7 tips for buying a condo in 2023
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Buying a condo can be a great way to dive into homeownership without worrying about the upkeep that comes with single-family homes. Condo dwellers can also typically take advantage of shared amenities, and the condo association takes care of building maintenance. You don’t necessarily have to live in it, either: If the association permits rentals, a condo can be a great investment to earn rental income. The buying process can be a bit tricky, though — here are our top tips for buying a condo, plus pros and cons.
What is a condo?
Let’s start with the basics. Short for condominium, a condo is a single unit within a multiple-unit property, typically an apartment-style building or townhomes (though they can be freestanding homes as well). It can be one of many units in a shared structure like a high-rise building, or it can be in a much smaller walk-up building with two or three units.
If you’re thinking about buying a condo, it’s important to understand what your purchase includes. No matter how big the building or property is, you own your individual unit. You also own a pro-rata share of common areas and amenities of the community with your neighbors, which can include parks, pools, playgrounds, gyms, dog-walking areas and other public spaces. This also includes the land underneath the structure. Condo owners also pay for their own property taxes, utilities and maintenance, and sometimes for exterior maintenance, as well, depending on the community.
Shared areas of condos are usually managed by a condo association. The association typically acts as a supervisory board and hires a property management company to handle maintenance, communication with residents and other duties. Condo associations can differ based on the requirements of the individual property. Some may impose additional fees to cover shared expenses, such as unexpected building repairs or new amenities approved by the board.
“A condo owner has the title to their individual unit but shares ownership of the common areas,” says David Lee, a Realtor and team leader of the David Lee Group with Keller Williams Realty in Orange County, California. “Being a part of an association, condo owners typically pay an established monthly fee to cover their budget and expenses set by the association.”
Condo vs. house
One of the key points of differentiation between a condo and a house is price. The median price for a preowned condo was $331,000 as of October 2022, according to the National Association of Realtors — a sizable savings versus $379,100 for a single-family home.
However, the saying “you get what you pay for” rings true here. When buying a condo, you’re only purchasing the interior space of your dwelling unit. The land and other facilities are owned in common with the other owners of the complex. Condos are generally more affordable because they come with less space — you likely won’t have your own backyard, for example, and the interior tends to be smaller than the square footage of a single-family home. In addition, while house owners are relatively free to make changes to suit their personal needs and tastes, condo owners are usually not permitted to remodel.
Condo mortgages can also come with more stringent requirements and a higher interest rate than those for single-family homes, as well as a larger down payment requirement of 25 percent if you want to avoid paying for private mortgage insurance. (With a house, that figure is 20 percent.) Why? With the association’s financials and other factors to consider, mortgage lenders typically view condos as a somewhat riskier investment.
7 tips for buying a condo in 2023
1. Consider your lifestyle
Hate to mow the lawn and trim the hedges? What about pressure washing your driveway? Are your finances such that having to lay out $5,000 or more for a new roof will be a burden? Condo living means less effort for maintenance, so if you answered yes to these questions, a condo might be for you. However, if the desire for a large backyard outweighs the time you’ll need to spend maintaining it, then another type of property could be a better option. Similarly, if sharing walls, ceilings or floors with a neighbor seems unappealing, a condo might not be the answer.
2. Find a Realtor who knows the condo landscape
If you’ve decided that buying a condo is for you, you’ll want to find a real estate agent who understands the ins and outs of the process — ideally, someone with a track record in condos. An experienced agent will be able to address any concerns you might have and guide you through crucial steps, like reviewing the condo association documents.
Your agent should know the condo developments in your area and what issues they might have, including finance issues and structure or infrastructure problems. A good agent will be able to tell you if there’s been acrimony over community issues. They will also know which developments have fared best in resale values.
While an experienced agent is invaluable, it can also be worthwhile to visit the community yourself (and at different times of day and night) and talk to some of the residents. This can help you get a better sense of what it’d be like to live there.
3. Decide what amenities you want
Condos can offer a wide variety of amenities. Some might be barebones offerings that simply cover snow removal and other maintenance in the common areas, while others include a gym, outdoor grills and other luxury-level perks. When working with your Realtor, think about the amenities you want in addition to basic factors like location and budget. You’re buying access to these amenities when you buy your unit, so don’t be shy about putting them on your wish list. Keep in mind, too, that even amenities you don’t plan to use — a pool, for example — might still be worth having, because they can increase your resale value.
4. Try finding an FHA-approved condo
Getting a mortgage for a condo might be more involved than it is for other types of properties. That’s because lenders will scrutinize the condo development itself, in addition to your personal finances, when you apply for a loan.
It’s best to seek the assistance of a mortgage professional with condo experience to find the right financing for your purchase. The Federal Housing Administration (FHA), which insures FHA mortgages, has a list of FHA-approved condos on its website. Conventional lenders might have similar requirements to those of the FHA, but If the condo isn’t FHA-approved, you might not be able to get a conventional loan, either.
5. Research the property management company
Understanding who will be in charge of doing the upkeep for the property is crucial, since you want the condo you purchase to be well-maintained. It can be frustrating to pay association dues only to have the amenities fall into disrepair, and poor management can potentially affect your property’s value or push your HOA dues higher.
When touring condos, ask who is in charge of maintaining the day-to-day operations. You can direct questions such as who handles resident requests and community rules to the property management company itself. Consider doing your own research on the company’s reputation, as well — find out what other projects they manage, and talk to board members to see if they are satisfied with the company’s services.
