About Real Estate: Condos with poor common areas make for poor investments, too

Posted3/25/2011 4:00 AM

It's usually best to avoid buying a condominium or co-op in a development where the common areas aren't properly maintained.

Q. I have found a condominium that I would like to buy, but I am a little worried because the common areas of the building seem very rundown. The furniture in the clubhouse is old and torn, the hot tub does not work, and the parking lot should be resurfaced. My agent says I should buy the condo anyway and then run for the association's board of directors if I want to get things changed. What do you think?

A. Don't ever buy a home in a condo complex (or any other area governed by a homeowners association) with the expectation that you will quickly get elected to the board of directors and can then turn the entire development around. It's akin to buying a home in the worst part of town with the hope of single-handedly solving the whole neighborhood's problems. You can't. The common areas of the condo project you are considering have deteriorated because a majority of its board has allowed them to deteriorate. Maybe the board doesn't have adequate reserves to make the needed improvements. Or, maybe it has had the courage to suggest raising the monthly dues to cover such expenses, but other residents of the project foolishly voted against it. Either way, the complex is likely to deteriorate further -- and there's nothing you could do by yourself to stop it. Continue looking. You eventually will find a good condo in a complex where the residents realize that keeping their common areas nice adds to their quality of life, not to mention their property values.

Q. If I give my daughter part of the money she needs for a down payment, will I automatically be required to step in and make her mortgage payments if she falls behind?

A. No. Parents who simply provide some down-payment cash are not responsible for making the monthly payments if their son or daughter defaults. They become responsible for payments only when they agree to actually cosign their offspring's mortgage application.

Q. We love our neighborhood and the local schools, but our house is just too small for our family of six. We could expand our home for about $40,000, but then it would be the biggest on the block, so we doubt the remodeling would add $40,000 to our property's value. But if we move, we would have to leave all our friends and the great schools behind. What can we do?

A. The decision to either fix up and stay or pack up and sell isn't as difficult as you might think. True, from a financial standpoint, it's usually a bad idea to undertake a remodeling job that makes your home the biggest on the block, because the lower value of the surrounding homes will drag down the value of your own. But every rule has its exceptions, and it sounds like your situation is one of them. Let's say you spend $40,000 to expand your home, but the job adds only $30,000 to its resale value. Your net equity loss would be $10,000. But if you instead decided to sell, you would probably have to pay $10,000 or even much more in sales commissions and closing costs. On top of that, you also would have to pay thousands of dollars in closing costs on your new home and the mortgage needed to finance it. So from a dollars-and-sense angle, it probably would be cheaper to expand your current home instead of moving to a larger one. Equally important, your letter states that you love your current neighborhood and its schools. It's impossible to put a dollar figure on a feeling like that. So if I were you, I would stay in the home and remodel. My guess is that's the answer you were hoping for.

• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960

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