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What To Know

If you are  considering the option of owning your own condo for the first time, please read the following.  Below is everything that many condo owners wish they would have been informed of when considering the total cost of owning your own unit.  We know this page is not beneficial to short term gross or net sales, but we do believe it is beneficial for long term relationships.

HOA Stability

Each building’s Homeowners Association has a lot to do with your ability to enjoy your property and your property’s ability to continue to appreciate!

HOAs can be trusted in the care of at the least least hundreds of thousands, and often millions, of dollars. Generally the Board of Directors are the ones that manage or direct the administration of these funds collected from each owner.

When looking at a property you should ask to see the HOA budget, balance sheet, and minutes from the last few Board meetings.

The budget of all buildings should have a line item for capital reserves. This figure should be approximately 10% of the annual budget. For a building to be “bankable” for a conventional mortgage in today’s lending environment, annual budgeting of capital reserves is a must. Lenders want to know that the building has the reserves to carry it through a natural disaster or some other event that could cause an unexpected expense to the HOA. In this way lenders are insuring the value of the unit which they hold a mortgage on will not depreciate due to a failing or defunk HOA.

After looking at the budget, check the balance sheet for the amount of cash on hand, any late or overdue payments from other unit owners, and see that there is at least half a years budget in reserve to handle insurance deductibles or unexpected expenses to the HOA.

Looking at the minutes from recent Board of Directors meeting will key you in to the issues that are currently on the table for the HOA. Any mention of up coming assessments should be investigated so you will not be faced with an unexpected bill after purchasing your new property.

Property Management

Approximately half of the properties on Pleasure Island are rentals and the other half are kept private and not put into a rental program. The properties that are rentals are essentially managed in two different ways.

1. Using a rental management company is the most common practice of the owners that rent. This takes almost all the responsibility for compliance with local ordinances, bookings, cleaning, and maintenance during a guests stay off of the owner and transfers it to the rental management company.

This form of rental management is the most enjoyable way of owning a rental property and is often very profitable with a check for net revenues arriving in your mailbox each month. There are well over a hundred different options for the property owner here on Pleasure Island when it comes to rental management. Shark Realty does not offer rental management but we do work closely with all the management companies. We will be happy to help you find a good fit for your new property so you can maximize your return on investment if you choose to rent.

The responsibilities of the rental manager include booking, collecting rents, taxes, security deposits, pet fees, and cleaning fees.

Most rental management companies offer 24 hour call service if a renter has a problem during their stay. Regular maintenance of the units (air filters, light bulbs, and cleaning dryer ducts) often falls under the rental management umbrella. The cleaning of the unit after each guest checks out and prior to the next guest check in is the most intensive management issue that faces a rental manager. There may be as many as five thousand units that need to be cleaned on any certain day during the season.
2. For the owners that choose to be more “hands-“on and want to do the rental management of their property themselves, most choose to market the rental of their property through one or more online advertising venues. These sites, such as, are very effective and can often yield the owner the highest net rents received for their property. An owner has to be willing to devote a fair amount of time to make this way of rental management successful. The most successful owners at self-rental management will tell you response time to a prospective renter is key to converting them to a paying renter. In other words, emails and texts need to be answered within minutes of receipt. This gets the prospective renter focused on your property as the one they want to rent for their upcoming vacation.

 The responsibilities of the rental manager include booking, collecting rents, taxes, security deposits, pet fees, and cleaning fees.


Taxes are everyone’s favorite subject and do vary with the type of usage of your coastal property.

 1. County property taxes are the most significant tax that will be levied against your unit each year. If you keep your condo “private”, in other words you do not rent your unit on the open market, the assessed value of your unit will be 10% of the appraised value. If you rent your unit through a rental management company or you market the unit yourself for rental through “by owner” services, your unit will be assessed at 20% of appraised value. This means if you rent your unit on the open market you will have twice the tax due annually than a private/second home unit.

 2. If you rent your unit you will also have a separate county tax bill for the contents/furnishings of your unit because these items are used to realize the rents you receive. This is usually a very small amount compared to the standard property tax levied against the unit/property itself.

