House v. Condo--are we nuts here?

[OKLibrarian]

put this in young dreamers because we are pretty far away from FIRE, but we're going to be making some big decisions in the next 6-12 months that will have some big implications on our cash flow and rate of return for the next decade or two. Top of the list is buying our first (ane perhaps last?) home.

Context: We are DINKs, and plan to stay that way for reasons both medical and personal. We have crunched the numbers, and it looks like at our current savings rate an "independantly middle-class" (love that term!) lifestyle could be ours in 15 years easily, 10 if we scrimp and/or find some more income. We are also planning on buying our first home in the next 6 months to a year, depending on how long it takes us to get 20% down payment, closing costs, and cushion together (as of right now we're a bit past halfway there, and waiting on an inheritance payout that should get us most of the rest of the way). Now, the plan thus far has been to buy a smallish 3-bedroom house in a nice urban neighborhood here in Tulsa, winding up with monthly shelter costs (including taxes, etc.) about 1.75x what we pay now to be sheltered, lighted, and watered in our apartment. This is still well within our savings goals, especially if DH's earning potential keeps going up.

The twist: however, over my lunch break today, I was leafing through the local real estate brochures, and saw several nice-looking 3-bed condos that were going for about 2/3rds of our target price. I know full well that condo fees would eat up a portion of the cash flow savings, but a few back of the envelope calculations indicated that we could trade up for about what we're paying for shelter costs now, even taking estimated fees into account, and we wouldn't have to go to the fuss of buying a lawnmower and/or hiring a neighbor kid to deal with the yard. We'd even have enough money in savings to buy one today, if we were so inclined. My inner Scrooge MacDuck was thrilled at what I saw, and we REALLY don't want to have to extend our lease another year (it's up in august) but I have a few misgivings about this new strategy.

The Questions:

1. How well do condos keep/improve their value? I've heard that they appreciate much more slowly than houses, but I don't know how much of that is scaremongering.

2. Is there an easy way to find out how many of the condo units are occupied by renters? For obvious reasons we'd like a community that is mostly owner-inhabited.

3. Is there an easy way to find out the financial state of the condo association (state of reserve account, looming special assessments, etc.)? I know to go over to the courthouse to check and see if there are any pending/recent legal actions involving the community.

4. I know you can't predict the future, and a lot of this depends on the place we pick, but we want to be in a place that will be a safe, reliable post-FIRE base of operations for a reasonable length of time. Is it realistic to envision staying in a condo for decades on end, or is it more likely for the neighborhood to slip to a point that we might be forced to move at some point post-fire to protect our equity?

5. Are there issues to condo ownership that aren't occuring to me?

I think DH and I are going to scope out some open houses this weekend, maybe grab copies of the communities' covenants and see if they are even comprehensible to us. We are interested in finding a place to live in, and perhaps trade up if a great deal arises at some point, but we have enough hassles in our life without getting into the landlord business. I'm really interested in hearing from folks who went the condo route, as well as people who contemplated it but didn't. I really want to figure out the catches that explain why condos are so much cheaper, and sort out if they're things we're willing to live with. We want a place where we can stay long term, and where we can live years at a stretch or take off for a 6-month vacation with minimal fuss. We also want a place that has a good chance of appreciating--or that at least won't depreciate. Thoughts?

 

[bbbamI]

You may get some ideas by going to advanced search and typing condo purchase. There was a thread on this topic in January '07.

 

[tryan]

1. yeah, condos do seem to move a little slower. Primarily because of restrictions the condo association places on owners. Most buyers seem to shy away from the structured living. But as DINKS the low maintenance might be attractive.

2-4 Call the condo association president. They're supposed to field these kinds of calls. Might even want to attend an association meeting to hear the skinny on any legal issues or upcoming special assessments ($$). Just remember who you're talking to ... it'll be a little rosy.

5. I believe the wrath of special assessments is the most underestimated issue with condos. Owners insist on a bare bone condo fee ... then simple things like fixing a roof leak or repaving the lot all become special assessments.

