Buying a Condo: Everything You Need to Know

Buying a condo

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From an ownership perspective, there’s a lot to like about condominiums. They offer a convenient, practical lifestyle, especially in larger cities. Condos also tend to have more accessible pricing. This boosts their appeal to first-time buyers and people in younger demographic groups. Many older people and retirees also downsize from detached homes to condos in their later years. Condos are much easier to maintain: they have no grass to cut, no weeds to remove, and no trees to trim. However, buying a condo is not the same as buying a house. Many of the same principles apply, but condos often carry extra considerations. Condo residents share walls with neighbors and must abide by community rules and guidelines. Financing requirements also differ in some ways. There are also many other differences to consider, and this guide will explains them all.

Is the Condo Lifestyle Right for You?

Many people purchase condos as investments. They own the property but rent the space out to tenants. Other condo owners live in their units themselves. If this matches your intentions, your first step should be to assess whether a condo makes a good match for your lifestyle.

Condominiums exist in many settings, from cities and suburbs to developed pockets in otherwise quiet, isolated areas. However, they are most common in high-density downtown and metropolitan districts. As such, they often attract buyers drawn to fast-paced urban lifestyles. If this does not match your preferences, you may need to expand your search to boutique options in alternative locations. Depending on where you live, fewer such units may exist.

Community Rules

Community guidelines represent another very important consideration. Almost all condo developments come with a common set of rules and regulations that all residents must abide by. These standards are usually created by a representative body known as a homeowners’ association (HOA). Their terms often cover a set of points known in legal circles as covenants, conditions, and restrictions (CC&Rs).

HOAs have the authority to enforce CC&Rs through interventionary action. People who violate them can be fined. In extreme cases, HOAs can also take legal action against residents who are subject to CC&Rs but refuse to honor them. This can result in forced compliance, lawsuits, or eviction.

CC&Rs mainly cover reasonable standards of neighborly conduct. However, not everyone has the disposition to comply with them. If you do not feel you make a good match for such a situation, condo ownership may not be right for you.

The Basics of Condo Buying: Special Considerations

The same levels of due diligence that apply to homes also apply to condos. Would-be buyers should look carefully at major factors including:

  • The property’s age and condition.
  • How well it has been maintained.
  • Neighborhood characteristics, features, and amenities.
  • Its price relative to comparable properties.

Additional, unique ownership considerations apply specifically to condominiums. These include:

Maintenance Fees

All condo owners must pay additional fees on top of their mortgages and property taxes. These charges go by different names, but are usually called “maintenance fees” or “condo fees.” Some properties call them “common element fees.” No matter what they are called, they represent a significant factor to consider. Condos are less work to maintain than houses, but the convenience comes at a price.

Condo fees cover the care and maintenance of all shared elements of the property. This includes structural elements of the condominium building, along with:

  • Landscaping.
  • Garbage collection.
  • Systems maintenance (HVAC, plumbing, electrical, etc.).

Other Costs

Some condos also include some or all utilities in their fees. When shopping around, it is vitally important to know what is and what is not included in each property’s fees. These charges can vary significantly from one building to the next. Accurate planning requires a complete understanding of how the condo fees factor into the larger financial picture.

It is also worth noting that some buildings separate condo fees from HOA fees. HOA membership is often compulsory. Thus, you must also determine whether or not your HOA dues are covered by your condo fees.

Insurance

Condo owners insure their properties the same way conventional homeowners do. However, condominiums carry a distinct set of insurance needs. Thus, many insurance companies now offer specialized coverage for condominium owners. You probably won’t be surprised to learn it is usually called condo insurance.

With respect to insurance, coverage gaps are important to watch for. Some HOAs offer condo insurance to member owners. However, some HOAs expose their members to higher levels of risk in order to keep premiums lower and more appealing. Thus, you should always perform thorough side-by-side evaluations. Compare every detail of the HOA’s plan against offers from independent insurers. Insurance is not generally a good place to cut corners, and minimizing your risk exposure is always wise.

The HOA and Condominium Board

Most HOAs are helpful, community-oriented organizations that work for the common good of all their members. However, as many people find out the hard way, this is unfortunately not universally true.

