If you’re thinking of buying a condo, there are lots of reasons why it might be a smart move right now. Condos have never been more popular, particularly with the aging Baby Boomer population, which is starting to downsize and move into homes that are easier to care for. As a result, condos are in high demand and appreciating faster than single-family homes.
Buying a condo can be a great option, whether you’re just starting a family or escaping empty nest syndrome. However, condo living isn’t for everyone. There are some important questions to ask before you buy a condo and just as many downsides as there are benefits. Let’s look at the pros and cons of condo life.
What Is a Condo?
A condo is like an apartment that you own, right? Sort of. But there are some big differences between an apartment and a condo.
A condo, which is short for “condominium,” is a private residence within a larger building or community, while an apartment is a leased residence within a larger building or community. Condos share common areas with all the other units in their community; these common areas can include a fitness center, pool, and manicured grounds. Unlike an apartment, however, condo owners pay monthly dues to keep these amenities operating and in good condition.
Condos can be townhouses that are attached on one or both sides to another unit. Or, if the condo is in a larger building or high-rise, it might be surrounded by other units.
Benefits of Buying a Condo
Are you cut out to be a condo owner, or are you better off buying a single-family home? It’s a tricky question. Some people love living in a condo community, while others discover over time that they’d be happier with a bit more privacy and freedom. Condos offer a long list of pros and cons. Let’s start with the positives first.
1. Less Maintenance
One of the biggest benefits of living in a condo is that other people do the maintenance for you. They cut the grass and maintain the grounds, they fix the roof and shovel snow, and you don’t have to worry about finding someone to replace the siding. If you’re a first-time homeowner, in poor health, busy with work, like to travel, or you just don’t want to deal with all those chores, this is a major benefit.
Condos can also be a good option if you want to age in place because you have close neighbors, experienced maintenance staff to take care of big repairs, and plenty of activities to keep you engaged with your community.
2. Security
Many condos offer gated or locked entries, doorkeepers, or even security professionals for residents. If you live alone or security is a concern for you, this can be reassuring because it might reduce the risk of home break-ins. In addition, you live in close proximity to many other people, which means that in an emergency, you’ll have plenty of people to turn to for help.
3. Amenities
Want a pool? A fitness center? Wednesday game nights at the community clubhouse? Many condo communities offer residents amenities that are out of reach for the average homeowner.
These amenities can also make it much easier to get to know your neighbors. If you live alone or love to socialize, this can be a great perk.
4. Affordability
Condominiums are often priced lower than single-family homes. According to the National Association of REALTOR (NAR), in August 2018, the average selling price for a single-family home hovered around $260,000. Condos typically have a lower average selling price – around $248,200, according to the NAR. Depending on the region and the community, the asking price can be dramatically lower than a single-family home. So, if you want to dive into homeownership on you’re on a tighter budget, a condo can be a great first step.
5. Appreciation
In years past, condos typically appreciated at a slower rate than single-family homes because single-family homes are more appealing to more people. More importantly, you get land when you buy a home, and land is a huge factor in appreciation.
However, this is changing. Citing research conducted by Trulia, The Washington Post reports that the market value for condos rose by 38.4% between 2012 and 2017, while the value of single-family homes only rose by 27.9%.
6. Proximity to City Life
Many condos are located close to vibrant downtown areas, which is appealing for many reasons.
First, some people want to be able to walk, commute by bike, or take public transportation to their job because they’re sick of spending an hour a day or more sitting in rush hour traffic. Living close to your job can save you thousands of dollars each year in fuel and car maintenance costs.
Living near a thriving downtown also makes it easy to visit new restaurants, go shopping, and check out live shows. If you can walk or take public transit, you’ll likely find that you get more exercise because it’s easier to get out and about. Also, condos located in prime neighborhoods might increase in value faster than condos in the suburbs, which can make them a worthy investment.
Downsides of Buying a Condo
While there are plenty of benefits of condo life, there are just as many downsides.
1. Homeowners Association Fees
As you might imagine, that pool, fitness center, security system, and maintenance crew all cost money. When you buy a condo, you essentially become a business partner in that community. You pay a monthly homeowners association (HOA) fee each month, on top of your mortgage, which goes toward the upkeep of the property, as well as future investments such as parking lot resurfacing or the addition of a dog park.
HOA fees vary widely depending on the location, size, and quality of your community, and Trulia reports that HOA fees have been on the rise around the country. In 2005, the average HOA fee was $250 per month; by 2015, it had gone up to $331. Of course, where you live plays an important role. For example, the average HOA fee in New York City is $571 per month, while the average in Charlotte, North Carolina is only $218.
