rain enters through a hole in your dwelling that was a direct result of wind or hail, then you are covered on the rain. Either way, insurance is a must in the Houston area and any other coastal area in Texas.

What’s the payout on condo insurance?

Condo insurance coverage for windstorm and hail can be purchased up to 1.77 million for your dwelling and contents. If you want replacement cost coverage, your TWIA policy limit is based on what it would cost to rebuild your home if completely destroyed by a covered windstorm peril. This amount will obviously differ with each condo insurance policy.

It does not however pay for additional living expenses. You may buy an endorsement TWIA 310 or 320 to add ALE coverage to your policy.

The bottom line on condo insurance, who buys the hurricane and windstorm?

Let’s face it, what you really want to know is who is buying the hurricane and windstorm insurance? Normally this condo insurance is purchased through the HOA as either a part of the master policy or in conjunction with the master policy. Some HOAs will incorporate the expense of this option in your monthly homeowner fees, while others will bill the insurance separately. Either way, the additional condo insurance should provide you, the homeowner additional peace of mind.

To make sure you are covered, contact your HOA or management company and ask for a copy of the windstorm policy today. Purchasing this type of policy during the hurricane season is nearly impossible and rates skyrocket! Don’t get caught off guard; if your HOA does not have this coverage, ask for a vote of the homeowners to get coverage in place. Insure it well, pack your bags and walk away is sound advice.

Excuse me, is that a capital improvement?

Capital Improvement for Condos

 

The term capital improvement is really an accounting term, (I know because my accountant friend from Houston debated me on the terms meaning) so there is no industry adopted definition as to what a capital improvement really is. Often times a “capital improvement” is defined as the addition of a permanent structural improvement or the restoration of some aspect of a property that will either enhance the property’s overall value or increase its useful life. This definition however can interfere with the boards authority to maintain the common area facilities without member vote.

Capital improvement, can you identify one?

More importantly, can your condo association identify one? Most HOAs have rules in their governing documents such as a spending cap without member approval but they have one common problem, often the term “capital improvement” is not defined. Even in Houston we find this problem today.

Many in the industry think Associations should adopt the following definition:

A capital improvement is any (i) substantial discretionary addition to the common areas, (ii) voluntary significant upgrade to common area materials, or (iii) discretionary material alterations to the appearance of the development

Even this definition has some gray areas in it like a rainy Houston morning, but it would move us forward and that’s the way to go. If the bylaws or rules in your association do not define “capital improvement” it would be best to consider amendment now to avoid future issues.

So how do you pay for it?

Once you have determined you have a capital improvement, then you need to refer to your rules and bylaws to see what they say regarding spending caps, special assessments and other funding options for capital improvement.

Can you use reserve funds to pay for capital improvements? Technically while they are close to the same thing, they are really horses of a different color. A reserve expenditure enhances an already existent feature while a capital item is a completely new item where there was no need prior. Make sure your bylaws and rules, plus your condo association understands and defines both.

There are companies that can finance capital improvements for condominiums that are then paid for by a slight increase in association fees for a set period of time.

You can do a one-time assessment to all owners to pay for a capital improvement. Consider how difficult this option may be on your owners; in an older population many may be on very fixed incomes that limit their capacity for payment of a large assessment.

Plan for the future

The best way to avoid unnecessary burdens and definitions is to plan ahead for capital improvements. Plan 5 years out, reviewing the plan at every meeting so adjustments can be made and have a fund that is earmarked for capital improvements and a permanent part of the association dues.

Talk to your management company, condo association or HOA today so you are ready for funding the future.

Condo Preventative Maintenance

Remember the little Dutch Boy – When I think of condo preventative maintenance and the importance, I always remember the little Dutch boy story. The short version; a little boy on his way to school sees a small leak in the town dam; he puts his finger in the leak and stays there until a man comes along, tells him the about the leak; the man repairs the dam before it fails and destroys the town.

Condo preventative maintenance

Condo preventative maintenance

The idea is to catch small problems before they become big ones, and often prevents those small problems from ever occurring at all. In the Houston area, just the heat and humidity take a toll on property if proper condo preventative maintenance is not present.

Having been in facility management for most of my career and growing up in a family of developers and contractors I know the value of a good preventative maintenance plan. Condo preventative maintenance of will help to avoid costly repairs in the future and will extend the life of your critical systems.

Condo preventative maintenance plans

Plans are easy to come up with and should be a part of any management plan. If you have a management company, be sure they have a preventative maintenance plan in place and are being pro-active instead of reactive. Oddly enough, there are numerous management companies that just don’t operate that way.