Good Luck!

 

[Charlotte]

My first home was a townhome, and in my early 20s it was terrific, but somewhere along the way, the following things became considerations which would now turn me away from it.

1) Noise from the neighbors (parties, TV, etc).
2) Smoke from the neighbors patio (I'm a non-smoker, often couldn't enjoy my own patio, because next door neighbors were out on their patio smoking)
3) "One-time" assessments almost every year (the roof, painting, the parking lot, etc.)
4) The monthly fees go up every year...
5) Strict rules about the outside, I couldn't trim a hedge, plant flowers in the ground (only in pots), hang a flag, paint the door, change the outdoor light fixture, etc.

I prefer single-family housing now, although it's more responsibility.

Charlotte

 

[saluki9]

My wife and I just left our condo after 5 good years there. We were in an almost new (10 years old) complex and we ran into the following issues.

1. Our development was in a high end area with very high home appreciation. In the 5 years we owned our condo however it appreciated VERY LITTLE.

2. We had a "special" assessment almost every year for $800-$1000 for the pool, then new carpeting in the hallways, etc.

3. There was some minor noise issues with TVs and music from other units

4. I'm a car nut, and I never like that the garage was shared.

That being said, there were some very nice things. The lawn was always clipped, the flowers were always pretty, the streets were always plowed, and I never had to worry about mechanical problems. My wife and I could just lock up and leave town for the week or weekend with no concerns. I will also add that our development did not allow units to be rented which I think makes it much nicer.

 

[OKLibrarian]

thanks for the quick responses! In order:

You may get some ideas by going to advanced search and typing condo purchase. There was a thread on this topic in January '07.

Couldn't find a thread that really applied to our situation, seemed to be mostly people who already owned homes looking at downsizing post-FIRE to a condo. maybe I missed it?

2-4 Call the condo association president. They're supposed to field these kinds of calls. Might even want to attend an association meeting to hear the skinny on any legal issues or upcoming special assessments ($$). Just remember who you're talking to ... it'll be a little rosy.

Hadn't thought of calling the assoc. president--Duh. :-] And outsourcing the maintenance is a plus--if it's cost-effective. As we've never enjoyed the joys of home-ownership, I really can't judge maint. fees versus home expenses--oh wait, we could ask our parents what they budget monthly for general upkeep on their houses...Double Duh.

Charlotte & Saluki: in a nutshell those are the things we're concerned about, because they're pretty much the things we like least about apt. living...

Really it comes down to a money (fees/lower appreciation) v. time (not having to deal with maintenance) calculation. Time to grill some homeowners on realistic estimates for expenses in these areas, and then see if the condo still looks like a better option. Back to the drawing board...

 

[Brat]

Portland has had a lot of condo development, my comments are based on that market.

The condos that appreciate at the same rate as single family dwellings are well located, well constructed, beautifully maintained, nicely designed and in a highly desirable neighborhood. I think they work best in an urban center.

The reason why monthly fees are kept low by some associations is that lenders factor that in like property taxes when qualifying a mortgage. "Special" assessments not factored by lenders So, be sure to set aside $ for those not so special, special assessments.

Don't get more than a 2 bedroom unit unless it is in a very upscale building. Why? Because more bedrooms attract families. While we all love our own the fact is that kids are hard on buildings and unless you live in a place like NYC, London, or Paris few parents condo-train their children.

I like buildings at least 6 years old because construction defects are usually discovered by then. I don't like swimming pools because of the maintenance cost and liability.

 

[chinaco]

DW and I are considering a condo or townhouse when we ER because we want to travel for extended periods of time. If it weren't for the consideration of traveling... I doubt that we would consider a condo... We like living a house (stand alone dwelling).

I am a little on the fence about it because of many of the concerns others have listed. I can remember renting apartments years ago...

I have been thinking about renting a condo for a year when we ER to see if we like it or not. This would allow us to hedge the bet a little.