The steady rise in fees isn’t surprising when you take inflation into account; costs continue to go up in almost every sector. What is surprising is that when Trulia compared HOA fees to the rise and fall of home values, there was no match; HOA fees continued to rise even during years when median home values fell. Between 2005 and 2015, HOA fees rose 32.4%, compared to a 15.1% rise in home values.
So, not only do you have to pay a hefty monthly fee to live in a condo, but you can count on those costs rising steadily in the years to come. If you don’t budget for the increased fees, you run the risk of being priced out of your condo because you can’t afford to live there.
2. Potentially Mismanaged Funds
You’d think that if you’re paying $300 a month in HOA fees, everything would be taken care of promptly, but that’s not always the case.
Every HOA has two types of accounts: an operating account and a reserve account. The funds in the operating account are used for regular maintenance costs, such as lawn mowing, pool maintenance, and snow shoveling. The reserve account is for major or long-term projects, such as resurfacing the parking lot, replacing the fence around the community, or building a new playground. Think of this as the emergency saving account.
A well-managed HOA will make sure that both accounts are well-funded so there’s enough money to meet regular expenses, as well as enough money for long-term or emergency projects. However, there are plenty of HOAs that are not well-managed. If there isn’t enough money in the reserve fund and an unexpected expense crops up, such as a tree falling on the roof, then the board will vote to levy a special assessment on all homeowners. That means you’ll be legally required to pay an additional fee, which can be hundreds or even thousands of dollars, to make up the difference.
This happened to residents in Sudden Valley in Bellingham, Washington. As The Bellingham Herald reports, the Sudden Valley HOA attempted to raise monthly dues by 48%, from $832 to $1,237, to cover both routine and unexpected repairs. There wasn’t enough money on hand to cover costs because boards in previous years had put off even routine repairs and invested in questionable improvements, such as a school bus stop with solar panels.
This lack of funding is common. According to a study conducted by Association Reserves, a company that helps community associations manage their funds, up to 70% of all HOAs are underfunded. Even healthy HOA funds can be ruined when financially illiterate members are voted onto the board or when the group collectively makes some bad decisions.
3. Lack of Privacy
Another downside to condo living is that structurally, it’s very much like an apartment. And as you probably remember from young adulthood, sometimes apartment living isn’t all it’s cracked up to be.
In a condo, you have neighbors on the other side of your walls, and perhaps above and below you as well. You have neighbors going up and down the hall or crossing the grounds at all hours of the day and night. You get to hear their celebrations, their arguments, and their newborn crying every night at 2am.
If you’re looking for some peace and quiet, a condo may not be the right choice.
4. Delinquency
In a condo community, you share the financial responsibility of upkeep with everyone else. When people struggle to make ends meet, they might drop out of paying their association dues. This causes dues to go up for everyone else to cover the delinquency, meaning you’re stuck holding the short end of the stick.
5. Difficulty Selling
Condos can be difficult to sell for a number of reasons.
First, not everyone wants to live in a condo. Families with young children often want a yard, families with multiple dogs often need a yard, and some people just don’t want to live on top of someone else. These factors narrow down your pool of potential buyers.
Second, you have to consider your HOA. If your HOA demands high dues, this will price some people out of buying. If your HOA is underfunded and the community looks the worse for wear, other people won’t want to live there. When selling a condo, your HOA plays a big role in how fast it moves.
The financial health of your HOA will also be a factor for buyers taking out a mortgage. Many lenders won’t approve a loan if there’s pending litigation against an HOA or if an HOA doesn’t have sufficient reserves. If the community has a high ratio of renters, some lenders will deny the loan. All of these issues can further limit your pool of potential buyers.
Finally, since most condos in a community look the same, if there are empty units in your building, those will likely sell first. And if there are a lot of empty units, good luck.
6. More Rules
Living in a condo means you have to live by the management’s rules. For instance, say you want to install green energy technology, such as a solar panel on the roof to save energy at home. Instead of just getting started, you have to ask the condo association for permission. If they deny your request, you’re out of luck.
HOAs can have an overwhelming list of rules that owners have to abide by. For example, your HOA might restrict the number of pets you’re allowed to have and even restrict some breeds. They might set limits on the number of visitors you can have or set dedicated “quiet times” to restrict noise. They might also restrict the type of renovations you’re allowed to do or decorations you’re allowed to put up.
