Considering a condo? A condo could be a good choice as a starter home, a retirement nest, an investment property, or a residence for anyone who wants amenities but little maintenance.
You’ll want to weigh the upsides and potential downsides and take these steps before committing to a condo.
What Is a Condo?
When a person buys a condo, as opposed to buying into a co-op, they own the unit in the building or complex, but they don’t own anything outside those four walls. That includes the structure of the building, the roof, and the ground the building sits on.
The parts of the property not owned directly by the condo residents are managed by a homeowners association. The HOA maintains the property with fees collected from residents.
If you’re weighing a condo vs. townhouse, it helps to understand these key differences.
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What Are the Pros and Cons of Buying a Condo?
Ultimately, the choice to buy a house or condo will be based on the buyer’s preferences and budget.
Pros of buying a condo include:
• Affordability. Generally, a condo will cost less than a detached single-family home so your monthly home loan payment may be more affordable.
• Amenities. If it’s important to have access to a pool, gym, dog park, or parking garage, a condo might fit the bill.
• Lower home insurance and property taxes. Because condo owners aren’t directly responsible for the exterior of the building, home insurance is less than for a single-family home.
• Low maintenance. Beyond maintaining the immediate residence, condo owners don’t have to worry about mowing the lawn or replacing the roof on their own.
• Lower utility bills. As condos are generally smaller than single-family homes, there are lower utility bills.
• City settings. Condos are more likely to crop up in densely populated areas, making them an affordable entry point for owning property in an urban setting.
Is a particular condo within your means? Check out this home mortgage calculator.
There are plenty of upsides when someone buys a condo, but here are some downsides:
• Privacy. Condos are shared residences with communal space. If buyers value privacy and their own outdoor space, a condo might not be a good fit.
• Building rules. Condo boards dictate how a building is run, including if units can be rented, what colors can be used on exteriors, and whether pets are allowed.
• HOA fees. Since maintaining the building is a collective responsibility, condo owners pay monthly or quarterly fees to the HOA. The fees are likely to rise every year. A sizable special assessment may be charged for major repairs.
• Smaller space. Condos vary in size, but they’re unlikely to be as large as most single-family homes.
• Slow appreciation. Condos tend to appreciate more slowly than single-family homes, but appreciation is also based on location and the market.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Things to Do Before Buying a Condo
Still not sure if a condo is the right fit? Before figuring out how to purchase a condo, consider these eight steps.
1. Consider Your Lifestyle
A condo could be a perfect fit for highly social people who prioritize proximity over privacy. Since condos tend to be smaller, the ideal condo owner should enjoy the communal offerings of the building, including everything from pools to pickleball.
As condos are often in cities, it could be the right fit if being close to the hustle and bustle is important to a buyer.
People who are downsizing often find a condo a good choice. Buyers who dread upkeep can own a home without mowing a lawn or maintaining a roof.
On the other hand, if a buyer values privacy and space, a condo might clash with their sensibilities. A condo won’t give them that opportunity if they want storage or a garden.
2. Work With an Agent Who Has Experience in Condos
Buying a condo with an agent specializing in single-family homes is like going to the dentist for an earache. Finding the right agent is about personality fit and experience. When interviewing agents, ask about what types of properties they buy and sell regularly. An agent with a lot of experience in condo sales will be more familiar with buildings in the area and their HOAs, amenities, and property management.
3. Consider the Pros and Cons
The perfect property doesn’t exist, so it’s worth weighing the pros and cons of condo living compared with a single-family home that’s not in an HOA community:
| Condo | Single-Family Home | |
|---|---|---|
| Amenities | Pool, gym, dog park, deck space, meeting rooms, parking (depending on building) | Amenities vary by property |
| Maintenance | Little to no maintenance | Owner responsible for entire property |
| Privacy | Shared walls/ceilings and shared amenities | Stand-alone property, more private space |
| Affordability | Lower insurance, utility bills. Generally lower purchase price. |
Higher monthly bills. Typically more expensive than a condo. |
| Space | Smaller | Larger |
4. Decide What Type of Amenities You Want
If a condo feels like the right fit, it’s time to decide which amenities are musts and which are simply nice to have.