One other thought... about noise. Some condos are not sound proofed. You can hear the people on the sides and above you. This seems to be more of a problem with Stick Frame buildings. If you have a concrete high-rise, the noise may not be as bad.

As far as improving the value... Location, Location, Location! But then again, you will probably pay out the nose for it.

We have also considered a gated community... but that seems a bit expensive.

The other option is a Lando. This off-load the maintenance.

 

[virginia]

I had a great condo experience. But was in a good market. I loved that all maintenance was taken care of, and only had a special assessment the last of 5 years that I had the property. Mine appreciate a lot in value - in fact it more than doubled - I doubt that homes which cost much more doubled in the same time period.
There was some neighboor noise, but honestly, you could have the same problem if your next door neighbors house is only feet away.
Personally, I'd take it into consideration. I also like condos because you can buy a newer one for less than what you would buy a home for. The good thing is, is that you can rent a condo pretty easily, especially if you buy it new, and have kept it up very well. Many renters are looking for a condo just because it's hassle free, and they can afford it better than renting a house. Would renting it out later be an option for you? If so, that's just another plus for buying.

 

[Lazarus]

What does this condo cost?

 

[OKLibrarian]

Well, it's kinda moot now, b/c DH and I had a chat about this over dinner last night, and came to the conclusion that he doesn't like some of the tradeoffs we'd have to make (we have some loud-ish neighbors in this complex from time to time, and while i can tune it out, it bugs him from time to time). It's a big enough deal to him that he's willing to pay a little bit more cash for the increased peace of mind, and I'm fine with that. no, he's not a spendthrift or anything, he's just a little less obsessive over cash than i am sometimes (which is good--if I had my way we'd probably be in some dingy garrett and still be calling waffle house a hot night out on the town) Long story short--We're still going house-hunting this weekend, but it's mainly to check out an open house at this cute remodeled bungalow that we've been ogling on the web for the last few weeks.

That said, I've a few responses...

Brat: I would love to look in the downtown--we've got some adorable lofts going in, but they are insanely overpriced at the moment ($250+/SF, which is just stupid in this neck of the woods) and I really think that may wind up being a "baby bubble" within the market. Plus they're WAY out of our price range, but the grapes were sour anyway. We w're looking more at communities a little outside of downtown, mainly in the hip art district near where DH works, by some of the larger parks in town, or close to the river. You make a good point about the 3 bedroom condo value conundrum--we would really like the third bedroom so we can each have an office space, which would do double duty as a Library/Guest room respectively. When we were still contemplating making do with 2 beds a few months back, the condo idea made more financial sense, now that we've decided on 3, decidedly less so.

Chinaco: We may well revisit this post-RE, because we are both keen on doing a good bit of traveling at least for the first 5-10 years. Plus by the time we hit FIRE, being 100 miles from our parents may not seem so much like the perfect distance (they'll be in their late 60s/early 70s at that point), and we may decide to move back to the metro area where we grew up about that time anyway to be on hand in case we're needed (especially for MIL--DH is an only child and we lost FIL about 6 mos. ago, though she's in great health and coping very well). One other note--what's a Lando? I assume you're not talking about the guy who blew up the second Death Star. *smirk*

Virginia: I really don't see us going the rental route, though I'm sure it would be easier with a condo than a house. My parents did the rent house thing for a while when I was a kid, and it was really more trouble than it was worth--they sold the last rent house when i was about 9. The only people I've seen who really liked it have a knack for home repair (which we do NOT), owned several houses, and treated it like a full-time job.

Thanks for everyone's thoughts--I knew I'd get some great input from you guys!

 

[chinaco]

what's a Lando? I assume you're not talking about the guy who blew up the second Death Star. *smirk*

A small house with a very small lot in which the owner owns both the home and the land on which the home is built. The home is a part of a community, like a condominium, where the landscaping, maintenance and other services are provided by a homeowners' association.