I bought 5 condos in a building in Houston. One of the units was burned by a tenant recently. The fire damage was limited to my unit, but three neighboring units had some minor smoke smell and water damage. In the end the HOA property manager is attempting to say my holding company (a Nevada C-Corp) is liable for the fire, even though it does not say that in the HOA documentation/bylaws/etc anywhere. And he is making threats to put a lien on my properties IF my insurance company finds the tenant liable and my insurance company does not make any payouts to the other guys (since my holding company is not liable…the guy set the place on fire via arson and is in jail).
There is probably no more than $10-15k in total repairs to the neighboring units.
I am tempted to buy NO more properties here, but I want to badly. These are incredible deals (25 cents on the dollar) and they rent & cashflow well. But this whole process has been a pain in the rear.
Your insurance should pay for the damage even if it is vandalism. The insurance company will need to know that you have pressed charges and then your duty will be done. Insurance companies always deny the first claim and the HOA always threatens.
The number 1 problem with condos (in Houston) is control. The lack of control manifests itself in at least 3 problems. Problem number 1 is the cost. You say you paid 25 cent on the dollar when in fact you paid what it is worth. You can’t sell it for more than you bought it for. The reason that you paid 25 cents on the dollar is because that is what they sold for in 1980 and the price never went up and in Houston they never go up. If you keep it until 2020 it will still sell for the same price and the new owner will rave about buying it for 10 cents on the dollar. Problem number 2 you can’t control them. When you buy apartments you fix them up, screen tenants to get a minimum quality of tenant so that the place is safe and functional. You can then raise the value of the building by raising the rent and reducing expenses. Because you can’t control the neighbors who let anybody in you will have a nice unit and next door will be a drug dealer with a pit bull that tests his gun by shooting through the window every day. Since that unit is not yours you can’t evict him and you can’t attract a better quality tenant. Problem number 3 is they are not apartments. When prospective tenants look at your condo and they see apartment while it is actually a house. If they have a problem they can’t call downstairs and have the apartment manager take care of it because the owner of each unit is independent. This makes it difficult to attract good tenants and you end up with the guy that is going to set your unit on fire. Or the guy next door will set his unit on fire and cause you down time.
In Houston there are deals on single family houses. There is true equity capture and cash flow is great. The last house I bought for $66k every other house just like it in the same neighborhood sold within the last 6 months for $120k. It needed virtually no fix up. It rents for $1300 my PITI is about $700. The best part is that I have control.
I don’t quite see how you (your holding company as the owner) is not liable. You will have to explain this to me.
You as the owner are responsible for the actions of your tenant. It says so in the bylaws. If your tenant causes damage to the property or to a neighboring unit, it is your responsibility to get it fixed or to pay for the repair. That is what your rental dwelling insurance policy is for.
Call your insurance company to report the damage to your unit and to the neighboring units, immediately. Don’t delay any longer or you may compromise your insurance carrier’s responsibility.
Unless there are other facts you have not told us, I agree with the condo association on this one. You are liable. Whether it is your insurance company or the association master insurance policy that pays for the repairs can be hashed out by the insurance companies themselves. Most of the time, the condo association master policy will cover damage or repair to the building structure, but the interior of each unit is the responsibility of each individual unit owner.
Once you get your insurance company on the case, your insurance company can try to recover from your tenant’s renters insurance policy (hopefully s/he has one).
RDO, obviously you don’t own any condos. By virtue of condominium ownership, all condominium unit owners are members of a condominium association and agree to be governed by a set of codes, covenants, and regulations for that association. Furthermore, all the owners agree that an elected board of directors of the association will be empowered to enforce the CCRs. Violations of the covenants can be punished by fines and liens on the unit owner’s property.
That is not really the case. In Houston it is a common problem with new investors. They are sold condos because they want to get into multifamily. These condos are havens for people that can’t rent anywhere else in town. The owners are typically horrible and that has allowed the property to be substandard and they run down the neighborhoods where they exist. One example is the Inwood Forest neighborhood in Houston. It has 3000sqft houses a country club with golf course, tennis courts and pool. It is in a treed suburban location that is a great commuting distance to the city center. It is a perfect location. This neighborhood was bordered by these condos. The condos got so bad that it became the highest murder and drug area in town and the country club had to close down and the houses are starting to fall in value. Once the country club went under and the golf course became just a vacant strip of land, the house values dropped like a rock. Right now the most expensive house in Inwood Forest is a 4000 Sqft house with 5 bedrooms 3 ½ bath 2 car garage for $169k. These condos are toxic.
Other than giving an example of what could happen when the condo association fails to uphold the community standards and protect the property values for the community, how does anything in your story relate to RDO’s comments and my response?
