Thursday, July 7, 2022 / by Margie Wright
What is a condo?
A condominium is an individual housing unit within a multi-unit housing complex. The complex could contain as few as two units or more than a hundred. Each unit is individually owned with the owners are responsible for the maintenance and upkeep of their unit.
Now, one of the most important aspects of condo ownership is that owners are also typically responsible for paying HOA fees. The HOA fees are normally a monthly occurrence and the price differs depending on the association, area, etc. The HOA facilitates the maintenance and upkeep of common spaces, such as parking lots, landscaping, roofs, and recreational facilities. They decide when to take on large improvement projects and can require assessment fees to cover these projects. HOAs are also responsible for establishing rules and regulations for community members of the complex.
To be a member of the association, a person must be a current resident in the complex. In most cases, annual elections are held and condo owners vote for the residents they want to manage the HOA. If you want to be super involved with the operations of your complex, you'll have the option and availability to get involved with your HOA.
Typical Condo Association Fees
Monthly HOA fees range from $200 to $400. Depending on where you live, the age of your building, and the amenities offered, that fee price can be much higher or lower. Condos in large metros areas, and older condo buildings, tend to have higher monthly fees. Say you're looking to buy a condo in a high-rise complex with ocean views (not doable in East Tennessee, but for the purposes of this example this is what we're using). You should expect to pay much much higher HOA fees. In some areas, that can mean paying more than $1000 a month!
But don't think that a lower HOA fee will be better. While there are some cases where the condominium complex is good and has a lower fee, it's better to be wary about it. Complexes with HOA fees lower than $200 a month may indicate an under-managed HOA or an HOA with little cash reserves. When an HOA has small cash reserves, it'll have to charge assessments for the entirety of project costs. And that means hefty fees for you.
Always get as much information as you can about a potential condo's HOA before you jump into buying. Know the cost per month, what that cost covers, and how strict or relaxed the HOA is.
Types of Condos
There are freehold condos and leasehold condos. Leasehold condos have the tenant lease a contract with a landlord. However, freehold condos are the most common things bought when you buy a condo. A freehold condo is owned by the tenant. There are several types of freehold condos. Since they come in so many forms, some may be more appealing than others to you. How the area is, whether more rural or more urban, will also determine what condos are available.
Condo Home: This is what you think of when you think of a traditional condo. The owner owns the interior of the unit. The exterior is owned and maintained by the association.
Timeshare Condo: This is typically used as a vacation home or second home. It's also owned by several people who purchase a share of the house. Shareholders are given specific dates and the number of days of occupancy. They pay maintenance fees and taxes.
Detached Condo: These condos don't have shared walls. They are also typically called planned communities. This is a very popular option in retirement communities as they allow for still owning one's own space while having things taken care of and providing a good community environment.
Pros and Cons of Buying A Condo
- Regular exterior maintenance is taken care of by the HOA and there is no yard upkeep required.
- Condos are typically less expensive than buying a house and require a lower down payment.
- Condos are often in desirable locations.
- HOA dues are often less expensive and easier to manage than paying for maintenance and improvements on your own.
- It comes with a built-in community.
- Smaller square footage means less time cleaning and lower costs for interior updates (such as flooring, painting, etc.).
- HOA rules and regulations reduce the chances of bothersome neighbor-habits.
- They often offer added security with locked entries, security guards, and nearby neighbors.
- They often come with fitness centers, pools, clubhouses, and other amenities that are included in the costs of the condo and HOA.
- When looking for a home in a densely populated area, there are often more condo options than house options meaning you'll have more to choose from.
- HOA may mismanage common area upkeep and maintenance. Plus, interior home maintenance can still be very expensive.
- Condo fees add to your monthly payment, so that could make them more expensive than other options.
- Condos tend to appreciate at a slower rate than a single-family home.
- You don't get to decide what maintenance projects to take care of and when to pay for upgrades. The HOA determines that.
- The average condo is smaller than the average single-family home.
- You may find that HOA rules and regulations are too restrictive. Always do your research on the HOA!
- Mortgage rates for a condo tend to be higher than rates for a single-family home.
- Because they are shared communities, you will have less privacy than you would if you owned a single-family home.
- You don't own the land the condo is on.
Questions to Ask When Buying A Condo
Before buying, it's very important to review the HOA documents. This is often called the HOA binder. It has all the rules, bylaws, and financial information you'll need to determine if it's a good fit for you. It should contain a lot of documentation which makes it important to review it with a knowledgeable person - like a realtor! As you review it, ask these questions to yourself and your realtor:
-Do the rules, covenants, conditions, and restrictions fit your lifestyle?
-Are there limits on HOA dues increases? How often have dues gone up in the past, how much time was between each increase, and how much did it go up by?
-How large is the reserve fund? Does it provide enough cushion for repairing or replacing communal property?
-What do you, as a resident, have the right to vote for or against?
-Do the HOA meeting minutes show a well-functioning organization or one with a lot of in-fighting?
A big red flag when buying a condo is if the HOA doesn't have a binder or other documentation to share with you. For most all condominiums, there will always be plenty of documentation. There are very few situations in which there will be little documentation.