Condos: A Complete Guide To Owning One
When shopping for a home, you’ll have plenty of options to consider – and one of those is buying a condo. But what is a condo, and is it a good investment versus a different type of house?
Let’s take a closer look at the condo homeownership possibility as well as the pros and cons of owning a condo.
What Is A Condo?
A condominium, also known as a condo, is a residential building with multiple individual units which share walls. Each tenant separately owns an individual unit.
How Do Condos Work?
A condo is made up of many shared spaces, but the individual unit is yours. A key feature of a condo is the shared common areas and amenities such as lawns, pools and tennis courts. Essentially, it’s a little bit yours and a little bit everyone else’s. While features like the pool and tennis courts are almost always shared, the space inside your specific unit is yours and yours alone.
But these perks come at a price. Condo owners pay dues to a board or homeowners association (HOA). These HOA fees are used to cover the costs of condo living, such as maintaining the shared areas of the property.
This part is particularly appealing if you’re looking to own a home but don’t want to be responsible for maintenance and yard upkeep.
However, condo owners can’t avoid the pitfalls of homeownership completely. They’re still responsible for the maintenance of their individual unit. So, expenses like repairing a broken appliance would come out of your pocket.
How Much Are HOA Fees And What Do They Cover?
The HOA fees for a particular unit can vary widely based on the unit’s size and location. The age of the building will also significantly impact your HOA costs.
Depending on the area, you may find HOA fees that range from $100 – $1,000 per month. But in most cases, you’ll find HOA fees in the $200 – $300 per month range.
Typically, this fee includes maintenance, city services, pest control, and insurance for common areas. However, it likely won’t include home improvements to your unit.
Keep in mind that monthly HOA fees can impact your ability to afford a particular unit. It’s important to budget for both your mortgage payment and HOA fee. If you can’t afford both, then you can’t afford the condo.
What Are The Different Types of Condos?
Not all condos are created equally. Rules vary by condo type and can impact your usage of the space.
The two major categories are freehold and leasehold condos. Here’s a closer look at these types of condos.
When you purchase a freehold condo, you’ll own the unit outright. Here’s what to know about the different freehold condo options.
- Standard condos (condo home): Standard condos can also be called condo homes. Essentially, this is a residential property in which the owner only owns the home’s interior. With that, you’ll only own the interior of your individual unit, but common areas will be outside for all the building owners to enjoy.
- Vacant land condo: A vacant land condo is an option when a corporation registers and sells its land as a condominium before construction begins. In this case, you would own a portion of the property that the condo sits on. But you’ll have to wait for the developer to finish building the condominium before moving in.
- Common element condo corporations: Common element condo corporations contain only shared spaces and amenities. When you purchase a land parcel with an attached interest to the common element condo corporation, you’ll be responsible for maintaining the shared spaces through a cost-sharing relationship. Ultimately, you’re responsible for your own land parcel, and you’ll have to pay maintenance fees for the common areas.
A leasehold condominium is dramatically different from a freehold condo. With a leasehold agreement, you sign a long-term lease agreement with a landlord. Importantly, this option doesn’t come with any ownership of the unit. Instead, you’ll just have the right to use the unit for a specified period.
Although freehold and leasehold condominiums are the most common, other options exist. Here’s a closer look at your other options.
- Detached condo: A detached condo has no shared walls with another unit. Detached condo units can be found clustered together in planned communities with minimal upkeep requirements.
- Condo share: A condo share, also known as a timeshare condo, offers a divided form of ownership. Each tenant of a condo share has the right to use the property for a specific time and number of days each year.
- Private Condo: A private condo is a condominium on a landlord’s property. Typically, the units in a privately owned apartment are rented. But the application process and criteria may be different from other types of apartments in the area.
- Condo Building: A condo building includes a complex of individually owned units. Typically, a community property management board or HOA is responsible for the upkeep of the building.
Factors To Consider Before Renting Or Buying A Condo
Are you thinking of renting or buying a condo? Weigh the following factors before jumping into this decision.
As with any home type, your finances are a key factor when determining if you should buy or rent a condo. If you want to buy a condo, you’ll need to save up for a down payment and closing costs. Plus, you must be able to afford the mortgage payment, even with your HOA fees considered.
Renting a condo comes with less commitment. You won’t need a big down payment. As a renter, you can always choose to move out of your condo at the end of your lease if you decide you don’t like the building.
The cost of a condo varies widely based on the building and your location.