Thus, you should do your own research into the track record of the HOA that governs any condo under your consideration. In performing your due diligence, look into:

  • The HOA’s bylaws and governance standards.
  • Financial records, especially as they apply to the HOA’s reserve funds.
  • Prevailing opinions about the HOA among current building residents.
  • Its litigation history regarding issues like unpaid taxes, unpaid dues, unpaid condo fees, and actions against unit owners.
  • Any pending lawsuits or legal actions against the HOA.
  • Any history of bankruptcy.

If you find any red flags that you cannot resolve, you may want to consider another property.

Condo Boards

Similar considerations extend to the condominium board. A condo board functions as a governance organization that represents owners’ collective interests. It oversees management standards and has the authority to order special actions. For example, the board could decide to completely renovate the building’s lobby. Such actions could result in exceptional levies, fees, and charges.

In some buildings, the HOA assumes the duties of the condo board. Others classify the two as separate entities. Understand which distinction applies to the property you are considering. If a condo board functions independently of the HOA in a given building, its history and membership should also be a focus of careful research.

Condominium Mortgages

Compared to houses, additional conditions and restrictions may apply to condominium mortgages. This can result in buyers having to clear more hurdles to secure financing.

For example:

  • Some lenders require that a minimum percentage of a building’s condo units be “owner occupied.” This means that owners must live in a specific number of the condominiums in the development. If the building fails to meet this standard, the lender may decline the mortgage application.
  • Lenders sometimes maintain policies preventing them from allowing one investor to own more than 10% of the units in a given building. This restriction will not apply to most mortgage applicants, but it is worth noting if you are an ambitious investor.
  • In newly built developments, lenders may require that a certain number of units be sold before offering financing. They may also make financing conditional upon the builder meeting completion milestones if the building is still under construction.
  • Some banks and financial institutions require higher down payments for condominiums than they do for homes.

Most prospective buyers find condo financing without serious difficulty. It is just worth bearing these factors and restrictions in mind as you shop around for mortgages.

Pros of Condo Ownership

As a final bit of preparation, reviewing the general pros and cons of condo ownership is a good idea.

Advantages of condos include:

  • Compared to semi-detached or detached homes, condos have far fewer maintenance needs.
  • Most day-to-day maintenance is taken care of by the HOA.
  • Many condos have enhanced security features, including controlled-access parking and building entrances, 24-hour concierge service, and excellent camera coverage.
  • Many condo buildings have extensive on-site amenities, potentially including gyms, yoga studios, gardens and green spaces, rooftop patios, barbecue pits and picnic areas, children’s playgrounds, and furnished guest units.
  • Condominium units tend to be priced lower than semi-detached and detached homes located in the same area.
  • Many condos are centrally situated in busy urban settings, offering residents immediate access to the best of city living.

Cons of Condo Ownership

Downsides and drawbacks include:

  • Monthly maintenance fees can be high, and they do not always cover essential utilities
  • HOAs can be a cumbersome presence in certain situations.
  • Condo boards sometimes mismanage funds, leaving owners exposed to financial risks.
  • Condo living offers less privacy than home ownership.
  • Residents must abide by a rigid set of rules or face fines or disciplinary action.

Some sources report that condominiums are statistically more difficult to sell than homes. In actuality, this depends on local real estate market dynamics. You should research market trends in the city where you are thinking of buying to determine whether this might become a factor.

The Bottom Line

Condo ownership has a lot to offer city-dwellers. It is especially appealing to first-time buyers, retirees, and older people. Most newer buildings feature a long lineup of onsite amenities, adding lifestyle value.

However, these benefits should be weighed against certain drawbacks. Residents are subject to community rules. Required monthly maintenance fees add further expenses, and building governance must be carefully investigated.

With proper due diligence, condominium ownership can be profitable, both literally and figuratively. If you shop around and do your research, you are likely to enjoy a positive experience.

Buying a condo

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Jim Greene

Jim Greene

Jim Greene is a freelance writer based in the Toronto, Canada area. He has been writing professionally since 2001 and has an extensive professional background in consumer research, personal finance and economics.

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