In the past condominiums were not necessarily considered to be a good investment for a variety of reasons, however that image has since changed dramatically. With the high price of single family homes, condominiums and townhouses are becoming more attractive to many buyers such as singles, retiring couples that are downsizing and small families that would like to purchase in excellent school districts. However, for those home buyers that have only considered a single family home as the definition of homeownership they may not be familiar with what options are available in the form of condominiums.
Condominiums are buildings in which individuals separately own the air space inside the interior walls, floors and ceilings of their unit, but they jointly own an interest in the common areas that they share such as the land, lobby, hallways, swimming pool, grounds and parking lot. While many condominiums are designed to look like apartments or are built in high rise city buildings, more and more builders are designing them where they can be referred to as townhouses. Townhouses are usually attached to one or more houses and can run the gamut from duplexes and triplexes to communities with hundreds of homes
In addition to paying a mortgage, each owner is responsible for paying a monthly fee to the condo association, usually referred to as the homeowner’s association which is made up of the unit owners. The fee covers maintenance, repairs, grounds keeping and building insurance.
In the past condominium ownership suffered with a negative image for a variety of reasons, however that image has since changed dramatically. Once the thorn in homeowner’s sides, condominium associations have worked hard in recent years to clean up their negative image where disputes and lawsuits were once rampant. Homeowner’s associations have become savvier and much more professional about property management and have taken steps to prevent legal problems and disputes before they happen. However, there are some disadvantages that still need to be considered before you buy.
1) Monthly Homeowner’s Association Fee
If there is a homeowner’s association, you will usually have to pay a monthly maintenance fee that is separate from your mortgage payment. Many condominium owners factor this expense as similar to the costs they would have incurred for someone to do the lawn care and other maintenance if they owned a single family home. However, you should watch for unnecessarily high monthly charges and ask to see a copy of the latest financial statement from the homeowner’s association.
2) Less Privacy
There is also less privacy than with a detached single-family home. Communal living is not always desirable for some people and the noise level generated by living in close proximity to others can influence some buyers to simply look elsewhere. Usually, the biggest concern is about parking for the owners and for their guests. However, many condominiums are being designed with their own garages and have common parking areas available for guests.
3) CCR’s Can be Very Restrictive
CCR’s or Covenants, Codes and Restrictions are defined as the bylaws that govern the use of the property. Most CCR’s are reasonable, but some can be very restrictive. There usually are limits on the type of exterior changes or improvements you will be able to make to the property. In addition, you may find, among other things, that they prohibit or restrict pets and the renting or subletting of units. Make sure that you get a copy of the CCRs and review them (they usually have a summary booklet) before you decide to make an offer.
4) High Tenant Ratio
Also, make sure you find out the owner-to-tenant ratio. Because many condominiums are often purchased as investments, there could be a high percentage of tenants in the building. Although this trend is also changing, especially in condominiums which are located in urban areas where they provide convenient shopping, access to transportation and other amenities thereby attracting owners who intend to live in their condos.
5) Resale Value
In some real estate markets, such as Las Vegas and Florida, builders have overbuilt condominiums and townhouses and they are being sold at a loss. However, in other real estate markets they have held their value as an investment despite economic downturns and problems with some homeowner’s associations.
While some of these factors would discourage some buyers from purchasing condominiums, it may be just the right investment for others because it suits their pocketbook and lifestyle. In spite of these disadvantages, the high price of single-family homes in some real estate markets such as California and the influx into the housing market of more single homebuyers have made condos relatively hot national investments. A professional realtor can assist and guide you in showing you which are the great deals in your local market and city.