What are condo reserves ? What is an assessment on a condo?
Since a condo association acts as a group when it comes to collecting condo fees in order to pay bills such as water, sewerage, upkeep, management, insurance and those collective payments. Most condo association collect more that is needed in the day-to-day operations so the association will have money when something unexpected happens. If your condo fees are $350 per month may go into a reserve account. This account builds money over time.
The reserve account is also important for conventional loans as they demand you have at least 10% of your operating budget for those unexpected bills. In a small association one member may quit paying for whatever reason. The reserves may have to be used. If something large breaks or is damaged then the reserves come to the rescue. The reserves may be used as a gap for damage even if the complex has been damaged by a storm. Condos have large insurance deductibles that often 6 figures.
When reserves are not enough to cover the expense of remodeling or repairing damage then each owner is asked to pay an assessment. The assessment is generally based on the size of the unit or its percent ownership. The assessment may be spread over a period of time or needed all at once. This will depend on how the owners vote to have it assessed.
You will want the condo you purchase to have ample reserves for when something happens or is needed to improve the condo building or common areas. Many condo association make each new owner contribute 2-3 months of condo dues into the condo reserve fund. This should be found in the condo docs or an amendment to the condo docs.
Recently I have been to two condo associations that are upgrading the building and the common area. One is Magazine Place Condo association at 760 Magazine where they assessed the owners for the upgrades. The building and all the windows had to be painted. The roof had to be repaired. You have to do such projects to hold and increase value. The complex looks so much better with a fresh coat of paint and newly painted windows.
The other association that I was in was 700 S. Peters in the New Orleans Warehouse District which recently painted the Atrium and improved the rooftop deck. Both these projects make the entire building worth more and will make new buyers want to be there. It’s basically an investment in the future and an increase in value of the project right now. People want a home or second home that looks and feels nice.
Buildings and Common areas just need to be updated over time and by having enough reserves makes it easier to upgrade. Many times you will get a combination of reserves and assessments when upgrades are made so as not to drain the reserves for a real emergency.
