Buying a condo is a terrific way to get into homeownership without having to deal with the maintenance that comes with single-family homes and townhouses.
Condo owners often have access to shared amenities, and the condo association is responsible for building maintenance.
You aren’t required to reside in the condo either.
If the association allows it, a condo can be an investment that generates rental revenue.
What Is a Condo?
A condo, which is short for condominium, is a single unit within a multi-unit building, such as an apartment building, standalone home, or townhome.
It could be one of several units in a shared structure such as a high-rise building, or it could be one of two or three units in a much smaller walk-up building.
If you’re thinking about buying a condo, it’s crucial to know what you’re getting into.
You own your particular unit regardless of the size of the building or property.
You and your neighbors also own a pro-rata part of the community’s common areas and amenities, which can include parks, pools, playgrounds, gyms, dog-walking areas, and other public spaces.
This includes the land beneath the structure as well.
A condo association is normally in charge of the common areas of the building.
Usually, the association acts as a supervisory board and hires a company to handle maintenance, contact with residents, and other things.
“A condo owner owns their particular unit but shares ownership of the common areas,” explains David Lee, Realtor and team head of Keller Williams Realty’s David Lee Group in Orange County, California.
“Being a member of an association, condo owners normally pay a set monthly fee to fund the group’s budget and expenses.”
Depending on the community, condo owners may also have to take care of the outside of their homes. Condo owners are responsible for their own property taxes, utilities, and maintenance.
Condo associations can vary depending on the specific needs of each property.
Some condo boards may levy additional fees, known as “special assessments,” to cover shared expenses such as unforeseen building repairs or newly approved condo amenities.
House vs. Condominium
The price difference between a condo and a house is one of the most important factors to consider.
According to the National Association of Realtors, the typical price of a preowned condo was $297,900 in September 2021, a significant discount over the median price of a preowned single-family home, which was $359,700.
When comparing a condo to a house, however, the adage “you get what you pay for” holds true.
For example, condos are typically less expensive because they have less room — you won’t have your own backyard, for example, and the internal area is typically smaller than a single-family home.
A condo mortgage may have a somewhat higher interest rate than a single-family house mortgage, as well as a bigger down payment of 25% if you wish to avoid paying private mortgage insurance as part of your monthly mortgage payment.
With a house, the percentage is 20%. Why?
Condos are often seen as a risky investment by mortgage lenders because of the association’s finances and other things.
Buying Condo Guide
Here are best tips for buying a condo this year.
1. Consider your way of life.
Do you despise mowing the grass and trimming the hedges?
Consider power cleaning your driveway.
Is it going to be difficult for you to spend $5,000 or more on a new roof because of your financial situation?
If you answered “yes” to these questions, then condo living might be right for you.
If your desire for a large backyard surpasses the work required to maintain it, however, another type of property might be a better fit.
Similarly, if sharing walls, ceilings, or floors with a neighbor is undesirable, a condo, which involves physically living on top of your neighbor, may not be the best option.
Condos are perfect for individuals who are fine with most aspects of apartment life, with the exception of the built-in maintenance.
2. Find a Realtor who is familiar with the condo market.
If you’ve decided to buy a condo, you’ll need to choose a real estate agent who will look out for your best interests.
You’ll want someone who has experience with condos so they can address any issues you have and walk you through important procedures like studying the condo association documents.
Your agent should be familiar with the condo developments in your region and any potential concerns.
Things like community financing troubles, structure or infrastructure problems within the community’s building or buildings, or rules you can’t follow could all have a detrimental impact on your life in a condo.
If there has been acrimony over community issues, a professional agent will be able to tell you.
They’ll also know which developments have performed well in terms of resale value, which is crucial.
If the condo isn’t going to be your everlasting home, you’ll want to get the most money out of it when you sell it.
While an experienced agent is helpful, it is also worthwhile to visit the neighborhood and speak with some of the residents personally (at various times of the day and night).
This will give you a better idea of what it would be like to live there.
3. Choose the amenities you’d want to be included.
A condo can have a wide range of amenities.
Some may be basic packages that only include snow removal and other common-area maintenance, while others may include a gym, outdoor grills, and other high-end amenities.
Address the amenities you desire, as well as variables such as location and budget, with your Realtor.
When you buy a unit, you’re buying access to these amenities, so don’t be hesitant about putting them on your wish list.
Keep in mind that amenities you won’t utilize — like a pool — may still be worthwhile to have because a condo that lacks the amenities of others in the area may fetch a lower sale price when you try to resell it.
4. Look for a condo that is FHA-approved.
Obtaining a mortgage for a condo may be more difficult than for other forms of real estate.
That’s because when you apply for a loan, the condo development itself, as well as your personal finances, will be scrutinized.
To get the correct financing for your condo purchase, it’s important to seek the help of a mortgage professional who has experience with condos.
On the website of the Federal Housing Administration (FHA), which insures FHA mortgages, there is a list of FHA-approved condos.
It doesn’t matter if the FHA has the same rules as the rest of the lenders. If the condo isn’t FHA-approved, you might not get a conventional loan from a normal lender.
5. Conduct some research on the property management company.
It’s critical to know who will be in charge of the property’s upkeep because you want your condo to be well-kempt.
Paying dues to an association only to have the amenities fall into disrepair can be annoying. Poor management can hurt the value of your home or make your HOA dues go up.
