Life in a condo is pretty sweet: you don’t have to worry about building maintenance, there’s no yard work, and you can just lock your door and leave for a month-long vacation in Thailand. Plus, many condos offer gated entries, doormen, or security cameras, which make you feel more secure.
Owning a condo is essentially a hybrid of homeownership and community living. You have your own space (the inside) and share all the maintenance responsibilities with the other residents.
Sounds like an idyllic life, doesn’t it?
But even this almost-perfect situation is not free of problems. In fact, condo ownership comes with a series of hidden costs that can turn your cozy lifestyle upside down.
Let’s see what those risks are and what you can do to enjoy your condo life.
Hidden Risks to Keep in Mind
Things work a bit differently in a condo, especially if you’re moving from a house, but beyond the lifestyle adjustments, there are a few structural risks to keep in mind. We’re not talking about the physical building here, but rather about the legal and financial framework that binds owners together.
Here are some of the most common risks that no one warns you about:
The Special Assessment Trap
A Special Assessment is a one-time, mandatory fee imposed on all owners when the association doesn’t have enough money in its reserves to cover a major expense. This type of assessment is usually triggered by massive repairs (e.g., a new roof, elevator overhaul, or structural siding) or a shortfall in the annual budget.
Now, the sums are not small. They can range from $5,000 to over $50,000 per unit. And you can’t opt out. Failure to pay can lead to a lien on your property or even foreclosure by the association.
Passive Litigation and Non-Warrantable Status
You might be a perfect borrower, but if your condo association is involved in a lawsuit, your unit can become toxic to lenders. That’s because banks avoid issuing mortgages for units in buildings involved in active litigation (e.g., a slip-and-fall in the lobby or a suit against the developer for poor construction).
Also, if a building is deemed non-warrantable, prospective buyers won’t be able to get traditional financing. This slashes your pool of buyers to cash-only investors, which can tank your property value.
The Master Policy Deductible Gap
Most owners assume the condo’s Master Policy covers everything outside their walls. However, to keep premiums affordable, many boards have switched to policies with massive deductibles (sometimes $50,000 or $100,000 per claim).
This means that, if a pipe bursts in a common area and causes $80,000 in damage, but the deductible is $100,000, the insurance pays $0. The association then divides that $80,000 bill among all owners.
What You Can Do to Maintain Property Value
You should be able to mitigate all these hidden risks with a solid condo insurance policy that offers umbrella liability. Also, add Loss Assessment Coverage to your HO-6 policy. For a few extra dollars a month, this covers your share of Master Policy deductibles or shortfalls.
Of course, you need to do your due diligence and research the building’s history and active litigation. Avoid buildings with stagnant dues, as small annual increases prevent massive special assessments.
Extra tip: Read the last 12 months of board meeting minutes to spot whispers of upcoming repairs or legal disputes.
In Summary
No investment’s 100% safe, but by doing thorough research and taking protective measures, you can mitigate most of the common risks. With the right insurance, your condo life canbeas sweet as you have imagined it.