A condo is a privately owned unit in a condominium building that has common areas. If you’re considering whether to buy or rent a condo, you’ll want to think about the costs, benefits, and responsibilities of each choice.
Obviously, prospective renters have much less riding on their decision, but it’s still worth noodling over whether a condo purchase might align with their long-term plans — like whether they want a chance to build equity.
Let’s dive into the defining characteristics of condos and compare the benefits of condo rentals and ownership.
Characteristics of a Condo
Individual condo units are owned by private owners, while common areas are owned and maintained by the homeowners association (HOA).
Your ownership rights may be limited to the space within your condominium, as is the case with most condo high-rises, or you may own an entire standalone structure within a larger community. In a condo situation, the HOA owns the land. In a planned unit development, the homeowners own their lot and the common area.
Condos are popular starter homes, thanks to their low maintenance, relatively cheap purchase price, and general convenience.
They also appeal to investors and people who are downsizing.
With detached single-family homes, you’re on the hook for the bill if any repair issues arise, whether it’s a broken water heater, leaky roof, or malfunctioning air conditioner. This generally isn’t the case with condos, as the property management company employed by the HOA maintains common areas and shared amenities.
Convenience comes with a price, though. Condo owners share maintenance costs, and the expense of a master insurance policy, by paying HOA dues monthly or quarterly. The fees rose 19% in one year, to a median of $451 per month, at condos that have an HOA, according to recent data from Zillow Group Inc. Atop those fees, special assessments can be levied if the HOA needs to pay for a major project.
Condos tend to appreciate at a slower rate than traditional single-family homes but cost less. So buyers may want to take both realities into consideration when deciding on house vs. condo.
Recommended: First-Time Homebuyers Guide
Types of Condos
Condos vary widely in structure and appearance, ranging from high-rise buildings to communal developments.
Condo Developments
These are communities of standalone homes where maintenance of both the interior and exterior are borne by the condo owner, but services like the maintenance of common areas and snow removal are typically handled by a property management company.
All properties within a condo development are bound by the rules of the HOA, so it’s similar to a traditional neighborhood with fixed rules and less upkeep.
Condo Buildings
These are high-rise apartments consisting of individual condo units. The maintenance of the structure, shared utilities, and common areas are the responsibility of the property management company.
If you’re looking at buying or renting an apartment in a large metropolitan area, make sure you understand what it means to choose between a condo and a co-op.
High-rise condo buildings are more common in urban areas and have higher HOA fees in order to cover the greater costs of maintaining an apartment building and often the salaries of full-time maintenance staff members and doormen.
Buying or Renting a Condo: Which Is Better?
Whether you’re better off buying or renting a condo — or any of the other types of houses, from modular home to manufactured home, tiny house to townhouse — depends as much as your own circumstances as it does the cost of buying vs. renting in an area.
Assuming you’ve decided to settle down in an area for the next three to five years, you might be better off buying a condo if you have a stable income stream and can cover the down payment and closing costs without emptying your emergency fund.
You may be better off renting if there’s a chance you’ll need to relocate within the next few years, or if any upcoming life events might require you to upsize your residence, like having children.
Given, though, how real estate values have risen in the past few years, buying a condo may be a good choice if you’re looking for long-term investment and a chance to build home equity over time.
Pros of Renting a Condo
Renting a condo gives you all of the benefits of living in a private condo unit without the long-term commitment and upfront costs.
• Few maintenance responsibilities: If you’re renting a condo unit in an apartment building, the HOA is responsible for maintenance, or in the case of an individually owned HVAC system, the owner is.
• More leeway for negotiation: Reliable renters are hard to come by; some condo owners may be more willing to negotiate your monthly rent than professional property managers are.
• Flexibility to end or extend your lease: As a renter, you can decide whether to end or continue your lease. This makes it easy to cut ties if needed.
Pros of Buying a Condo
Taking out a mortgage to buy a condo more or less freezes your living costs into the future. This will help you avoid rising rents, though that HOA fee can rise.
• More affordable than single-family homes: The price of a condo is usually lower than a single-family home in a given area. This makes it attractive to homebuyers on a budget.
• Freedom to make it your own: Owning a condo gives you more freedom over the appliances and color palette than a rental.
• Rental potential: Depending on the rules of your HOA, you may have the right to rent out your condo to generate income.
Finding a Condo
If you’re ready to go out and shop for a condo, you’ll want to assemble a list of must-haves to narrow your search. This applies whether you’re looking to rent or buy.
Are you looking for a more affordable apartment condo or something with more space like a community development? Browse local listings for condo units that match your requirements.
For those seeking to buy a condo, it’s a good idea to find a real estate agent who’s well versed in condo sales. They know the area and can obtain vital info regarding HOA rules and financials. It’s important to review the rules and fees, and check for any special assessments and their frequency over the years.
It’s also a good idea to thoroughly understand mortgage basics and have financing lined up with a mortgage company so you’re ready to make a bid on a property.
A mortgage calculator is an excellent tool for helping you figure out your costs.
The Takeaway
What is a condo? A condo is a privately owned unit within a community that can be a good starter home or a place to downsize. If you’re able to rent a condo, it’s much like renting an apartment, except your landlord may be the owner.
If you’re interested in buying a condo, realize that condo buyers are able to access the same kinds of loans available to buyers of single-family homes.
3 Home Loan Tips
- To see a house in person, particularly in a tight or expensive market, you may need to show proof of prequalification to the real estate agent. With SoFi’s online application, it can take just minutes to get prequalified.
- Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for pre-approval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.
- Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.
FAQ
Can you rent out your condo?
Whether you can rent out your condo depends on the rules of your condo community. While some may allow you to rent out your unit as you please, others may require you to enter a waitlist that determines how many units can be rented out at a time. Some may restrict how long a particular unit can be rented, and may have tenant requirements.
It’s imperative to scrutinize the HOA rules if you intend to purchase a condo for use as a rental property.
Are condos expensive?
Generally speaking, condos are cheaper than single-family homes in a given area because condos typically have less square footage and no land ownership.
A condo may also cost less than a townhouse. Townhouse owners typically own the structure and the land under it, plus sometimes a yard. Condo owners typically own the interior of their unit and an “interest” in the common elements.
Can you take a loan to buy a condo?
Condo buyers generally have access to the same mortgage options as buyers of single-family homes. Lenders of conventional loans will review the financial health of an HOA and whether most of the units are owner-occupied. For an FHA or VA loan, those agencies maintain lists of approved condos.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Photo Credit: iStock/Edwin Tan
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