Martha's Vineyard Condos are getting cheaper, but are they a wise investment?

We all know prices have dropped during the last 4 – 5 years, and in some areas like Las Vegas the roll back has been crushing and as much as 60%. But for most of the country it has averaged 25-35%. On Martha’s Vineyard the roll back has been to 2003 and 2004 prices, or about 15-20%, and in some price lines and Island towns there has been practically no depreciation.

Now that prices are dropping below $400,000 for a ‘habitable’ SFR, condo prices are also going down. As a result, more buyers who want to get a foothold on the Vineyard as home owners are turning to the less expensive condo market. However, there are growing concerns to be aware of when purchasing a condo in this economy and at this time.

All condo communities have associations and association dues that each owner is responsible for on a regular basis. The dues go toward day-to-day maintenance and taxes as well as maintaining a cash reserve for emergencies and major repairs like replacing roofs and siding. Because of the down turn in the economy -- loss of jobs, etc., many condo owners are unable to pay their fair share and that puts the burden on everyone else.

It is important to examine the homeowner’s association by contacting the association board and asking to review the financial documents, which you have a right to do before you close on a condo unit. You also want an inspector to examine the condition of not only the unit you are purchasing but also the common areas that the association is responsible for. You want to find out how dues are paid and what percentage of owners are current on their payments.

According to Leonard Baron, professor of finance at San Diego State University, in an interview for the WSJ, here are some important points to consider when purchasing a condo.

· The condo docs, master deed and financials can be voluminous and the information is tedious to go through, so don’t wait until the last minute to review them and do make sure you get all the documents. Prof. Baron advises that you request to review the condo docs the minute you are in escrow, and request at least three days to review them.

· About two-thirds of any condo association's budget should be operating expenses such as water, lights and landscaping. The remainder should be allocated as a reserve fund for items like roof and siding maintenance and road repair -- any items that are not considered routine and regular maintenance. “See if expenses exceed revenues due to foreclosures, unpaid dues or other reasons. If they do, ask the association what their plans are to make up the shortfall, and whether you should expect an assessment increase or higher dues. Ask also if there are plans to save costs by cutting pool hours, or the number of mowings or clubhouse cleanings. This could affect not only your comfort, but also the future marketability of your home.”

· Find out if a reserve study has been done. This is not required in every state, but it is becoming more common. A reserve study looks at all long-term anticipated maintenance and projected structural replacement items (i.e. roof) over a 30 year period. The costs are tallied and put together onto a payment and maintenance schedule. Your monthly dues should cover the monies that needs to be put away to establish the reserve fund account. Baron says "Many times the boards, under pressure by the owners, will hold the line on raising fees, to the long-term detriment of the property.” He estimates that most associations are only funded 50% or less, and you should have serious concern as to the health of the association if they are funded below 40%. "You could be hit with thousands of dollars in assessments if something expensive fails," he says.

In a number of markets where condo complexes range upwards of fifty to one hundred units, unless the association confirms adequate funding, many banks will not approve a mortgage. I have never been enthusiastic about condos on Martha’s Vineyard; it is not what I consider to be Vineyard lifestyle. Despite what you may think about upkeep on a home verses a condo, on Martha's Vineyard modest single family homes are very easy to take care of, and you own the dirt. Keep it simple; isn’t that why you want to be here?