Amenities could include:
• Pool
• Dog park
• Fitness center/spa
• Tennis, pickleball, or basketball courts
• Covered parking or parking garage
• Business center/party rooms
• Rooftop deck
• Landscape management/gardens
• Valet
• Onsite programming or events
Once buyers understand what they need and what they don’t, they can more efficiently narrow down condos in the area based on amenities. Of course, the more amenities, the higher the maintenance fee will be.
5. Find an Approved Condo Community
Condo buyers who qualify for a Federal Housing Administration loan will need to find an FHA-approved condo community, one that meets requirements set by the U.S. Department of Housing and Urban Development. Buyers can search for these properties using HUD’s database.
Buyers wanting to use a VA loan can check a different database.
Most conventional mortgage lenders will require a “limited review” of most condominiums in the form of a questionnaire sent to the HOA. Among the criteria: Ten percent of HOA dues must be allocated to reserves, less than 15% of units must be in arrears with dues, and more than half the units must be owner-occupied.
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6. Research the Property Management Company
Diving deep into property management is an important step of what to look for when buying a condo.
Before settling on a property, it’s important to research the property management company hired by the HOA to maintain the building. Consider double-checking on its licensing, reviews, and if there’s any ongoing litigation against the management company.
7. Review HOA Fees and Regulations
Hand in hand with researching the property management company is reviewing the HOA fees and regulations. HOA fees may be charged to condo owners monthly or quarterly, and range from a couple hundred a month to thousands. The fees could cover:
• General upkeep and maintenance
• Shared amenities
• Some utilities
• Security
• Future upgrades
• A master insurance policy to cover liability and repairs for common areas
If possible, request minutes from HOA meetings or inquire about recent hikes in fees. If the HOA doesn’t have much in reserves or is anticipating increases in fees, that can affect a buyer’s monthly housing budget.
In addition to researching fees, take a close look at the covenants, conditions, and restrictions, known as the CC&Rs. HOAs can impose regulations regarding:
• Pets in the building
• Renting out property
• Use of common areas
• Renovation or maintenance of owner units
Some HOAs have stricter regulations than others. For example, investors may want to avoid buying a unit in a building where rentals, or short-term rentals such as Airbnbs, aren’t allowed.
8. Ask About Special Assessments
Special assessments are one-time payments required of condo owners when reserves won’t cover a major expense. The HOA may require a special assessment if an elevator breaks or the roof unexpectedly begins leaking.
It’s a good idea for any condo hunter to ask when the last special assessment was collected. If there’s a history of frequent payments, it may be a sign of HOA mismanagement. Ideally, the HOA should have money set aside in case of an emergency.
If possible, ask the listing agent for the HOA’s financial statements to reveal how much the building has in reserves. If it’s low, there’s a chance of a special assessment in the future.
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The Takeaway
Condo living offers amenities, city living, and affordability. But buying a condo requires research. Working with the right agent and doing due diligence on the condo complex, its HOA, and its management company can help direct your home search.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
What should you avoid when buying a condo?
Red flags to look for when buying a condo include issues with the HOA and ongoing litigation with the property management company. Condo buyers would be smart to review the building’s financial records for reserve funds, lawsuits, and delinquencies.
Are condos hard to resell?
A condo that’s a good value for the current market and that is in a desirable area will likely not be hard to sell. In general, condos don’t appreciate as quickly as single-family homes, however.
Should you invest in condos?
Investing in condos will generally be less expensive than investing in single-family homes, but it’s worth examining the HOA bylaws to ensure that the condo can be rented out, and for how long at a time.
Photo credit: iStock/Sundry Photography
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