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Lower costs and included maintenance make condos attractive to first-time home buyers, but compared to single-family houses, condos have risks. What to know before you buy a condo.
First-time homebuyers can get overwhelmed quickly. Learning the terms, negotiating the loan market…even if you’re not a first-time buyer, there’s a lot to consider. In the fast-growing real estate market, many aspiring homeowners are opting for condominiums because they’re newer, smaller and often have associations that handle maintenance and sometimes provide perks like shared pools.
While you shouldn’t look at any primary residence as an investment, per se, you might ask yourself: Will this condo appreciate like a house?
It’s one of several questions to ask yourself when choosing between a condo and a single-family. Here are some of the pros and cons of condo living:
Pro: Cheaper to buy
Usually, condos are less expensive than homes. The difference depends on your geographic area, but in a higher-cost market, a condo can be a bigger bargain.
Tip: Not all condo developments are approved for loans from the Federal Housing Administration (FHA). For an FHA loan to be insured, the development should have at least 50 percent of units occupied by owners—30 percent for new developments. Learn more about FHA loan requirements for condos.
Con: Harder to sell
Condos, in general, don’t appreciate in value at the rate that homes do. You may even lose money when it comes time to sell.
And if your neighbors are selling too, you don’t have much to set yourself apart from the competition—most units will be similar. One tips is to look for an attractive location within the building. In general, the more bedrooms your unit has, the easier it will be to sell.
Tip: Renting out the condo could be an option, if you’re having trouble selling, but some associates place restrictions on renting. Learn the development’s rental policy.
Pro: Low maintenance
Landscaping, snowplowing, repairing roofs—the time and money required to maintain a house can add up in a way that surprises first-time homeowners.
Utility bills are higher in a single-family home than in a condo, too, since you’re responsible for more space.
In condos, like apartments, residents outsource the heavy maintenance work. You’ll pay a fee, but you won’t have to shovel the drive or clear off fallen branches after a storm. Minor maintenance fixes in your condo unit may be up to you; find out which expenses are your responsibility.
Tip: A good condo investment is one where the annual increase in the monthly maintenance fee hasn’t gone above the general rate of inflation (about 3 percent). Otherwise, you may be paying for more repairs than you bargained for.
Con: Association fees
The downside of outsourcing building maintenance? What you save in time, you spend in money.
Condos charge association fees outside of monthly mortgage payments. As a condo owner, you’re part of a community—think of the fees as membership dues. Ballpark, they can run from $100 to $1,000 a month.
Two things to keep in mind about association fees:
- You pay extra for amenities (like 24-hour security) and when major renovations need to be made.
- You pay extra if other community members don’t pay their dues. To avoid subsidizing delinquent neighbors, find out how many condos the association manages, and how many residents pay on time. If at least ninety-seven percent of residents are current with payments, that’s good news for your investment. And more condos mean more owners shouldering their share.
Tip: Ask how much money is in the association’s reserve fund, or repair fund. The association should have plenty budgeted for unforeseen expenses. In general, a healthy reserve fund is 10 percent of the annual revenue budget—up to 25 percent in an older neighborhood where repairs are more frequent.
Pro: Easy city access
Urban living isn’t just trendy—often, it’s practical. If you work in a city and prefer a short commute, or if you just want to live affordably near urban hot spots like shops, restaurants and train stations, a convenient condo’s easier to find than a house.
Some urban-planning experts predict that most of us will be migrating to cities in the future as the population booms. So for a long-term investment, city property isn’t a bad idea.
Tip: Parking can be a dilemma for condo owners with cars. Find out if the development you’re considering offers parking exclusive to residents, and if there’s an extra cost. Some developments have first-come-first-serve parking areas; others may grant spots to residents for a fee.
Con: Less space and privacy
Houses offer room for storage and room for growth. Objects tend to accumulate over many years in a lived-in space. (Just ask your parents). Condos may have shared storage units or something similar, but you can’t store stuff in your own basement. You’ll learn to economize the space you have, especially if kids are in the picture.
Condo associations can restrict certain activities, such as smoking or even barbecuing on balconies. You’re in a shared space, which means both respecting and dealing with your neighbors. (Homeowners have neighbors too, of course, but not as close by.)
Tip: For your own yard, a house is the way to go. But for condo owners, building and neighborhood amenities can provide options for activities. Your condo complex may have a pool, gym, or recreation center that’s covered by your fees.
Pro: Community and safety
Renters come and go, but buyers build a community. Condo complexes are less likely to have high turnover than apartment buildings, which means you’ll get to know your neighbors.
You have regular opportunities to socialize—picking up mail, doing laundry—that aren’t as easy to come by in a single-family home. Some complexes may have social events for residents, as well.
There’s safety in numbers; familiarity with fellow residents means you have someone to turn to if problems arise.
Tip: Before you buy, make sure at least 90 percent of condos in the development are owner-occupied. A solid occupancy rate means a well-run association (and more residents chipping in for fees).
Con: Less control
Communities come with rules. While a homeowner can renovate their property whenever and however they choose (for the most part), condo owners have restrictions on what they can and can’t do.
Before you modify the exterior—and sometimes the interior—of a condo, you need consent from the association, even though you own the property.
All homeowners share in decision making processes that affect the group. Penalties for violating the covenants, conditions, and restrictions (CC&Rs) could include fines or being asked to leave.
Tip: Ask about restrictions before buying. What rules apply to the common spaces? What’s the procedure if you want guests? Are pets permitted?
Summary
Depending on your preferences for space, privacy, geographic area, and community living, you may be happier in a single-family home or in a condo. No matter what, make sure you ask all your lingering questions before you sign on the dotted line.
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