If you’re buying a condo, you’ll need to consider the long-term costs. Beyond the regular HOA fee, special assessments are a common way for HOAs to raise funds for big projects. For example, if the building needs a new roof, you might be on the hook for thousands of dollars.
But as a renter, the owner of the condo is responsible for those big expenses. Plus, renters only need to make a deposit, which is usually in the range of one month’s rent. That’s significantly more affordable than making a down payment on a condo purchase.
The owner of the condo unit is responsible for the maintenance of the unit. As a renter, you can avoid the unexpected maintenance costs that come along with condo ownership.
When buying a condo, determining the best location is critical. Condos can be challenging to sell. With that, you don’t want to get stuck in a less-than-ideal location.
But as a renter, you have the option to leave at the end of your lease. With that, you have more flexibility to try out different locations to find the best fit.
One of the major selling points of any condo community is the amenities offered. Whether you are buying or renting, finding a condo with the right amenities for your life is key.
Suitability As A Long-Term Solution
As with all home purchases, you’ll need to decide your plans for a particular property. Are you planning to stick it out for the long term or just enjoy the place for a couple of years?
If you’re looking for a short-term housing solution, renting might be the right fit. But if you want to stay in a location for years to come, buying a condo might be the better solution. Ultimately, you’ll need to decide which option is best for your goals and finances.
The Pros And Cons Of Condo Living
Every financial decision comes with advantages and disadvantages. Here’s what you need to know about condo living.
Let’s start with the pros that a condo offers.
- Affordability relative to single-family homes: Most condos are more affordable than single-family homes in the same area.
- Managed maintenance: Condo ownership relieves some of the maintenance-related stress that comes with homeownership.
- Equity potential: In a freehold condo, you can build equity in a property.
- Access to amenities: Condos often have open layouts, pools, fitness centers and other amenities and luxuries that you may not otherwise be able to afford. This is especially true if you’re buying a brand-new condo.
- Community living: Living in close proximity isn’t for everyone, but it does tend to create a feeling of community. Not all condo communities are the same in this regard, though, so it’s important to find the condo complex that fits your lifestyle.
Now for the disadvantages of condo living.
- Condo association restrictions: Abiding by the rules and regulations of the HOA can be a potential roadblock and should be given serious consideration. If you’d like to have more control over your property, then a condo might not be the best choice.
- HOA fees: While you’ll be saving money on the cost of the condo and on insurance, HOA fees are important to consider. These fees do provide value by covering items like maintenance and lawn care, but they can range from a couple hundred dollars to a thousand dollars a month.
- Less privacy: Expect to be in close proximity to your neighbors. The close quarters lead to less privacy.
- Financing difficulties: Financing a condo is often more difficult than financing a single-family home. That’s because more factors are in play. For example, FHA-approved condos come with higher restrictions from the FHA that help ensure these properties will retain or increase their value.
- Selling difficulties: Reselling a condo can sometimes be more of an issue than reselling a traditional house. For example, a condo can be less attractive to potential buyers due to certain HOA regulations, and it can affect the type of loan a buyer can qualify for.
Below are some frequently asked questions about condos.
Do I have to pay HOA fees when buying a condo?
If it’s in your real estate contract when you buy a condo, yes, you’ll have to pay HOA fees. If you’re not interested in paying these fees, buying a different home might be in your best interest.
What’s the difference between a condo, house, apartment and townhouse?
A condo is just one type of property ownership option. Other common options include condos, houses, apartments and townhomes.
But what’s the difference? Here’s a breakdown:
- Apartment: Apartment buildings are also multiunit buildings. But unlike individually owned condos, apartment buildings are typically owned by a real estate firm and managed by a property management company.
- Townhouse: Townhouses share walls with other units. However, unlike a condo, you can’t have a unit above or below a townhouse. Typically, townhouses come with HOAs to manage the exterior of the units. But the amenities included are otherwise minimal.
- House: A house is a detached dwelling that often costs more than a condo. Although an HOA may be involved, homeowners are typically responsible for maintaining the interior and exterior of the property.
How do I find condo complexes near me?
If you’ve decided a condo is the right move for your housing needs, the next step is to find a condo complex in your area. The best option is to get in touch with a local REALTOR® or real estate agent. They can guide you through the condo complexes in your area to find the best fit for your situation.
The Bottom Line
Buying or renting a condo is one path to the home of your dreams. But it’s important to carefully consider how the costs of condo living could impact your budget. Weigh out all of the options before moving forward with a condo purchase.
Ready to start your home buying journey and purchase a condo? Get started with us today and speak with a Home Loan Expert.