6. Review association fees and regulations
In addition to your mortgage payments, you’ll need to pay condo association fees for the upkeep of the property and its amenities. Review those fees and find out exactly what’s covered by them. Ask how often — and by how much — the fees increase each year, too, to get a sense of how that amount might grow once you move in.
It’s also a good idea to ask about the community’s house rules. Are there any noise restrictions, or rules about booking common areas in advance? Understanding these ahead of time will help you figure out whether the community you’re looking at is really a good fit for you.
In addition, ask the board and the property management company how they handle issues or complaints — how responsive they are on weekends and holidays, for example. Pay attention to how they respond even when you first make contact; this can be an indicator of how much support you can expect to receive if a problem crops up.
7. Ask about special assessments
Special assessments are extra charges the condo association imposes to fund a significant project. An assessment is usually voted on by the board, if not all of the community’s residents. They are usually imposed for a limited amount of time, but they’re a good thing to be aware of because they’ll affect your budget while they’re in place.
For example, if the association is planning to require everyone to install new windows within the next 12 months, you’ll want to use this as a bargaining chip with the seller. Otherwise, you’ll hand over your money for a down payment and closing costs, only to immediately fork over another large sum of cash for that assessment.
A well-run association can usually avoid special assessments, except in extraordinary cases. Ask for copies of at least the three previous years’ financial reports, and make sure your lawyer or accountant reviews them and signs off that the community’s finances are sound. Pay close attention to whether the budget has adequate reserves — is it being funded now in preparation of a future or unforeseen project? Having these funds is especially important if the building is older, since age often comes with the need for more extensive repairs.
Pros and cons of buying a condo
If you’re thinking of buying a condo, it’s important to weigh the benefits and challenges. Here are some top things to consider:
- Lower price: Depending on what market you’re in, a condo can be a much less expensive way to buy a home than purchasing a single-family property, making it ideal for first-time homebuyers or those with limited down payment savings. They’re a good option for those who want the benefits of homeownership, like building equity, but are on a budget. Property taxes tend to be lower, as well.
- Less maintenance: Exterior maintenance in condo communities is generally handled by the HOA, so you won’t have to deal with things like landscaping, lawn care and snow removal. This includes roofs and exterior siding as well. Condos require less attention than single-family homes, with less responsibility for upkeep.
- Socializing opportunities: Buying a condo means you’ll be living in a community, which can be great if you want to be close to people and have a built-in social network. Some condo associations organize social events for residents, like pool parties, barbecues and holiday celebrations.
- Amenities: Depending on the community, you might have access to top-notch amenities like a grilling area, business center, pool, dog park, covered parking, clubhouse and more, and the cost of enjoying these perks is shared among all residents.
- Rules and restrictions: One of the biggest complaints about living in a condo community is that HOA rules can be restrictive, regulating everything from trash pickup to what types of items can be stored on your patio, how many pets you can have and whether you can rent out your unit. Breaking the rules can result in fines or even foreclosure, in severe cases.
- Fees: Your HOA or condo association will likely charge fees for your unit, which could be relatively high. These fees typically cover amenities, maintenance, insurance and reserves, but they can add up. The fees tend to increase over time, too.
- Investment risk: You and your neighbors all own the common property together, so if one or many owners fail to pay their dues, the entire community could suffer financially. Likewise, if one or more of your fellow condo owners goes into foreclosure, the units could change hands at a steep discount, affecting everyone’s property values. (Some associations have rules and funds available to buy back these units, so be sure to ask how this situation is typically handled.)
- Less privacy: Because condos share common areas like the lobby, hallways and amenities, a condo unit might not be for you if you value your privacy. You’ll also be sharing walls, ceilings and floors with adjoining owners, so noise can become an issue. Keep in mind some complexes can have many renters moving in and out, meaning moving vans and tenants who might not have as great an interest in maintaining the community as owners.
- Difficult financing: It can be more difficult to get a mortgage for a condo than for a single-family home. You may need to get a mortgage specifically designed for condos, which typically have more restrictive requirements.
Are condos good for first-time buyers and investors?
Yes! If you’re a first-time homebuyer, a condo can be an especially appealing option. The lower price is the obvious perk, but you might already be accustomed to condo-style living if you’ve been renting, too, so you can continue to have that type of experience while also building equity.
Condos aren’t just for those with smaller budgets or plans to sell in the near future, though; they can be ideal long-term investment opportunities. A condo can serve as a rental property, where you find tenants to sign a yearly lease, or you can consider renting out a condo via short-term arrangements like Airbnb or VRBO. While a rental property can help you earn passive income, it comes with quite a few considerations: how easy it is to find a long-term renter or how much you can make on a nightly basis with out-of-town guests, for example. The good news is, there are tax benefits available for rental properties to help offset some of the expense.
Buying a condo can be a cost-effective way to get into homeownership without the need for as much maintenance as a single-family home. They are also great options for first-time homebuyers or investors, due to their lower price point and potential for rental income. No matter what your goal is with buying a condo, though, it will likely cost a bit more in 2023 as home prices remain high. In certain areas, buying a condo may feel just as competitive as buying a single-family home. Compare multiple properties and be flexible about your must-haves and nice-to-haves. Consult with a real estate professional who specializes in condos to guide you in your home search and protect your interests during the process.