Living by someone else’s rules might be fine for some people, but for others, it can be stifling.
Tips for Buying a Condo
So, do you feel like a condo is a good fit for your lifestyle? Then consider these tips before you invest.
1. Older Condos Might Be More Expensive
As Trulia reports, HOA fees are often higher in older communities, simply because these communities require more upkeep. According to their data, sourced from the U.S. Census, buildings constructed in 2005 or later had HOA fees that were $90 per month cheaper than buildings constructed between 1960 and 1969.
2. Read Governing Documents Carefully
Not dealing with a lot of home maintenance chores is appealing to many people. But it’s important that you understand which elements the HOA covers and which are ultimately your responsibility. There are three maintenance categories to consider here.
Unit
First, you need to understand how your HOA defines the boundaries, or “units,” in your community. An important part of HOA bylaws is defining what’s included in a standard unit. Be sure to know what you own and what the HOA owns.
Typically, an HOA will define a standard unit as anything contained within the interior walls of the unit, including appliances. When you open the door to your condo, that’s your private space, so you’ll be responsible for painting the walls, fixing the drip under the kitchen sink, and replacing the carpet.
Common Elements
Common elements are those areas or features that are shared by all owners. HOAs are responsible for repairs and upkeep in these areas. They can include:
- Pools
- Tennis courts
- Fountains
- Recreation centers or clubhouses
- Grounds
- Parking lots
- Sidewalks
- Exterior siding
- Roofs
- Hallways
- Fencing around the grounds
- Entrance gates
Limited Common Elements
Limited common elements are features that don’t fall within the realm of your standard unit but aren’t exactly common elements, either. Typically, a limited common element is one you share with other owners, but not all of the owners in the community. These might be features that fall outside the interior walls of your unit, such as a patio. Or, they might be a feature that only some condos in the community have, such as a chimney or skylights.
For example, a garage you share with another owner would be a limited common element, as would a load-bearing wall you share with the person next door. Other examples can include:
- Entryways or common doors
- Mailboxes
- Awnings
- Stoops
- Shutters
- Balconies or patios
- Exterior doors or windows
Every HOA has different rules regarding limited common elements, so it’s important that you read your bylaws carefully to determine which additional features you’ll be responsible for. Typically, HOAs take responsibility for common elements but require that owners maintain the limited common elements that are connected to their unit. If limited common elements need repair, the HOA might pay for a portion of the costs and ask that the owners who share the element make up the rest.
3. Talk to the Neighbors
It’s a smart idea to talk to the neighbors before making an offer on a condo. It not only gives you the opportunity to see who you’ll be living near, but also to ask how well the community is run. Current residents can give you useful inside information about the board members, the vibe of the community, and the number of rentals.
Finding out the rental ratio is important for several reasons. First, units that are owned by investors and rented out means that there will always be strangers coming and going. These units might be rented yearly, like an apartment, or they might be rented out weekly for vacations. People in vacation units are more likely to stay up late, be loud, and perhaps even cause problems for the community.
Another reason the rental ratio is important is that some lenders won’t approve a loan for communities with a high rental ratio. This is typically more of a problem in big cities, such as New York or Miami, where investors purchase condos and then rent them to tourists.
4. Ask for the HOA Budget
An HOA isn’t likely to give a potential buyer a copy of their current budget. However, if you’re serious about buying a condo, you can ask the seller to provide you with a copy.
Going over the HOA’s budget gives you the chance to see where the money is going and how much they have in reserve for future projects. You should also look at their debt. How much debt is the HOA carrying, if any? More importantly, how many owners are not paying their dues? Communities with a high default rate might be in financial trouble, which could be expensive for you down the road.
It can also be enlightening to read the minutes of the last several board meetings. Yes, it’s a boring chore, but these minutes can give you some valuable insider information about how well the board, and the community, are working together. For example, you’ll be able to find out if the guy next door to the condo you want to buy frequently lodges complaints against his neighbors, or if the board is considering a special assessment for next year. This is information you want to have before you invest in the community.
Final Word
There’s no doubt that buying a condo can be a great decision – for some people. Aging empty nesters, young families, and busy professionals often find it liberating to live in a low-maintenance home where major decisions are handled by other people. However, if you love your privacy and independence and don’t want to live by someone else’s rules, then condo living probably isn’t right for you.
Do you live in a condo? Do you like it, or would a single-family home be a better fit for you?
