Do you want to buy a condo? That is awesome! Whether a first-time homeowner, moving to a new city, or investing in a rental property, buying a condo can be a great decision. However, buying the right condo for you is a very personalized decision. Everyone wants different things in their perfect home and you need to find the condo that delivers what matters most to you.
As you do so, you should make sure that you know a few key points. Six of the most important things to know are:
Let’s start by explaining more about each of these.
A condominium is a building in which the individual living units are separately owned and the common areas are jointly owned by everyone in the building. It is important to understand what this will mean for you.
You will buy a unit in the condo building. You will be the only owner of that unit and the only one that can use that unit. Your unit has a preassigned percentage of ownership in the building – sometimes called a par value. This is determined by the developer when they build the condominium. For example, your unit may have a 5% ownership interest in the building, or .05 par value. Often ownership percentage is based on square footage of all the units in the building. This means that the bigger units often have a larger ownership percentage of the building. A simple way to think of your ownership interest is like buying part of a business, in this case a non-profit condo building.
What does your ownership percentage do for you? Most important is what your interest in the building does not do. It generally does not mean that you get more of a vote on building issues. Most condos are set up so that each unit gets 1 vote regardless of ownership percentage. A larger percentage does usually mean that you must pay more for the common expenses. For example, if you own 5% of a condo building then you are effectively paying 5% for every common expense like maintenance of a roof deck of pool if you don’t use those amenities. It also does not mean that you get to reserve 5% of the pool for your own use whenever you want. While each unit pays their ownership portion of the common fees, everyone has equal right to use the common areas.
Ownership percentages are generally not provided in a real estate listing so you will need another source to determine what your percentage will be if you buy an available unit.
Buying a condo means you are now a property owner – that is great! Does that mean you can do whatever you want in your unit? No! A condo building is governed by its Bylaws and its Rules. The condo’s board of directors of the homeowner’s association makes and enforces the rules and is elected by the unit owners in the building. The condo board and the rules effectively act as a mini version of Congress passing laws. If unit owners are unhappy with the job the board is doing, then they are welcome to run for the board and work on the changes they want to see. At the end of the day, the owners hold all of the power!
This means that as soon as you buy your unit there will be a bunch of rules and regulations already in place. For example, most buildings prohibit short-term rentals. This can be a good thing if you don’t want strangers coming and going in your building. But you won’t be able to turn your unit into an Airbnb either, if you wanted to.
Similarly, many buildings restrict long-term rentals. Some buildings require a minimum 6-month lease while others need 12-month leases, some require approval from the board of directors, and so on. Each building can have its own set of rules. Perhaps the most important rental restriction is a so-called “rental cap” which sets the maximum number of units in the building which may be rented at any time. Buildings can set rental caps for different reasons, but often a building is focused on ensuring a healthy, viable community with unit owners who are committed to the community for the long run.
There may be other important rules that matter a lot to you. Pet restrictions are common and take many different forms. A building can restrict the number of total pets in a unit, ban certain dog breeds, limit the size of pets (usually by weight), among other restrictions. If you are buying a condo and have or want a pet, you need to make sure you know what the rules are in the building.
One other thing that you need to be aware of is that the rules can change. The condo board and owners can vote to implement new restrictions and rules. You will remain subject to the rules of the homeowner’s association as long as you own the unit regardless of whether you agree with any new rules they adopt.
Real estate listings rarely provide information on rules and regulations. This means that you need a special source of condo information, like ClearCondos condo search, to find if a building has the restrictions that match what you want.
Price is a huge factor in deciding whether to buy a condo, but keep in mind that condo fees are the cost that never go away. In most situations, someone buys a condo with a mortgage and when they make their mortgage payments for long enough, the mortgage is eventually paid off. However, condo fees never get paid off. They will stay with you as long as you own the condo.
Condo fees have benefits. For example, if you own your own free-standing home, you have to take care of the lawn mowing and snow shoveling by yourself. In a condo building, that cost is distributed across all the owners – and you won’t be out there in the summer heat pushing around a mower! Another example, if a homeowner wants a pool, then they have to pay the entire cost of installing a pool and then the costs of ongoing maintenance. For condo owners, those costs are spread out amongst all the owners.
