Are you thinking about buying a condo? With home prices at an all time low, it might seem like a great deal to buy a condo as a vacation home rental in a destination like Disney World. Any home purchase is fraught with danger, but it is even more so when buying a condo. Even if you buy a condo with cash, there are many dangers that a buyer should be aware of before signing the dotted line.

This article discusses the major pitfalls of buying a condo and how to avoid them.

There are two major factors that impact a vacation condo purchase: the declining value of the condo unit itself and the insolvency of the condo home owner's association.

Declining value of the condo unit

In a declining housing market, the last segment of the real estate market to recover is often condos. Most buyers prefer to purchase single family homes as their primary residence. Condos are sought after when the single family homes are priced out of their income level. So if you buy a condo today, be aware that condo prices will lag behind single family home prices in its recovery from the recent downturn.

Insolvency of homeowners' association might make buying a condo risky

Many condo homeowners' associations are broke because so many units have failed and ended up in foreclosure. Even if you pay cash for a condo, you are taking on the insolvency of the homeowners' association for the condo development. There might be a huge liability or future special assessment as one of the few solvent owners in a condo development.

Mitigating the risk of buying a condo

Ask to see the financials of the condo association. It is a red flag if there are more than 10% of owners not paying their condo fees. The buyers' agent should be able to get this information for you.

Check to see if the condo association has a plan for capital improvements (ie. such as painting the exterior). If there is no plan in place for these major shared expenses among the owners, then it is a mismanaged association.

If you decide to purchase a condo anyway, consider purchasing a 2004 or earlier condo. 2005 is when home prices started rising sharply. Owners who purchased a condo built in 2005 or later are mainly spec buyers, purchasing the condo sight unseen. They could be investors hoping to flip the condo.

It is not the condo unit, but the condo development that you should be thoroughly checking if you still wish to buy a condo.