Condo Ownership

Best Coast Property Management


All information provided below is for your use as a starting point for doing your own research. Please refer to your attorney, accountant, real estate agent, and/ or mortgage officer to get the most current information regarding condo ownership. Also, refer to the HOA of any prospective property that you may consider buying in order to obtain more information about their rules, budget, dues and assessments, bylaws, and reserves. Alabama laws concerning condominiums can be found in Title 35 Property, Chapters 8 and 8A, among others.

What exactly is a condo?

A condominium can be defined as “The absolute ownership of a unit in a multi-unit building, plus an undivided interest in the ownership of the common elements, which are owned jointly with the other condominium unit owners.” (Modern Real Estate Practice in Illinois, fourth edition, Galaty, Allaway and Kyle, authors. Copyright 2001 by Dearborn Financial Publishing, Inc.)

What are the benefits of owning a condominium?

Making a mortgage payment on a condo, as opposed to paying rent to a landlord, comes with the same tax benefits as does a home mortgage. (Check with your tax advisor for specifics and current information regarding the tax implications of condominium ownership.)

Because you own your condominium, you can leave it as part of your estate.

Unlike in an apartment setting, residents in a condominium complex have a financial stake in the property. Through their Homeowners Association (HOA), condo owners help to make decisions about the property, including rules, covenants, upkeep, and improvements.

What about property taxes?

A condominium is a piece of property, and condominium owners pay property taxes. These may be paid all at once, or, if you take out a mortgage, then a tax escrow will likely be collected and paid by your mortgage company. Property taxes for condo ownership are treated the same ‘tax-wise’ as single family dwelling property taxes.

What are Common Elements?

Areas of the property that are to be used by all residents are called common elements. These can include, but are not limited to, hallways, walkways, patios and pools, parking lots/garages, and lawns, etc. Each condo owner has an ownership interest in the common elements.

Do I have to pay monthly HOA dues?

As each owner has partial ownership of the ‘common elements’ of the property, each owner also has a responsibility to help pay for the upkeep and improvements to the common elements. Condo Homeowner Associations (HOA) typically create an annual budget that takes into account these expenses and fairly distributes them to the condo owners. Owners are generally billed monthly for their portion.  (For more on HOAs see this page.)

What do HOA dues cover?

This varies from property to property. Typical “common” expenses are sewer; water, and electricity for common areas; garbage pickup; lawn and pool maintenance; hallway cleaning; insurance for common areas; professional management, parking lot maintenance; bookkeeping, legal and audit fees. Some HOAs also decide to purchase basic building-wide Internet access and cable TV, letting individual owners upgrade these services, as desired. In addition, a portion of your monthly HOA dues may go towards building and maintaining a “reserve” fund.

What is a reserve?

From time to time, your property may need a major repair or replacement, such as a new roof. Rather than wait until the time comes and then ask each owner to pay a large sum as a “special assessment,” HOAs may include a ‘reserve’ amount in the monthly dues. Depending on the cost of the repair or improvement, a special assessment may be needed to complete the project, but it won’t be as much if the HOA had not been setting aside a little each month into its reserve.

Why is a reserve important?

Reserves are also important in regard to your condo’s property value. This is because when someone goes to sell their condo, the bank making the loan to the buyer, will want to look at the financial stability of the HOA, including the reserve, before deciding whether or not to make the loan.

How are the dues and assessments calculated?

Dues and assessments are based on the budget approved by the HOA Board. In most cases, each owner’s individual amount is calculated by using what is known as the Percentage of Ownership of Common Elements. The Percentage of Ownership of Common Elements can be based on square footage or on the value of the individual units in relation to the value of the property as a whole. If certain units have ‘extras’ such as boat docks or indoor pools, that not all owners have a right to use, then there may be extra charges to those owners for the upkeep of those features, but this can vary from one property to another.

What is a special assessment?

Assessments may be voted upon by the HOA Board in order to pay for expenses that exceed the HOAs reserve account. For instance, a major repair, renovation, or improvement to the property might be made one year and each unit owner pays a one time assessment to cover their share of the cost. The next year, there may be no assessment if there are no special projects or extraordinary expenses.

Do I have to obtain my own insurance?

It is recommended that a condominium owner obtain insurance to cover any loss within his or her own condominium in the case of fire, theft or other unforeseen circumstance. In some cases, a mortgage company may require that you obtain various forms of insurance for your condo unit. Insurance for the common elements and general liability around the property is covered in the monthly assessment fee.

Who takes care of things around the property?

The developer or a professional management takes care of the property until control is handed over to the HOA. At that point the HOA Board of Directors are responsible for ensuring the property is maintained. They may make their own arrangements or use the services of a professional management firm such as Best Coast. Arrangements with management firms vary, but services typically do not include maintenance and repair within the individual condo units.