With that said, you should be prepared for your condo fees to regularly increase at least similar to the average increase in the consumer price index. This is because maintenance costs like replacing light bulbs and landscaping tend to increase every year. Therefore, the condo association needs to increase the amount of fees to cover the increased cost. This is not a hard rule. Sometimes condo fees can stay flat for a while. Condo fees may even go down in rare situations.
Before you buy a condo, you also should be concerned about special assessments – a one-time fee assessed to homeowners usually for a large, special project. When a condo association has an unexpected major expense, it may not have collected enough fees over time to be able to pay for it. These big expenses can be capital improvement projects, like replacing a roof, or regular maintenance costs like fixing a broken elevator. Either way, the condo association needs to quickly raise funds from the owners. This is done through a special assessment. The condo board determines how much money is needed and then allocates that cost to each unit based on their ownership percentage.
When buying a condo, you will have an opportunity to analyze the condo association’s finances. Be sure to look at the reserve amount and whether any special assessments have occurred in the past and are expected soon. Knowing how old the roof is and any recent capital improvement projects can help you better estimate if a special assessment is likely in the near term. When considering a building with a recent or expected special assessment, find out why they needed a special assessment and why the condo board did not plan for that expense in their regular budget.
But when you are budgeting for buying your condo, plan on the condo fees going up over time and potentially having to contribute to special assessments. Also know that the condo board of directors determines increases to condo fees and whether to levy special assessments. So you will not always be afforded a vote but will nonetheless be required to pay whatever the board decided.
And you can be sure that condo fees will never go away.
A pool, a gym, movie theater, and a sauna! That all sounds great! And it is great – if you use them. Many listings promise a host of amenities, but you need to know which ones actually matter to you when you start your condo search. Because even if you don’t use an amenity, you are still paying for it.
This is because, in addition to general maintenance, condo fees pay for the maintenance of the amenities in a building. If a treadmill breaks down, money from condo fees are used to fix it even if very few people in the building use the gym at all. Condo fees or special assessments can be used for amenities, too – like buying new pool deck chairs, umbrellas for the rooftop, or tv monitors for the exercise equipment.
Amenities at an accessible price are one of the benefits of living in a condo. It is highly unlikely that you would be able to live in the same area with a pool, billiards room, movie theater, and gym if you owned your own house. If you don’t use these amenities, then you are effectively paying for the wear and tear caused by someone else.
Before buying a condo, it is important to think about which amenities you will use. Then you can search specifically for the condo buildings that fit your needs at ClearCondos. That way you can avoid paying condo fees for amenities you don’t use.
In most urban or suburban condo buildings, your condo unit is going to be surrounded by neighbors. There will be other units on the sides, below, and above you – except those lucky penthouse owners. Even though this setup may not seem much different than an apartment building, it is. Unlike an apartment, where you can complain to management if something is wrong and then move out at the end of your lease, it can be a lot more challenging and expensive to sell a condo unit and move due to un-neighborly conditions.
Knowing you are going to be surrounded, what should you do before buying? Check how sound travels in the unit. Will the neighbors walking around upstairs be heard in the unit? Even if the answer is yes, many condos have rules requiring rugs to cover a certain percentage of the floor. You can look into these rules and ask how the condo association enforces them to make sure it won’t sound like a marching band above your head every day.
With the neighbors on your side, check for sound, but also check for smell. You are buying real estate and it’s worth knowing whether the neighbor’s nightly fried anchovy dinner will stink up your unit. You may have to knock on neighbors doors or ask the board President or management about any complaints on smells.
You also should check if the unit is near a noisy building element like an elevator, the gym, or the garage door. These things carry vibrations and sounds that could disturb your home at odd hours.
To alleviate many of these concerns, condo associations often have quiet hours and other rules to protect the tranquility of everyone’s home. If you find that the current rules are not enough to keep your home comfortable, then you can propose additional rules to do so.
Living in a community with neighbors is often one of the best things about owning a condo. You should do your homework to make the community practices will be suit your preference.