Real estate investing, like many investments, seem to have a lot of twists and turns. For the last year or more, I’ve been appreciating (in both senses of the word) the gains that our real estate “empire” have made. (For new readers, we invested in real estate reluctantly.)

Recently, we got notice that two of the condo properties we own in the same complex need major renovations. The whole complex needs renovations. This means having to pay for special assessments.

While I wrote “Surprise!” in the title, we had an idea that this was coming eventually. The property hasn’t renovated for more than 30 years. In the last few years they’ve raised the condo fees significantly (I think nearly 100%), but it simply was too little, too late.

(I can’t understand why places don’t plan ahead for these renovations. It’s as if they consult NFL owners about how much revenue they set aside for creating a new stadium every 20-25 years. The answer always seems to be, “Not the vast amount of money necessary.”)

The surprise is around $20,000… each. The Zillow estimates for the condos are around $115,000, which I believe to fairly accurate. Essentially, more than 1/6th of property value disappeared overnight thanks to a pen stroke keyboard press.

Fortunately the property isn’t looking for people to cut a check on the spot. They were able to secure financing. Unfortunately, that financing seems like a parade of stinky skunks (a reference from Nickelodeon’s Blaze).

Specifically, the financing is a 20-year loan at 5.20% for 11.5 years. After that “it will adjust for the remainder of the term.” I did a quick search and 30-year fixed rates are around 4.30%… and 15-year fixed is around 3.25%. In fairness, these are the top rates for people with top credit. The bank has to balance their offering for the others.

However, they do have existing owners with a history of paying their condo fees every month. They are spreading this rate amongst many units, so I would think that they could use that to challenge the rates of a potential new home owner without the same “skin in the game.”

The 5.2% rate is bad enough, but the kicker is the adjustment in 11.5 years for the last 8.5 years. How will it adjust? Is it the prime rate plus 1%? Is it prime rate plus 6%? From the letter we got, there’s no answer.

And while I’m throwing the condo association under the bus, I’ll pause for a minute to acknowledge that they had a difficult job to do in explaining to unit owners why this is necessary.

Now I will resume throwing the condo association under the bus. In fact, I might hire a second bus for them. (Note: This is metaphorical. Never throw anything or anyone under a bus. Please consult your lawyer with regard to your actions involving buses. (Note: I feel that disclaimers like this are necessary in this day and age. (Note: (cons (car ‘(I spent too much of my life in emacs)) (cdr ‘(FML am so old)))) Note: The first person who leaves a comment explaining and deciphering the last note will receive $20 via Paypal. Please leave a valid email to claim giveaway.))))

I think there are a significant number of owners who were under the impression that they paid their condo fees to cover all this stuff. It’s a fair assumption for them to make. I view it as an admission that the condo association planned poorly.

Unfortunately for condo owners like me, we have to deal with the potentially exploding interest rate in 11.5 years. What’s that going to be? I’d estimate it around 8%. In 2004, I was very happy to get a 30-year fixed rate under 5% and that was historically great time. The average rate was probably 6% and times might be tougher in 11+ years. It seems to be around 100-200 basis points from what fixed mortgages are. Your estimate of interest rates is as good as mine… or maybe a monkey throwing darts. Overall, my thought is, “We’ve hit rock bottom… only one way to go, ‘Up’.”

I wonder if condo owners understand that. It feels like 2005 all over again. You can sign on for a simple payment, but it seems that it can (and will) explode. I find it unlikely that the rate in 11 years will adjust to something lower.

This brings me to yet another complaint against the association. (Who has another bus?) The Fed has raised interest rates a good amount over the last year. Lending rates have gone up. It wasn’t a surprise. The condo association has foreshadowed this by raising condo fees over the last few years. Could they have done an intelligent thing and locked in a lower rate? This massive, once in 30-year, renovation could have happened in 2015.

In the words of the greatest football coach of all time, “it is what it is.” We can play the the blame game all day, but it isn’t going to change anything.

My opinion on financing this is a topic for another day… maybe next week.

I have to give credit to one owner who is looking to sell. I got a recent Zillow alert for a property in the complex at around $150,000. I haven’t too many priced above $125,000 in the last five years. The unit was nothing special. Most of the pictures were of the utilitarian rug. This person has to disclose the assessment, so it’s like he’s asking for $170,000.

As my mother has said in the past, “Good luck to you and the Red Sox.” Hmmm, maybe that condo owner has a chance?