Philadelphia Real Estate Blog

Here are a few condo reserve questions I often get asked:

1) How much money does a certain condo association have in its kitty?
You really are not going to know the answer to that question until you purchase the condo and review the condo docs. The state of Pennsylvania allows for a five-day review of condo docs for you to make an informed decision. Some buildings stockpile a boatload of $$ – and others simply just assess when needed. I usually find that the very small buildings and the very expensive/exclusive buildings in town don’t keep that much $$ on hand- their way of making improvements is to simply assess owners when needed.

2) How much in reserves is required by Fannie Mae for the building to be “warrantable?”
Although there is no set amount (for the ability of buyers who want to buy in a particular building), it is probably a good idea to be setting 10-15% aside every month for capital improvements.

3) What are capital expenditures?
Reserves for deferred maintenance (performed less frequently than yearly in order to maintain the asset’s useful life) and capital expenditures (purchasing or replacing assets that have a useful life over one year) are required for certain building components unless the board votes annually to waive and/or reduce reserve funding.

4) WTF is a capital contribution???
Buyer pays two months worth of condo fees into the ASSOCIATION- this does not go to the seller and this helps to build the kitty for future improvements. You do not get this payment back when you sell the condo and it is not a pre-payment of condo fees.  This contribution is now applicable for almost ALL condo sales in town.

5) How much should my Philly condo association have in reserves?
This really is a function of the board’s goals and the current condition of the entire parcel including the roof, windows, elevators, etc. Most folks I speak with suggest 10% -15% of the TOTAL annual intake of condo fees to help build the kitty. A professional reserve study may be in order to best guide an association.

Email me for details and I may be able to help with this. 🙂

Mark Wade 
www.CenterCityCondos.com | BHHS Fox & Roach Realtors
530 Walnut St. #480 | Philadelphia, PA 19106
Mark@CenterCity.com | 215.521.1523

1100 Vine Street, The Grandview is a 12 story condominium building at the corner of 11th and Vine here in Center City Philadelphia. The building is made up of mostly 1 bedrooms under 600 square feet, some nice 2 bedrooms, and a few penthouses. The Grandview has a close proximity to Jefferson.

What is so wise about this Philly condo? The condo association has limited the number of rentals allowed at any given time within this building. Fannie Mae will not lend on a unit in a building where the owner-occupancy is out of whack. This makes it exceedingly difficult to preserve value in a building that has more rentals than owner-occupants. So, the Grandview has a rule written into their condo documents limiting their rentals to around 30%. Genius!

In the buildings with more renters than owners, it is extremely difficult for a new buyer to obtain financing. Occasionally you can find a lender to do it, but you better have at least a 25-30% down payment. Which most first time home buyers here in Center City do not have. Let’s face it, these buyers are “job-rich and cash-poor”. They just started working their first great job, but they have nothing in savings and are buried in students loan payments.

Sales will begin to come to a halt in buildings that are not finance-able. Sellers will begin to compete with each other lowering prices and the value of the building will be a stake. Due to the preemptive strike at the Grandview, condos there are still selling, and selling well. Their value has been preserved. First time buyers can go in with as little as 5% down.

On the flip side, another building here in town has lost a lot of value when the condo board sued the developer. Whether their reason to sue was right or wrong is not for me to decide. But unfortunately, as a result of a lawsuit within the condominium, lenders will not lend. Sales in the building have ceased. After 3 or 4 years of no sales, the building has become filled with renters and anxious sellers lowering prices, and lowering prices some more, hoping for a cash buyer to come along.

The worst part is that when it’s all said and done, due to this short-sighted lawsuit, the owners of the building will never get back what they have lost in value. Let’s say there are 100 units, and let’s say they win the lawsuit.  Even if they win something like $1,000,000, when you split that up among the units, they end up with around $5000 each. It’s like they cut off their noses to spite their own faces. They have lost a lot more than $5,000 in value per unit. Whatever they may win, it will not be enough to override fact that they lost so much value.

Back to a more positive note, I hear another building in Old City also considering the same thing as the Grandview-limiting rentals. Great move! Keep buildings valuable by keeping them mortgage-able.

Mark Wade
www.CenterCityCondos.com
Prudential Fox and Roach Realtors
530 Walnut St. #260 Philadelphia, PA 19106

…shouldn’t I “call ’em as I see ’em”?
 
Shouldn’t your Philadelphia Realtor have the B*lls to give his honest opinion on condos you are seeing? If a particular condo association has no money in the “Kitty”, and the building is clearly in need of maintenance- from hallways to elevators, I think I would not be doing my job if I didn’t point out (what I believe to be) the obvious.
 
Some condos in town really are pieces of crap. From condo associations’ finances, to building construction, to owner-occupancy ratios, to staff, future saleability, to perhaps better, easily identified comparable condos in Philadelphia.
 
My Point- If you are my customer, and you give me the green light, I am going to tell you what I believe are each condo’s strengths and weaknesses. And I will try to keep the snarky comments to myself- but no promises :-).

Mark Wade
www.CenterCityCondos.com
Prudential Fox and Roach REALTORS®
530 Walnut St., Suite 260 Philadelphia, PA 19106