Condo Purchase

[ferco]

What are some of the pros and cons of purchasing a condo ? Are there advantages over purchasing a sinle family home? Tax advantage or disadvantage ? Have you ever regreted buying a condo, why?

 

[Jake46]

I owned a condo briefly and enjoyed it. The best part was the extent that the condo association had to maintain.

 

[Nords]

What are some of the pros and cons of purchasing a condo ? Are there advantages over purchasing a sinle family home? Tax advantage or disadvantage ? Have you ever regreted buying a condo, why?

You can also search for "condo", "homeowner's association", and "HOA".

Like these threads:
http://early-retirement.org/forums/index.php?topic=9458.0
http://early-retirement.org/forums/index.php?topic=9729.0
http://early-retirement.org/forums/index.php?topic=9922.0

I wouldn't mind living a condo if I didn't have to listen to everyone else's noise or get involved in their problems. One of our home's neighbors is a sewage-pumping booster station-- best neighbor we've ever had.

 

[spideyrdpd]

have you ever met a condo comando ?

is this in sunny (occaisonaly) florida ?

 

[lazygood4nothinbum]

you're probably are asking about financial considerations but your post reminds me of a funny story. a family friend is president of her beachfront condo association. her stories are non-stop. the last good one was about this guy who had his company make up a huge dried flower arrangement & vase for the lobby. a bunch of the little old ladies couldn't stand it but no one could tell him. so while one of them distracted the security guard, the others, sporting wide brimmed hats so the security camera couldn't film their faces, stole away with the lobby centerpiece.

so as long as you don't mind being yelled for bringing food to the pool area or for drying your bathing suit on your balcony, you might at least find it amusing.

 

[Brat]

A condo is not a panacea, you really need to pick a couple condo developments and learn as much as you can about the association, it's finances, and the construction. Frankly I would not purchase one within 5 years of it's conversion/construction. Give a little time for problems to surface. Read association minutes, association news letters.

I think small condo developments can be a can of worms.

 

[macdaddy]

I think small condo developments can be a can of worms.

I second that piece of advice. I would hesitate before buying into a building with less than 50 units. You want a lot of different owners to help common sense bubble to the top and spread around any financial risk. Requesting to read the minutes (if they're accessible) is a great idea too. If everything checks out, then condos can be a wonderful investment. I have a few in Boston that take care of themselves. Hardly any maintenance issues if they are built well. I could manage mine from a beach in Thailand with 2 or 3 phone calls per year (and may try to do exactly that one of these days).

Ground floor or garden level units should be much cheaper than any others, because of security and privacy issues. Top floor and corner units should be more expensive (fewer neighbors = less noise). Make sure you understand and are happy with the way the association determines condo fees (e.g. per sq ft, per assessed unit value, flat % of the total association expenses, equal shares). If there are more than a few students living in the building, then there will be parties/noise on the weekends. The higher the % of owner-occupied units the better (below 2/3rds is a bad sign). Is parking widely available? If parking is hard to find, try to buy a nearby spot; even if you think it's a little over-priced, you won't regret it. If buying in a city, remember that many people like condos because they are within walking distance of convenient places, so make sure yours is a 5 minute or less walk to wherever somebody would want to go (grocery store, restaurants, book store, coffee shops). Also, try to find a condo with laundry or a laundry hook-up in the unit - those are nice! I suspect that as more baby boomers retire to condos, amenities like in-unit laundry, an elevator, a doorman, accessible parking, etc, will become more desirable.

 

[ferco]

What about some of the financing aspects....pro/cons.

 

[lazygood4nothinbum]

if it is an older building you might want to check to see if it is up to code, or if it will have to be brought up to codes which have changed since its construction. for instance a tall building might now require a fire sprinkler system which might not have been originally installed. big bucks & big assessments to correct.

if an older condo is on the beach you might have balcony repair work to consider. depending on the size of the building that can be another few million. you should also know when the roof was last replaced as well as the condition of the rest of the structure including amenities if separate & grounds.

any work that needs to be done and that isn't already funded i would assume will be assessed later to each unit owner.

 

[brewer12345]

ferco, our first home was a condo that was part of a 700+ unit garden complex that was built in the 1930s and converted in the early 1980s. We had a 2BR ground floor apartment with a large extra room in the basement for storage. Financing was no big deal, since most banks will view an existing condo as basically the same thing as a SFR.

