What to Know Before Buying a Condo in Las Vegas: Cash Reserves

The fiscal health of a condo association is of the utmost importance when looking at real estate in Las Vegas. Cash reserves in particular should be taken into consideration when looking over the financials of the condo association. A “condominium capital reserve account” is additional money outside the operating expenses which can be used for emergency improvements or repairs.

Lenders too have passed stricter standards for financing condos nationwide as well as in Las Vegas. Today FHA and Fannie Mae both want to see reserves that equal at least 10 percent of the operating budget. For instance if the annual operating budget is 150,000 dollars, FHA will want to see at least 15,000 dollars in reserves. As a Realtor in Vegas, I’d say ten percent is the bare minimum you’d want for reserves. Fifteen percent would make me more comfortable to be honest. Low reserves can easily mean that all owners can get hit with a special assessment for an emergency repair on top of their monthly HOA dues.

To me it makes more sense to have the HOA be a tad higher each month in order to fill up the coffers for a rainy day, rather than get hit with a special assessment fee every few years.

A couple of years ago I listed a condo and the HOA would not provide the financials to me. I thought this was odd, but they claimed they would not release any information until we had a contract.  I figured they were trying to protect their position (I knew they had been in a lawsuit not long before this) and didn't think much of it. Soon thereafter we were under contract and the dirty secret was revealed: a paltry sum in reserves. Because of this the contract fell apart. No lender was going to give a loan for a condo with such a low amount of money in reserves. After the sale fell through,  I thought it was unlikely that we would be able to sell the unit. And to be honest, If I had known this issue prior, I probably would not have taken the listing. But I liked the seller and interest was high, so we pushed on.

Surprisingly (and thankfully) our next offer was from an all cash buyer who didn’t seem to mind the financial report. It's important to point out that the buyer offered substantially less than market value at that time too.

You’d never guess what the parting gift was for the seller, a 4000 dollar special assessment fee to weather proof the building (among other things), taken from his proceeds at closing. Even though that stung, he was still lucky to sell it and I told him so after it closed. If you eliminate the pool of buyers who require a loan to buy real estate, how many are really left and what are your chances of selling at that point? Especially given the low cash reserves. Again…lucky.

As stated before, make sure that your approval of the condo HOA documents are a contingency inside your offer. When you examine them, make sure you’re happy with their reserves. Ultimately though, your lender may have the last word, assuming you’re using one.