I am saying that you don’t know if RDO does or does not own condos. I would assume that you believe that he does not because in the orderly transfer of ownership of condos in the real world you get notified of HOA rules and responsibilities. In Houston condos are the wild wild west of real estate. It is more common for people to buy them not understanding what they actually have than the other way around.
Well, a lawyer, 2 insurance companies and myself have reviewed ALL of the condo documentation. No where does it say the holding company is liable for the tenant’s actions in the CCRs/whatever. So in the end we’ll (my insurance company) probably have to sue the HOA if they try pulling that stunt. The good thing is the HOA’s own documentation is on our side. I would love to sue the SOB who runs that place anyway. He is a real c***sucker
It is hard for me to believe that the condo association bylaws don’t say that the OWNER is responsilble for his tenant’s actions. If the landscape in Houston is as bluemoon suggests, then I suppose such a poorly crafted document could be out there.
When it gets before a judge however, expect the court to determine what is equitable and hold the owner liable for the damages. Even if your reading of the bylaws is correct, you still have to ask your attorney if you would prevail if the matter went to court. Let us know what you find out.
I recommend checking with the states governing board for condo associations. Generally a condo and an HOA will have seperate laws and rules. I live in Fl and we are condo and HOA capital of the world i think.
What I have learned here is, your responsible for your unit. You are to have an additional ins policy at your discretion to cover damages to the unit.
Ex. my water heater breaks and your unit gets flooded or has ceiling damage (water spots), well my ins company is not responsible for your damages, only mine. You can not even sue really as each unit is seperate.
Condos also need to carry insurance and are responsible for structual damages (outside unit). There are many arguements over windows which were settled after Hurricane Wilma in 2004 where each owner is responsible but some condos have adapted it into the bylaws with ins companies some how.
What it boils down to is, many property owners have no clue, even lawyers, so it falls into a judges hand. In florida, I would say 99.9% you would win your case. Forget about your typical lawyer…Seek legal advice from a experienced CONDO Association lawyer. This is a speciality of the law and requires more experince.
Just read my insurance policy and my condominium rental dwelling policy does cover damages to a neighbors property that stems from a covered cause that occurred on my property.
This is in the boilerplate and is not a special rider. So, at least for my insurance carrier, this is a standard protocol.
The way it works is that my insurance company will make the repairs to my unit. For the damages to the neighboring unit that I caused, my insurance company will also cover those repairs only after the association master insurance carrier has denied the claim as outside the limits of their responsbility.
That’s why I say that eric should report the problem to his insurance company and let them hash out the scope of liability with the association’s insurance carrier.
I hate being a butt about this, but in Houston there are no developers building condos like in most of the world. There are actually 2 different kinds of condos here. Developers built condos back in the mid 1980s that were sold for $30,000 to young couples to start their lives. They were to live in them for 2 to 5 years and then sell them to another young couple and buy a house. The problem is that in Houston no young couple ever wanted to buy these condos, they bought houses or their own new condos. These condos were then either rented or sold to investors who rented them out.
The second kind of condo was also in the mid 1980s when apartment owners could only sell their buildings for $10k per door so they made condos out of them and sold them for $20k per door. This was done cheaply and with bad quality. The association rules were made up to assure the maintenance of the buildings but their raison d’être was to assure a stream of income to the developers that started that condo scheme in the first place. The documentation is bad, the maintenance is bad, the resale is bad, but the cash flow can be good. Today you can still buy them for $20k/door just like in the mid 1980s.
This shoddy product gets everybody that buys them trying to make money into a quagmire. That is another reason I say that all real estate is local and before you start buying real estate you need to join a local real estate investment club and talk to members. We all know that condos are the kiss of death in Houston.
Bluemoon. Shouldnt condo rules be governed by the state, not the city like Florida. It has to meet the guidelines of the state constitution to protect all owners in some ways.
As for the kiss of death. I remember moving to Fl in 1994 and only old people bought condos so beach condos were cheap. The around 200 young couples started buying them since they were about 40% cheaper than homes and the old 2/2 condos are the beach areas where decent in size at 1300-1400 sq ft avg
Prices then soared even before the boom on the beach but now prices are done alot and many old condos went thru major facelifts starting in 2006 because of the market.
Condos are great for singles as a social setting here in SoFl. I have lived in several. Some have 50,000 sq ft gyms, tiki bars at the pool area, theater rooms, bars, high end billard rooms and more.
My fav condo I lived in 2007 was Diplomat Oceanside Residence which was next to the Famous Diplomat Hotel (5 star) I had full use of the hotel by living in the condo as outside just crossed over into it. I could use either pool or cabana. Discounts at the hotel bar, drycleaning services, roomservice to my condo as well as use their maid service. Best was, I go hang out at hotel pool, talk to woman and when they ask what room I was in, I say NO, I live in the condo next door. And BAM…you live in a million dollar condo…lets go back to your place…my husband wont be back from his meeting for 2 more hrs…It was paradise with tourist…