Pros:

- Maintenance, snow shovelling is an SEP (Somebody Else's Problem)
- No worries about leaving for an extended period of time, since there's always people around
- You have pretty good certainty about your monthly nut since any big maintenance issues don't come directly out of your pocket
- Appreciation can be about the same as a SFR

Cons:

- Board/busybodies can be a PITA
- Examine the condo's finances carefully. Special assessments suck.
- Neighbors can be a blessing or a curse. We had an apartment above us. For teh first two years it was fine. But then the occupants went from an older couple to a family with 4 kids (in a 750 Sq. ft apartment : ). If I ever buy a condo again, it will be an upper unit or a townhome.

 

[renferme]

had a condo (garden style unit on 2nd floor) for about 4 years (PA). mortgage was cheaper than living in an apartment. lots of old people around me, so it was quiet.
the units were a former rental place, so there were no washer/dryers in each unit.
had to walk down to the basement to do laundry, not a big deal to me.
Since the units were about 30 to 40 years old, they were built with concret block between each unit (not 2X4 wood like they do today), so very quiet.
Was a good deal.
My Dad, on the other hand, had several in FL. Always complained about the condo
associations.
To each his own !

 

[yakers]

I loved the six years I lived in a condo. More time to do things other than home maintenance. Really small units are OK too, large ones usually have professional management. Mid size ones can be a problem if the owners want to operate them. Our condo had only six units, all owner occupied. It did not appreciate as well as my single family home but it did OK. Fees were very low because we did not have a pool. One thing to look for is whether the units are owner occuipied or rentals. There is almost a conflict of interest between owner residents and owners who rent and are looking to maximize return and control expenses. Not so much if an individual rents out his one place but I know condos where medical people bought multiple units just for rental income.

 

[youbet]

One thing to look for is whether the units are owner occuipied or rentals. There is almost a conflict of interest between owner residents and owners who rent and are looking to maximize return and control expenses.

The assoc at MIL's condo changed their rules making it a violation to rent your unit. I think they gave a notice of one year or whenever the current tenant moved out, whichever came first. That was about three years ago. As a result, several problems regarding noisey tenants, owners voting against repairs/improvements, etc., were all solved.

Definitely try to buy in a building that does not allow rentals.

 

[SamIam]

We lived in a condo for several years and mostly enjoyed it. It's in your interest to be on the condo board and know what decisions are being made about spending, fees, etc. It's also a good way to get to know your neighbors. I felt safe living in my condo and I think it's because I knew my neighbors. Before you purchase, ask to see minutes of the board meetings for the past year. It's a good way to find out if there are any issues/concerns and how the board deals with them.
Noise issues may come and go, but a good board will deal with concerns for you and keep owners happy. I would agree that the ratio of owners to tenants is important. The more owners who live in the building, the better.
Condo living is great for travellers - just up and go!

 

[wabmester]

What about some of the financing aspects....pro/cons.

With a condo, you pay HOA fees. Doesn't matter if you use the facilities or not. Doesn't matter if you're a handyman or not. You still pay. And you don't have much say in the matter of rate hikes and policies unless you're on the board.

Condos tend to be the last to appreciate and the first to fall.

Condos are easier to rent out than SFRs.

 

[macdaddy]

The assoc at MIL's condo changed their rules making it a violation to rent your unit. I think they gave a notice of one year or whenever the current tenant moved out, whichever came first. That was about three years ago. As a result, several problems regarding noisey tenants, owners voting against repairs/improvements, etc., were all solved.

Definitely try to buy in a building that does not allow rentals.

I've seen other associations pass no-rent provisions and it has always lowered the value of their units, unless it's a retirement type community. People move around so often these days that nobody wants to be stuck with a unit they can't rent out for a year or two if they need to. It also limits the pool of sellers you can sell to. More effective is to put in strict rules about renters (one year minimum lease, minimum credit, interview with the board, etc).

 

[justin]

I got stuck in a bind when trying to sell my condo. I had a buyer under contract, but he couldn't get financing for the condo unit as owner-occupied because one of the loan underwriting terms was that the condo development must be at least 50% owner occupied. Apparently, our development had slipped to 48% owner occupied, so this guy was going to have to pay more for a commercial loan - he backed out by invoking the financing contingency clause. I called around and the requirement for 51+% owner occupied was pretty common for loan underwriting on condos.

I eventually rented the unit out, and sold it as an investment property sight-unseen to some bubble-riding home equity loan cashout sucker from california.

Then the dang condo appreciated 15% since I sold it 1.5 years ago.

 

[Nords]

I got stuck in a bind when trying to sell my condo. I had a buyer under contract, but he couldn't get financing for the condo unit as owner-occupied because one of the loan underwriting terms was that the condo development must be at least 50% owner occupied.

That's mortgage-company talk for "We don't want to loan money to this guy but we can't afford to be sued over it so we'll keep tweaking him on technicalities until he gives up and goes away."

