Home, sweet home doesn’t have to look like what it does in the movies: four bedrooms, wraparound porch, white picket fence, and golden retriever lounging by the pool. Home can be an apartment, especially in urban areas.
City dwellers, singles, or anyone who doesn’t need the extra space of a single-family home (or the responsibilities) may want to learn how to buy an apartment. The mention of “apartment” usually means a condo or co-op.
Learn the differences and real estate options that may be available. Happy hunting!
Condo vs. Co-Op
Both a condominium and a housing cooperative involve multi-unit buildings, but there are key differences between a condo and a co-op.
When you buy a condo, you own the unit. The exterior of the units and land are usually considered common areas, owned collectively.
If you buy into a co-op, you don’t own your apartment. You purchase shares or an interest in the entire building. So, you don’t “buy” a co-op apartment; you become a shareholder in the corporation that owns the co-op.
You’ll usually sign a contract or a lease agreement that allows you to live in one of the co-op units.
Both condos and co-ops answer to an oversight body. For condos, it’s a homeowners association. For co-ops, it’s the residents, who own shares in a nonprofit corporation that owns the building.
When it comes to buying and selling, the co-op association can influence the deal. Most require a prospective buyer to be approved by the co-op board.
Co-ops tend to cost less per square foot and often have lower closing costs. But some lenders aren’t keen on co-ops or require higher down payments. And some co-op documents outright prohibit financing.
Co-op monthly fees tend to be higher than condo fees. A co-op shareholder’s fee could include payments for the building’s mortgage and property taxes, security, amenities, and utilities.
Condo owners pay property taxes on their unit, which may provide them with a tax deduction.
With a co-op, the monthly dues for maintenance include the property taxes associated with the units, technically owned by the corporation, which receives one property tax bill. Each resident’s portion of that bill is tax-deductible.
The New York City housing market teems with co-op buildings, starting with The Gramercy, built in 1883 in Manhattan. (A two-bedroom might set you back more than $2 million, but you’ll gain a bite of elegant history, celebrity neighbors, and a key to New York City’s only private park.)
Then there are the 1,300 or so income-restricted co-op buildings in the Big Apple, where tenants bought their rental units for a nominal fee from the city, rehabbed the buildings, and have remained for several decades.
House vs. Apartment
Unlike a co-op apartment or a condo, houses stand alone, and some folks prefer that breathing room. Hey, communal living isn’t everyone’s cup of tea.
Along with the home, the owner owns the land that the home sits on, as well as any detached structures on their property like a garage or pool house.
Similar to a condo, homes may require HOA fees that cover costs relating to security, maintenance, and access to any amenities in the neighborhood.
A house typically will cost more than a condo or co-op apartment, but it will usually appreciate faster than a condo.
In October 2020, the National Association of Realtors® pegged the average sales price of an existing single-family home at $348,700, and average sales price of an existing condo/co-op at $315,300.
With a house, there’s that yard to mow. Then again, you can have your own garden.
Finding the Right Real Estate Agent
While buyers can search for an apartment on their own, professional help is often imperative.
Whether you’re a first-time homebuyer or a seasoned one, listing your top priorities can help an agent narrow down the options. Examples of things that could be important to you:
• Proximity to work or school
• Local crime rates
• Parking, traffic, and transportation
• Cost of living
• Nearby amenities (gym, grocery store, shops, etc.)
When choosing a real estate agent to work with, it can be smart to speak to a few and ask them key questions to determine if they’ll be a good fit.
Think of it as a job interview and review their qualifications, learn more about their area of expertise, and find out how much it’s going to cost to work with them. Some questions worth asking are:
• How many clients do you currently work with?
• How many apartment units have you helped clients buy?
• Do you have references?
• What is your availability to show apartments?
• How quickly do you typically respond to emails and phone calls?
• What are your fees?
Is Renting or Buying a Better Deal?
Renting is not always cheaper than buying, but at the same time, any type of homeownership comes with added costs that renters don’t have to incur.
Before deciding whether to buy or rent, it’s best to ask yourself some important questions. And then you might want to check out a rent vs. buy calculator.
There are many calculators available, but they can only provide a loose idea of what may be a better deal long term, so that’s worth keeping in mind. Each calculator will have a different methodology.
When Does it Make Sense to Buy an Apartment?
While the practicality and value of buying an apartment will depend on each person’s needs, goals, and financial situation, there are a few ways to tell if buying an apartment is a good opportunity.
Not only will buyers want to find an apartment that is a good fit for their current lifestyle, but they may want to get a feel for if they have a good chance of making a return on their investment if they choose to sell.
Consider mulling over the following factors before making an offer on an apartment:
Reserves. Boards of condos and co-ops often use reserve funds in case of big maintenance or renovation projects and community emergencies. Are the reserves healthy?
If not, you risk a spike in dues or a big special assessment. It’s smart to ask your real estate agent for help looking into reserve funds.
Maintenance. How much is this fee each month? Is it within my budget?
Location. Is the apartment in an area that is both convenient for the buyer’s lifestyle and has resale value? How far from work is the apartment? What is the neighborhood like? Is there public transportation close by? Is the neighborhood growing in popularity? Have housing prices been rising or dropping in recent years?
Noise levels. Community living can be noisy, especially if the property is in a major city with a lot of hustle and bustle going on. Before making an offer, walk around the neighborhood early in the morning, at night, and on the weekends to gauge the noise, traffic, and other potential annoyances.
Safety. Is the apartment building as a whole safe? What security measures are in place? How safe is the neighborhood?
Building age. How old is the building? Are costly repairs and updates in the near future? It can be helpful to have an architect or an engineer provide a report on the building before a purchase.
Parking. Is a parking spot included? Does it cost money each month to park a car? Will the car be in a safe area like a private garage?
Final Steps to Buy an Apartment
Soon-to-be apartment buyers will want to understand that getting their finances in order and securing a mortgage loan are some of the final steps toward the goal.
1. Review Credit Report
Before applying for a home loan, it can be wise for the property hunter to review their credit report and check for any errors they may need to dispute. If there are errors to clear up, they won’t want to deal with those at the last minute.
To remove any errors found on a credit report, consumers can write a letter that disputes those errors and send it to the appropriate credit reporting agency (TransUnion, Experian, or Equifax).
The letter should also be sent to any information providers, such as banks or credit card companies, that reported the inaccurate information.
2. Calculate Monthly Expenses
Next, before making an offer on a home, spend some time calculating how much the mortgage and any fees associated with buying an apartment will add up to each month.
Confirming that these costs are within budget can make budgeting and managing expenses easier in the future.
It can be worthwhile to also estimate how much will be spent on utilities monthly and any maintenance projects that may occur, as repairs will be the responsibility of the apartment owner.
3. Secure a Home Loan
Finding the right home loan shouldn’t be as hard as it was to find the perfect apartment. SoFi aims to make applying for a home loan simple. Find your rate in two minutes.
Are you ready to buy an apartment? If so, are you aware of the differences between a condo and co-op, the financing and monthly fees, and the comparisons to buying a single-family home? The right purchase and lender can make all the difference.
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