By Harvey S. Jacobs January 23, 2015
Pssst. Want to buy a luxury condo in warm South Florida for just $1? You can buy a luxury two-bedroom, two-bath condominium on a golf course in Boynton Beach, Fla., and many other warm-weather locations for $1.
What’s more, many of these ultra-cheap condos are even furnished soups to nuts and in turnkey condition (although the furnishings in many cases need updating).
There are currently at least 10 luxury condos listed for between $1 and $900 just in Palm Beach County. These deals really exist, and if you are looking for a winter getaway now with the goal of retiring to a warmer climate someday in the future, these deals are well worth your time, said Kathy Pendleton, a real estate agent with Lang Realty in Boca Raton, Fla., who has been selling country club community real estate for 28 years. One of these units comes complete with a new Keurig coffee maker and fully stocked bar.
So what’s the catch? Are the titles riddled with title clouds? Do they have insurmountable environmental contamination? Are the condo fees sky-high? No, these condos have clear titles, are clean and habitable and their condo fees are in line with comparable units.
The catch with these condos is that they require you to join their country club, pay the annual country club dues and eat and drink a minimum amount each year. Annual total carrying costs run between $20,000 and$30,000, Pendleton said.
Still interested? Do your due diligence.
Before forking over your hard-earned greenback on this or any other too-good-to-be-true real estate investments, you need to ask and receive acceptable answers to many questions.
You must determine the mandatory fees and what you get for them. For example, the $1 condos require you to pay a non-refundable $10,000 country club membership application fee as well as a $40,000 equity buy-in to join the club. When you sell your unit, you may get back as much as 70 percent of your equity buy-in ($28,000). You are also required to pay annual country club dues of approximately $10,000. These dues entitle you to unlimited use of country club facilities and, depending on your membership level, unlimited tennis and golf greens fees. All country clubs have golf cart fees and annual minimum expenditures for food and drink.
In addition to the country-club-related fees, you are required to pay condominium fees, any special assessments, real property taxes and insurance.
You should carefully analyze the country club’s and condominium association’s finances. Specifically, ask if these two associations are solvent. Determine if they have sufficient reserves to pay for major repairs, renovations and capital improvements. Ask about the number of unit owners who are delinquent and how many units have been foreclosed on for delinquent condo fees.
Examine the steps that management is taking to recognize and minimize these adverse conditions. For example, because of an aging population, many condominium associations have begun to offer discounts on application fees and club equity buy-in or even waive first-year club dues to attract a younger membership.
Investigate the covenants, conditions and restrictions (CCRs) and house rules governing your personal and/or rental use of your unit. Many condominiums restrict occupancy to individuals at least 55 years old.
CCRs typically allow only one rental per year. The CCRs will also let you know if owners and renters are allowed to have pets and, if so, if there are restrictions on pet size or the number of animals.
If you intend to rent your unit, you need to explore the tax consequences for such rental income. Though expenses related to generating rental income are generally deductible for federal income tax purposes, the rent you receive is taxable income. Even though the cost of your unit may be as low as $1, the additional mandatory costs of acquisition (but not the cost attributable to the land) generally can be capitalized and depreciated.
Certain states and counties impose a tax for rentals of less than six months. For this reason, many leases are drafted for six months and one day.
If you have $1 in your pocket and can afford the lifestyle, perhaps a country club community is in your future.
Harvey S. Jacobs is a real estate lawyer in the Rockville office of Jacobs & Associates. He is an active real estate investor, real estate agent, developer, landlord, settlement attorney and lender. This column is not legal advice and should not be acted upon without obtaining legal counsel. Jacobs can be reached at (301) 417-4144 via e-mail at Jacobs@Jacobs-Associates.com or ask@thehouselawyer.com.