Not, of course, that anything like this ever happened to me.

 

[justin]

That's mortgage-company talk for "We don't want to loan money to this guy but we can't afford to be sued over it so we'll keep tweaking him on technicalities until he gives up and goes away."

Maybe, but I called around and it seems like this must have been a fannie may/freddie mac key term that banks had to meet. Most of the mortgages get bought up and securitized in CMO pools - the 51% owner-occupied must have been a term that was required at the time to qualify for being bought by the best CMOs and to get the best interest rate pricing.

 

[Craig]

It's true that the percentage of rentals can affect the financing.

Assuming no limitation issues in the HOA, condo's are easier to rent and less brain damage than a single family home.


If you're buying a condo, read the association's financial statements carefully ... you're looking for reserves to cover painting, parking lot repairs / resurface, roof replacement, etc. ... the big stuff. If they are not collecting excess HOA dues to cover such long-term, expensive maintenance issues, then you can expect a special assessment ... and those can hit at any time. As noted above, really sucks to catch that right after you buy.


Separate question ... here in Nashville we're seeing what I consider stupid prices for condos. Getting relatively more expensive than single family homes. Crazy from my point of view, but perhaps a demographic thing. Anyone else seeing this in your markets? Years ago, condos did not appreciate as well as SFR's, but not sure that still holds ... they also tended to take the bigger hits in down markets.

Best of luck.

 

[wabmester]

Separate question ... here in Nashville we're seeing what I consider stupid prices for condos. Getting relatively more expensive than single family homes. Crazy from my point of view, but perhaps a demographic thing. Anyone else seeing this in your markets?

We're seeing it here in semi-rural WA. This is an area not known for speculation, but I am seeing soccer moms speculate by buying new condos here. It's amazing. Of the few people I know who purchased a condo in this area, only one did it for a sane reason -- as a place for their elder inlaws to live without being too close.

 

[youbet]

I've seen other associations pass no-rent provisions and it has always lowered the value of their units

This wasn't the case with MIL, according to recent sales, but I'm sure it could work out that was in some instances. In her case, even if the potential selling price of her unit went down a few percent, having a dramatically improved standard of living over the years would be well worth it.

It also limits the pool of sellers you can sell to.

I guess that's the point. For folks planning on medium to long term occupation of their condo, having the other units occupied by owners is a huge plus. Real estate investment companies, speculators, etc., just don't seem to have the same point of view as owner-occupiers. I'd just as soon have those folks removed from the pool of buyers my neighers could sell to.[/quote]

 

[Tracy42]

I got stuck in a bind when trying to sell my condo. I had a buyer under contract, but he couldn't get financing for the condo unit as owner-occupied because one of the loan underwriting terms was that the condo development must be at least 50% owner occupied. Apparently, our development had slipped to 48% owner occupied, so this guy was going to have to pay more for a commercial loan - he backed out by invoking the financing contingency clause. I called around and the requirement for 51+% owner occupied was pretty common for loan underwriting on condos.

that's mortgage-company talk for "We don't want to loan money to this guy but we can't afford to be sued over it so we'll keep tweaking him on technicalities until he gives up and goes away."


[/quote]

We ran up against this same issue when we went to sell our Alabama condo post-hurricanes Ivan/Dennis/Katrina. It seems this rule has existed for awhile, but mortgage companies had been looking the other way. When we obtained the financing for our condo we had no problem getting it approved as a 2nd home, with 1st home loan rates. Trying to sell it was a different story. Suddenly all the banks were looking into rental versus owner occupied building percentages and what the buyer was planning to do with the unit. This was a big topic of conversation among the unit owners so I know it wasn't just my buyer's credit driving it. He ultimately had to go the commercial loan route (since he ended up with a rate of 10% there were obviously some credit issues there as well )

 

[Sparky]

Another issue to consider is this... it is probably best to buy a condo that is similar in price to SFHs in the area. Reason being is when people CHOOSE to buy a condo instead of a SFH (when they can afford either), they will be more willing to get along, be quieter and generally be a good neighbor.

If the condo is significantly cheaper than a SFH - people buy a condo because they can't afford a SFH - then you can be in a whole socio-economic thing with folks who should not live in a condo complex, but who do so because they cannot afford anything else.

Then you can find yourself in territory with lunatics and nutcases. I had that experience with neighbors calling the police on neighbors at 4 p.m on a Saturday over a guy playing acoustic guitar.

 

[macdaddy]

Sparky, that's a good point. However, if you ever want to rent out the unit, your return on a luxury condo will be much lower than your return on an "entry level professional" condo.