 3. If you rent your unit you will also be required to buy a business license from the city where your unit is located. This is basically a tax levied by the local municipality against the revenues you receive from the rental of your unit. This is normally around $200 per year.

 4. If renting your unit on the open market and once you buy your business license, you will be required to report and submit your sales tax collection on all rents received. More on this in the rental management section.

 5. If you are an out state owner renting your unit you will also be required to file Alabama state income tax returns annually if your unit is in Alabama.

HOA Management

The Homeowners Association of each building has a choice when it comes to how they take care of the common elements in their building. The majority of HOAs chose an “Association Management Company”. The other alternative is to be self managed which requires the association to employ personnel to administer the handling of all association business. This includes maintenance of the building and grounds, work with each individual owner about their concerns and handling outside vendors such as utility companies, insurance companies, contractors and the local municipality.

Something that is interesting to consider is that the balconies on all buildings are “common areas” although each owner has specific use rights to them. This means as an owner you will be responsible for the interior of your unit to a certain extent and the exterior will become the HOAs responsibility at a defined point as you move to the balcony. This is so the exterior of the building can remain uniform and attractive by being maintained together. It is time well spent to know what portion of the balcony, (glass, window/door frames, floors, etc.) the HOA takes responsibility for maintaining and what you as an owner will be responsible for maintaining. This varies with every building.

On-site management is usually considered superior to the other option of having the maintenance coordinated from an off-site location. With on-site management of the HOA, you have someone on the property during regular business hours to speak with directly. Most self managed HOAs employ a building manager whose office is at the building. When an association management company is hired by the HOA, they may choose to have maintenance staff on site daily and/or have a building manager in place either on or off site. Smaller, more exclusive buildings rarely have on-site management because the need for a person on these smaller buildings full time is not warranted.

 As an owner you will certainly have concerns from time to time about your building’s amenities. Your building’s Board of Directors will be in charge of directing the association management. If you want to speak with the management team directly, how your building is managed will be important to know so you can get your concerns handled quickly and easily.


As in all property purchases, there are several aspects that should be considered individually. In buying a condominium there are a few variables that are different from any other type of real estate purchase. Most real estate that includes improvements will require the consideration of insurance. In a coastal condo purchase there are four different insurance types at work.

1. Homeowners association will generally provide hazard insurance on the building itself, liability insurance on the common areas of the building, and flood insurance on the units themselves on the bottom floors. This is on the actual unit as delivered to the original purchaser, which does not include added upgrades or contents. The HOA flood insurance generally will cover the common areas and it’s contents on the bottom floors. Each owner pays for their share of this coverage through monthly HOA dues or through annual insurance assessments. Knowing how the insurance is paid and assessed should be a part of any prospective new owners due diligence prior to making any offer.

 2. Each individual owner is responsible for the furnishings inside their own unit and liability of those that enter their unit. This exposure can generally be mitigated through what is generally know as a “renters policy.” This is a policy that is readily available from several suppliers in the area. These policies are very affordable and usually run between $300-$600 per year. This policy can, and should, include coverage for theft of contents, destruction or loss due to fire or storm and personal liability for persons while inside the insured unit.

 3. Rental reimbursement insurance is a significant type of insurance often overlooked. While we have been very fortunate over the last ten years to not have major storm damage our area, it could happen at any time. A severe or direct hit from a major hurricane can often leave an entire building out of service for weeks or months. If this happens and an owner is relying on the rental income from a unit to cover the costs of ownership, this insurance is highly recommended.

 4. For the units on the bottom floors additional flood insurance is typically encouraged by the insurance providers. These policies are generally very affordable and often have no deductible.

Crossfit Orange Beach
4393 William Silvers Parkway
Orange Beach, AL 36561
(703) 869-5818

Dr. Jeffrey Lipke

4223 Orange Beach Blvd., Ste C
Orange Beach, AL 36561-3460
(251) 974-2273

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