Condo Preventative maintenance plans should include items such as:

  • Physical structure
  • Sidewalk, parking lots
  • Pools/Jacuzzis/steam rooms
  • HVAC systems (a Houston Texas must have)
  • Sewer and water lines
  • Roofs
  • Sprinkler systems
  • Electrical systems including exterior lighting

The condo maintenance plan should include records that indicate when items need to be inspected according to recommendations by either their warranty, owner’s manual or as suggested by the professional who installed the item.

Preventative maintenance check list

Inspections should be done by either your onsite maintenance man, project manager or management company representative. The preventative maintenance check list should include a record listing all of the above with dates for inspections. Inspection reports should be compiled at the time of the inspection listing needed repairs, date the repairs are made and who made the repair. These records should be kept with your regular maintenance logs and be available to tenants and/or owners at any time with the most current copy presented at every condo association board meeting. The condo association board should be advised of items that are nearing the end of their life expectancy either based on the inspection or data provide at time of installation at the presentation of that report. Check out this site to download a free template or build your own using a spreadsheet program.

Maintenance Plan Tip

Another great condo preventative maintenance tip is to encourage tenants and guest to report any items they may see, no matter how small. A single faucet that drips only one drip per minute will add 34 gallons of water usage to your overall water bill per year; over the course of time if left uncorrected that one drip per minute will quickly escalate to a consistent stream of water that can add up to 2082 gallon per year to your water consumption. Check out this calculator to check my numbers. This does not even address the damage that may be happening to landscaping, sidewalks, etc. as a result of the same leaking faucet. Amazing, right?

It really boils down to this when you are talking condo preventative maintenance: “A building with good operations and maintenance practices that is poorly designed will often out perform a well-designed building with poor operation and maintenance practices.” (ASHRAE)

Condominium Leasing – To lease or not to lease

condominium leasing agreement
What you need to know about condominium leasing.

To lease or not to lease may not be the only question if you are considering leasing out your condo. Condo leasing is not as easy as leasing out a home. In fact, you may not even be able to lease out your condominium at all. Let’s take a look at this complicated subject and see where to start.

Condominium leasing – Start at the Beginning

It’s always good to start at the beginning, have your real estate attorney look at your condominium governing documents when considering condo leasing. A declaration is filed when a builder begins a complex that regulates what may/may not be done in respect to the property. Some condominiums actually restrict condo leasing; others have strict rules on condo leasing. Many require permission for condo leasing. Also have that attorney review the leasing laws for your city/state as they pertain to condo leasing. Houston for instance has specific guidelines on balcony railing; height and distance between railings.

Condominium leasing – discovery

You may find only a certain number of units can be leased out at a time due to mortgage considerations; (FHA approved loan only 50% of the property can be rental).Some condominiums require owner occupation for a specific amount of time before condo leasing is an option, this can range from 1 to 5 years. The effect that condo leasing vs owner occupied can have on the insurance premiums for the condominiums master policy may restrict your ability to engage in condo leasing. The declaration or bylaws may restrict condo leasing, as it is an assumption that owners take better care of a property then a renter will. These are just some of the more common items, so do your research!

Items Your Lease Should Cover

If you have determined that you are ready and able to lease do some market research.What are other units in your complex leasing for? What are condos in your general area leasing for? Housing in the Houston area for instance is running anywhere from $1100 per month plus for a 1 bedroom all the way to $1800 plus per month for a 4 bedroom unit (View an example). Are you leasing long term or short term? What is the standard deposit for your area?

Spell out who will be responsible for paying the utilities and monthly condo maintenance fees or any special assessments that may occur during the lease period. Remember no matter what your lease says, ultimately you as owner will be legally responsible if they are in default. Your real estate attorney can make a good recommendation on these items and more pertaining to condo leasing.

Finally, do not forget to spell out in the lease that everything is in accordance with the declaration for the condominium, in accordance with the bylaws and homeowner’s association restrictions and thus are subject to change as dictated by these governing documents and bodies. This should cover items such as parking, common areas, etc.

What about commercial condominium leasing?

Condo leasing can include condos leased out for business purposes such as law offices, real estate office, etc. Be sure that your condominium project allows these types of leases prior to advertising your unit.

So, to lease or not to lease is not the only question, but for the best advice contact a real estate attorney prior to making your decision. If you have a management company running your condominium complex they may be able to offer advice and a reference for a real estate attorney that can keep you protected.