- The Washington Times - Friday, June 16, 2000

Maybe you've been told a condominium is not as wise an investment as a house. Maybe you've been told a condominium is an OK purchase if you can't afford a house. Maybe the person who told you that is right. And maybe he's wrong.

With the hot real estate market lifting sales of condos along with sales of houses, more buyers than ever are snatching up condos and loving them.

Real estate lawyer Beau Brincefield has loved his condo for the 15 years he's owned it.

"I'm pleased as punch. I'm happy as a pig in mud," he says, describing his 10th-floor condominium in Old Town Alexandria. "I've got a panoramic 270-degree view of D.C." across the Potomac River. "I've got somebody else to mow the lawn, trim the hedges, maintain the heat and air conditioning, repair the roof… ."

Of course, he has to pay a monthly condo fee to cover all this, but, Mr. Brincefield says, "I'd rather pay for it than do it. I'm not 'Harry Homeowner.' I don't want to be. I take no personal pleasure in maintenance of my home." He says he would rather read a book or watch a movie.

Asked whether a condominium is as good an investment as a house, Mr. Brincefield says, "It depends on the condo you buy into." Just as you choose a house for its neighborhood and its bricks and mortar, you must examine what Mr. Brincefield called the hardware of a condominium. But at least as important, he says, is the software, which he described as the legal documentation that creates the mini-government and the management structure of the condo, which is contained in the bylaws of the condominium association.

"The success of a condominium depends on the quality of management in all its aspects, he says, including financial management, security and physical maintenance of the property.

Asked how a prospective buyer should evaluate the management, Mr. Brincefield says, "Read the monthly minutes of the board for the last year and the minutes of the last two annual meetings. You should get a pretty good picture of what's going on in that condo." Also, he advised, read the condo newsletter and talk to people who already own units there.

The board of a condo is an elected body that, with the help of a hired management company, runs the condo according to its bylaws. Laws governing condominiums vary from state to state, and bylaws vary from condominium to condominium.

Dawn Thier, executive vice president of the Washington Metropolitan Chapter of the Community Associations Institute (CAI), says there are disclosure requirements that give purchasers information about a condominium they are looking to buy. While those requirements vary from jurisdiction to jurisdiction, "In most cases, bylaws that govern a condominium association must be disclosed to a buyer prior to closing," she says.

The nonprofit CAI was formed in 1973 to educate and represent America's 205,000 residential condominium, cooperative and homeowner associations, according to its literature, and is dedicated to fostering vibrant, responsive, competent community associations that promote harmony, community and responsible leadership. The Washington metro chapter, based in Annandale, is the largest chapter.

Serving on the board of a condominium association, however, is often a thankless job with the most significant reward the knowledge that you did the right thing. Wally Anderson served for four years on the condo board of a low-rise condominium complex in Olney. Unlike Mr. Brincefield, Mr. Anderson does enjoy puttering around his house and yard. He bought his condominium in 1972, shortly after he came to Washington from Florida to accept a job as director of a national trade association.

At the time, I thought I could not afford a house, he says. When Mr. Anderson discovered that he could, indeed, afford a house, he bought one in Derwood, but he kept the condo, too, first as an investment and then as a low-maintenance retirement home for his parents.

Besides the affordable purchase price, low-maintenance living is a nice advantage to owning a condo, he says. The Olney condo has a swimming pool, tennis courts and a playground for children, all covered by the condo fee, Mr. Anderson says. The condo fee also pays for heating and air conditioning, exterior maintenance and water.

Water particularly huge water bills resulting from the waste of water became one of several thorny problems the condo board had to struggle with when Mr. Anderson was a member. His story typifies a disadvantage of condo ownership.

He says because residents didn't receive water bills, they didn't worry about wasted water when a faucet or toilet was leaking. In addition, there were more than two dozen outdoor faucets, which residents could use to wash their cars but "people wasted water like [there was] no tomorrow," he says. The condo board decided to disconnect all but one of the outdoor faucets, he says, and arranged to pay a plumbing company to do annual checks of all faucets and toilets in the complex and to repair any leaks. Of course, this practice raised condo fees, he says, but the cost was less than the enormous water bills that were blowing the budget.

The water problem and others, Mr. Anderson says, were at least partly due to the fact that a good portion of owners were investors who showed no interest in how the condominium was being run. While he and fellow board members took pride in making the complex one of the financially soundest condos that I know of, Mr. Anderson says, no one showed up for board meetings unless they had a complaint.

Asked what complaints brought people out, he says, many were picayune: noisy neighbors, air conditioning was turned on too late (in the spring), heat was turned on too late (in the fall), children playing in the parking lot and owners not walking pets in designated areas.

A high ratio of absentee ownership is a bad sign, Mr. Brincefield says. Buyers should look for a condominium complex that is 60 percent or 70 percent owner-occupied at least, he says. To find out what percentage of the units are owner-occupied, he says, ask the management company or a member of the board. If the number of owner occupants falls below 50 percent, mortgage lenders will not finance purchases, and then owners who need to move will be forced to rent out their units, Mr. Brincefield says.

It's a descending cycle. The condominium will turn into a rental complex if nobody can get financing to buy or sell, he says. The higher the percentage of owner occupants the better the terms a mortgage lender will give a buyer, says Patricia Vucich, an associate broker with RE/MAX Capital Properties in Northwest Washington.

"Usually the amount of the down payment is less." Lenders consider a condominium with a high percent of renters a bigger financing risk, she says, and, for a buyer, it would less likely be a good investment. She confirmed that the condominium market has been hot this spring. She said she listed a condominium in Germantown that sold in exactly a week for all cash, so there was no appraisal, at a price that was higher than anything that had been sold out there before. But, she says, condominiums are generally more sensitive to market fluctuations than a single-family house.

That means that when the market cools off, the first to suffer in a downturn are condominiums, and condominiums will be the last to recover in an upswing. While a condo can be a good investment under some circumstances, Miss Vucich says, "I think clearly condos are for people who want low-maintenance living."

If you are looking to buy a condominium as an investment to rent out, first check the condo association's bylaws because there could be restrictions on rentals. Both condominium and cooperative units may be purchased by investors for rental if the bylaws permit, Mr. Brincefield noted.

While there are fewer cooperatives in the Washington area than condominiums, there are some very large ones, Miss Vucich says. One of the best known is the Watergate, she noted.

Cooperatives offer a similar low-maintenance life style but involve a different form of ownership from condominiums. When you own a condominium, she says, you own your unit plus a percentage of the building's common elements and land. When you own a cooperative, she says, you own stock in a corporation that owns the real estate plus the right to live in one of the units.

Another difference is that the board of a cooperative typically votes on whether to accept prospective buyers. "Particularly in New York, where there are many cooperatives, celebrities get turned down sometimes because they attract so much attention," Miss Vucich says, "but I don't know that Washington has that problem."

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