First-Time California Condo Buyers: Don’t Overlook the HOA’s Financial Health

Buying your first condo in California is exciting—especially with amenities, low-maintenance living, and a sense of community that often comes with condominium life. But before you fall in love with the pool or the upgraded kitchen, there's one critical factor you must investigate: the health of the Homeowners Association (HOA).

A well-managed, financially sound HOA can protect your investment and your peace of mind. A poorly funded or mismanaged HOA, on the other hand, can lead to surprise expenses, deferred maintenance, and even a decline in property value.

Why the HOA’s Finances Matter

When you buy a condo, you're not just purchasing a unit—you’re buying into a shared financial responsibility for the building and common areas. The HOA is tasked with managing those shared elements: the roof, exterior, landscaping, plumbing systems, elevators, parking lots, and more.

If the HOA doesn’t have enough reserves (savings set aside for future repairs and replacements), any major issue—like a roof replacement or plumbing upgrade—can result in a special assessment. That means each owner must contribute thousands (sometimes tens of thousands) of dollars out of pocket, often with little notice.

Common Pitfalls of an Underfunded HOA

• Special assessments: Sudden, large bills to cover emergency repairs or maintenance that should have been planned for.

• Deferred maintenance: Projects like repainting, structural repairs, or resurfacing get postponed, leading to deterioration and decreased property value.

• Financing challenges: Lenders often review HOA financials when approving buyers. A weak reserve fund or ongoing litigation could make it harder to get a mortgage—or reduce resale value down the line.

• Insurance gaps: If the HOA can’t afford adequate coverage or the deductible for a claim, owners may end up paying.

Key HOA Documents to Review

Before you close on a California condo, you’ll receive an HOA document package—sometimes called the "resale package"—required by law. Here’s what to focus on to assess the association’s financial health:

1. HOA Budget

   • Look for realistic line items for maintenance, utilities, insurance, and reserves. Are they consistently overspending or underfunding key areas?

2. Reserve Study (updated every 3 years in California)

   • This report evaluates the condition of major components (roof, elevators, etc.) and estimates how much should be saved to cover future repairs.

   • Red flag: If the reserves are funded below 70%, the HOA may not be prepared for upcoming costs.

3. HOA Financial Statements

   • Balance sheets and income statements show how money is managed. Do expenses exceed income? Are there large unpaid dues from owners?

4. Meeting Minutes (Board Meetings & Annual Meetings)

   • These often reveal upcoming major repairs, discussions about special assessments, or concerns raised by other owners.

5. Delinquency Report

   • High delinquency rates (over 15%) can signal financial instability and hurt loan approvals.

6. Insurance Certificate & Policy Summary

   • Verify that the HOA carries adequate coverage, especially for hazard, liability, and earthquake (if applicable).

Bottom Line

A beautiful condo with a troubled HOA can turn your dream of homeownership into a financial nightmare. Take the time to thoroughly review the HOA’s financials, ask questions, and if you’re unsure, consider having a real estate attorney or financial advisor review the documents with you.

Your condo may be your first big real estate purchase—make sure it’s also a smart one.