Rental Property Update – Rebuilding After Sandy

As I mentioned, my condo was affected by Hurricane Sandy. Unfortunately, as of today, the building still does not have power or heat. Which, of course, makes the building uninhabitable. All of the critical systems are located on the first floor with my condo. So not only was my unit affected, but indirectly all of the other units in the building as well. I expected the building to be in livable condition by March 2013, and I’m still sticking to my initial estimate.

I’m on the board committee for the building. It was suggested by a friend of mine, that if I owned a condo rental property, I should be on the condo board. I took his advice, and I’ve been on the board ever since.

Being on the board allows me to keep up to date with what’s going on with the building and also more control over the property. Like now it can also be a lot of work, with only some positive benefits. Worse case, I am gaining some valuable experience dealing with contractors and various other government agencies. With any rule by committee, you have whole different amounts of experience, background, opinion, and skills. So like Congress, it’s a sausage factory process. Not everything goes smoothly, nor quickly.

After the hurricane we meet as a group and discussed the issues that needed to be done. We had a plumber in line to replace the boilers, and the management company was going to give us an estimate for the electric. Well neither item happened. For some unknown reason, two of the board members decided they wanted to use another contractor, and the management company never gave us an electrical proposal. Being in the dark (pun intended) about these issues, I assumed “no news was good news”. It was during the holiday season and didn’t have much time to focus on the building. It was reveled later many of these changes were going on without my knowledge.

I was informed by some board members that they were dissatisfied with the management company. We have a long experience of incompetence with the management company, and this crisis put it much more into light. I also have no love for them, but for right now I and another board member stated we should wait until the building was livable again first.

We don’t need the additional work load and headaches that come with the change. As useless as they’ve been, it’s not a good idea to piss-off the management company. Unknown to me, the president broke protocol and sent out a termination notice to the management company. Per our condo by-laws, all contracts must be approved by the majority of board members. No such approval process occurred.

The president did this because she thought time was of the essence. We were close to the required termination notification 90-days prior to the contract ending. Unfortunately, she didn’t read the contract correctly and mistook the date it was signed for the date when the contract was effective. If you know anything about contract law, it’s not the date the contract is signed, but what’s listed in the contract which is the effective date.

In addition, a new management company was not selected and went against my and another board member’s disapproval. We were opposed in taking any action now. Now this has come to light, I’m sure the management company will surely do the bare minimum of what’s listed in the contract. All around a very poor decision by the president, and it shows her lack of experience in business. All of these mistakes I would consider learned in Entrepreneurship 101. I was so furious of this poor decision and a few other poor decisions, I’m almost inclined to create a special election to remove her as president. I may pursue this action if the follies continue.

Not helping with the rebuild process is the insurance company. Fortunately the building itself had a very big policy. In fact enough to completely rebuild the entire complex if needed. Unfortunately, like all insurance companies, they are delaying the funding as long as legally allowed. We’ve gotten some advancement, but not the full amount to rebuild all needed facilities. To help aid in the process, and as was recommended by the management company, we hired a public adjuster. So far our public adjuster hasn’t helped much and collectively annoyed how much the board needed with the insurance claim process.

Trying to get funding for my individual unit has been an exciting escapade as well. I submitted a claim to FEMA to see if I qualified for any assistance. It’s been an eye opening lesson about government programs and policy favoritism that exists. If the unit wasn’t a rental property and lI ived in the unit, I would have qualified for FEMA. Probably the maximum of the $30,000 grant. That amount would have probably been enough to cover repairing the damage to make the place livable again. So the other two damaged units on the first floor, since they are lived in by the owners, will more than likely get FEMA assistance.

In my ideal world I don’t think any of this assistance should exist and the money should be purely based upon insurance. But since this isn’t the case, I don’t see how owners are segregated into two separate categories: landlords and home owners.

Because the unit is a rental, I do not qualify for FEMA. I can only go through Small Business Administration (otherwise known as the SBA) and get a disaster assistance loan. The loan process has been slow and drawn out. I suspect it’s another two months before I have a decision. Based upon net worth and income, they may state I don’t qualify for a SBA loan. Or if I do, I’ll get a loan that might be at higher than market rates. If I had smaller net worth, or was not as good of a credit risk, ironically I would get a below market rate loan. Traditional economic logic doesn’t exist when dealing with the government.

I also contacted my bank about refinancing my loan. My existing loan isn’t large, but I have I have a high interest rate (6%). I didn’t refinance last year because I was expecting to sell my unit. Now, like it or not, I’m stuck with this property for at least the next few years – refinancing at a lower rate makes logical sense.

Even after the destruction, I still have a decent amount of equity. So instead of taking money out of existing investments, I would rather someone else take on risk and use it to rebuild the condo. After speaking with them on the phone, the bank stated they won’t touch the condo nor refinance the unit. I don’t qualify for a quick refinance since the loan isn’t owned by the bank. At the moment this option is a dead end. I will visit a local branch to see if any other options exist.

The lessons learned so far:

  1. Management by committee usually leads to a slower process. If I owned a home or if I owned the entire building, the place would be livable by now. I knew this going into this process so this wasn’t a surprise to me, but one needs to considered it when owning a condominium. There are many things out of your control, even when on the board. You must make sure this is included in your financial estimates.
  2. Dealing with the SBA has been an OK process so far. The people I’ve worked with have been helpful, but it’s a very slow process. I do not know if I even qualify.
  3. Take advantage of any government programs that exist. This may sound counter intuitive to my anti-large government stance, but it makes logical sense. The general public has voted for more government, so resistance is futile. Others are taking advantage of these programs, and I should as well. As a tax payer paying more than his “fair share”, I’m actually paying for these programs, so I might as well use them.

Comments

  1. says

    Wow, sorry to hear what an incredible mess the process has been for you. I used to live in a co-op so I know how slow and ridiculous a board can be. Sounds like someone else in charge might be a help, if you can find someone that will move you guys forward in the right direction.

    It makes me wonder how many other people are in a real tough situation in the area?

  2. says

    I would be so pissed working with the condo board…Just b/c someone knows how to yell at someone for playing their music too loud does not make the qualified to run a multimillion dollar organization! I have a fantastic mortgage guy I can recommend that is local.

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