When inspecting condos, inquire about who is in charge of day-to-day operations.
You can contact the property management company directly with inquiries about who handles resident requests and community rules.
Think about doing your own research into the firm’s reputation, such as finding out about other projects they’ve worked on and talking to board members to see if they are satisfied with the firm’s work.
6. Examine the association’s fees and rules.
In addition to your mortgage, you will have to pay condo association fees. These fees help keep the property and its amenities in good shape.
Examine the fees and see what’s included versus what you’ll still have to deal with outside of the monthly fee.
Inquire about how often (and by how much) the fees rise each year to get an idea of how much that sum will rise once you move in.
It’s also a good idea to inquire about the neighborhood’s rules.
Are there any noise limitations or requirements for pre-booking communal areas?
Knowing these guidelines ahead of time will help you determine whether or not the community you’re considering is a good fit for you.
Also, inquire about how the board and property management firm handle concerns or complaints, such as how attentive they are on weekends and holidays.
Pay attention to how they reply even when you first contact them; this can give you an idea of how much help you can expect when a problem arises.
7. Inquire about special evaluations.
Special assessments are additional fees imposed by the condo association to help support a major project.
The HOA board, if not all of the community’s residents, usually votes on an assessment.
They’re normally only in place for a short period, but they’re important to be aware of because they’ll have an impact on your budget while they’re in place.
You can use this as a bargaining chip with the seller if the association is going to force everyone to install new windows within the next 12 months.
Otherwise, you’ll put aside money for a down payment and closing charges only to have to spend another huge chunk of money on the assessment.
Unless there are exceptional circumstances, a well-run association can usually avoid special assessments.
Request copies of the community’s financial reports for at least the last three years, and have your lawyer or accountant evaluate them and sign off that the community’s finances are sound.
Examine the budget to check if it has sufficient reserves—is it being funded now in anticipation of a future or unplanned project?
These funds are especially important if the building is older, because older buildings often need more extensive repairs.
Advantages And Disadvantages of Buying a condo
If you’re considering buying a condo, you should weigh the advantages and disadvantages.
Here are a few things to think about:
Depending on the market, buying a condo might be a lot more affordable option than buying a single-family house, making it suitable for first-time homeowners or those with limited down payment funds.
Lower maintenance costs: In most condo complexes, exterior maintenance (with the exception of windows) is handled by the HOA.
Lawn and shrub maintenance, roads and pathways, roofs, and external siding are all included.
Condos can be a more cost-effective way to purchase property because they are smaller and require less maintenance than single-family homes.
Property taxes are also generally lower.
Good possibilities for social interaction. Some condo associations host social activities such as pool parties, barbecues, and doggy playdates, and you may become closer to your neighbors and more likely to meet them in person as a result. Of course, this is also good if you want to meet new people.
Depending on the condo complex, you may have access to top-notch amenities such as a grilling area, business center, pool, dog park, covered parking, clubhouse, and more, with the cost of these perks shared by all members.
HOA fees and rules. One of the most common complaints about condo living is that HOA restrictions may be overbearing, governing everything from trash pickup to what can be stored on your patio, how many pets you can have, and whether you can rent out your unit.
In some situations, breaking the guidelines might result in fines or even foreclosure.
Condo association dues also tend to rise with time.
Risk of investment. Since you and your neighbors share ownership of the common property, if one or more owners fails to pay their dues, the entire community may suffer financially.
Similarly, if one or more of your fellow condo owners file for bankruptcy, the units may be sold at a significant discount, lowering everyone’s property values.
Ask how this scenario is generally handled; some associations have guidelines and finances to buy back these units.
Less privacy, and possibly a high number of renters.
If you treasure your solitude, a condo unit may not be for you because condos share common areas such as the lobby, corridors, and amenities.
Noise may be an issue because you’ll be sharing walls, ceilings, and floors with adjacent owners.
Keep in mind that some complexes can have a lot of renters moving in and out, which means moving vans and tenants who may not care as much about the neighborhood as the owners do.
Issues with parking and storage: Because many condo buildings do not have assigned parking, you may have to drive a longer distance to reach your door.
There may only be a small closet or two for storage, and there may be no outdoor storage space at all.
Is Buying A Condo Good Idea For First-Time Buyers or Investors?
A condo might be an especially enticing alternative for first-time homebuyers.
If you’ve been renting, you may already be used to living in a condo, and you can keep living that way while you build up your equity.
Condos aren’t just for individuals on a tight budget or who aim to sell soon; they can also be excellent long-term investment options.
A condo can be used as a rental property, with renters signing a year-to-year lease, or it can be rented out on a short-term basis through Airbnb or VRBO.
While renting a property can help you earn passive income, there are other factors to consider, such as how simple it is to find a long-term renter or how much money you can make on a nightly basis with out-of-town guests, as well as the expense of maintaining the property for tenants and visitors.
The good news is that there are tax advantages for rental homes that can help offset some of the costs.
Whatever your reason for buying a condo, it will most certainly cost a little more in 2022 as housing prices continue to rise.
Buying a condo in some regions will feel just as competitive as finding a single-family home.
Compare several properties and be willing to compromise on your must-haves and nice-to-haves.
Consult a condo expert to help you look for a home and to protect your interests during the process.