When you buy into an estate, the future value of your property will be affected by how well the whole development is managed. Here's how to identify the best estate to invest in.
Major lifestyle changes in recent years have seen a huge increase in the number of people opting to live in cluster developments, estates and other gated communities. Many people have chosen to relocate, for example, to avoid difficult and expensive single home issues such as security and the maintenance of large gardens.
However, buying into an estate is more complicated than buying a stand-alone home, because the future value of your property will depend not only on its individual location and condition, but on how well the development as a whole is managed by the homeowners’ association (HOA).
Fortunately, though, there are some measures you can use to quickly ‘take the temperature’ of the development and gauge the potential for value appreciation (or decline).
Here's how to identify the best estate to invest in:
1. Ask to see the HOA budget
Firstly, you should ask to see the current HOA budget and the year-to-date financial report on expenditure as well as the current levy/assessment collection record to check what percentage of owners are 90 days or more in arrears with these payments. If the percentage of delinquent owners is high, it means the HOA does not have an effective collections policy or procedure – which may well lead you to wonder what else is not being attended to properly. In addition, you should consider that levy funding is needed to ensure proper maintenance of communal grounds, roadways and security equipment and that if funds are inadequate to pay for this maintenance, all home values in the development will decline.
2. Find out about the owner/tenant split
Secondly, you need to establish the percentage of owner occupants in the community. Banks are often reluctant to grant loans to prospective purchasers in developments where there is a high percentage of tenants because they know from experience that resident owners are more likely to take care of their properties and the communal areas and facilities than are either tenants or landlords who don’t live in the community. This is important because the market value of property is directly related to the availability of financing. No loans will mean falling values.
3. Assess the reserve funding
Then the third indicator of a healthy community is a high level of reserve funding. The HOA should have a stated reserve requirement to cover the predictable costs of repairing or replacing communal assets without having to raise special assessments. This reserve requirement should be accounted for in the levy payments made by owners, and a well-run community will have more than 75 percent of the reserves it needs in the bank. Lower levels of reserve funding, experts say, spell trouble because resistance to the special assessments that will be needed will most likely result in repairs and replacements being deferred, and in property values that deteriorate along with the assets.
4. Check the HOA meeting minutes
And finally, you should check the minutes of HOA meetings for at least the past year to ensure that there are no ‘hidden issues’ or pending litigation that could lead to unexpected expense for the HOA – and the owners in the estate.
As for those buying into a new estate ‘off plan’, they need to ask the developer or sales agent the following questions for a start:
• Who – the developer or the HOA – will be responsible for security on the building site in the time between the first new owners moving in and the completion of the development?
• Who will be responsible for repairing any damage to services such as internal roadways during the construction phase?
• Will all owners in the development automatically become members of the HOA, and will it be a registered non-profit company?