Buying real estate can be a stressful undertaking, but it doesn’t have to be if research is done ahead of time. Buying a condo is much the same as buying a house, but there are distinct differences. The best way to know what lies ahead when considering buying a condo is to assess the pros and cons.
Before discussing the pros and cons of buying condo real estate, it is important to know the difference between a condo and a single-family dwelling. Condominiums (condos) share common areas that are jointly owned by other condo owners, whereas a single-family dwelling is privately owned. Condos are managed by a governing board that oversees the maintenance and upkeep of common areas, whereas a single-family dwelling is managed by the owners who are responsible for all aspects of owning their home.
Location – Condos tend to be built in popular locations such as downtown, within proximity to a wide range of amenities. For singles or young couples, living in a downtown condo if often preferred as they have access to shops, restaurants, and theaters within short walking distances. On the other hand, senior living condos tend to be built in quieter locations.
Security – Condos tend to be located within gated communities and may or may not have security staff patrolling on a regular basis. Access to the community is usually by buzzer or key code, thereby preventing non-residents easy access. Residents often feel more secure going on vacation knowing that their neighbors will notice non-residents in the community and alert police to suspicious behavior.
Maintenance – One of the big benefits to condo living, especially for busy people, is that all maintenance of common areas and the exterior is undertaken by employees hired by the condo association. How much of the property is maintained and repaired as part of the condo dues differs from community to community, so research is needed to have a clear understanding of what is included. Condo associations often have a list of trusted contractors available for hire should an issue arise within a condo that is not covered by the association, and these contractors are often on call 24 hours.
Amenities – Most condo complex common areas will include a swimming pool, maybe a spa, tennis courts, a gym and a clubhouse. All of these areas are made available to all condo residents as part of their agreement. Condo owners can often save money by not having to pay additional fees to avail themselves of these facilities outside of the condo complex.
No land ownership – While a condo buyer can purchase the building (condo) itself they do not get to own the land it is built on. That land is owned jointly by every other condo owner within the complex.
Fees – Condo association fees are charged to cover the cost of maintenance of the common areas and exteriors of the condos, and these fees vary and can be raised if a large repair or replacement of plumbing, for example, is required. These fees need to be factored into the monthly cost of owning a condo.
Condo Association – Each condo complex is managed by an association that is often made up of a property management company’s representative and several elected members who are condo residents. These people, while they may mean well and feel they have the best interests of all the condo residents at heart, may not have the best business experience necessary to manage a condo complex effectively.
Rules and Regulations – Condo owners are often restricted in what they can and cannot do to and with their condo. For example, some condo complexes will restrict the paint colors condo owners can paint the exterior walls of their condos. The erection of satellite dishes for television signals may have to be approved by the condo association and may require that a condo owner waits until the monthly association board meeting before being able to proceed.
Resale Value – Condos tend to feel the effects of a weak housing market quicker than single-family dwellings and are often the slower to recover when the market begins to strengthen again.
Financing – Getting a loan on a condo can often be more difficult than on a single-family home. This varies from lender to lender and is influenced by the financing a prospective buyer is seeking. As condos are more easily influenced by drops in the housing market lenders often require buyers to put down a larger deposit.
To apply for an FHA loan on a condo, it must be listed on the FHA list of approved condos. There is quite an extensive list of requirements a condo must meet to qualify as suitable for FHA lending. These conditions can make it tough for certain condos to be approved as suitable, which in turn limits the number of condos that a prospective buyer can consider for purchase if they want to apply for an FHA loan.
Some of the requirements an FHA lender may place on a condo complex is that at least 50% of the condos be owned by residents and not investors, that a limited amount of floor space of a condo building be allocated to non-resident or commercial use, and that the percentage of condo association fee delinquency be low (usually no more than 15%).
Conventional lending varies from lender to lender, but they too will have a list of requirements to be satisfied before a particular condo will be deemed suitable to grant a loan on. Ensuring that the lender’s money will be at the least amount of risk is the lender’s primary concern, so an issue such as a high rate of association fee delinquency will severely impact their decision. High rates of delinquency mean the association does not have the funds to cover maintenance and upgrading costs, which in turn may lead to deterioration of the condo itself and the surround common areas, which in turn leads to a drop in the valuation of the property.
While there clearly are distinct advantages and disadvantages of buying a condo, it often comes down to the area and the lifestyle of the prospective buyer as to whether condo living is right for them. As with the purchase of any real estate, buying a condo is a large investment, and it is important that a prospective buyer makes the right decision.