For a lot of good reasons, the first question on my list of 72 when evaluating where and what you want to buy deals with the type of home.
Generally speaking, the options are single-family homes and condos, though with the second type, the selection gets more complicated. Whatever the setup, a condo is essentially ownership of a “unit” within a larger building and ownership interest in the common property shared by all the condo owners.
While an unspoken assumption on our family’s part has been that a single family home was our intended buying target for later this year, we’ve been finding ourselves talking about condos more and more in the last few months.
The more we think about it, the more sense it’s starting to make with respect to where we are financially and in our life progress.
We’ve run the numbers. Our current estimates include the cost of buying a decent-sized, 2 or 3-bedroom condo in our area, including the mortgage, taxes, insurance, and HOA fees. We think that the monthly cost comes to about $800-$1,100. This is marginally lower than the cost to rent the same size unit in a similar location, which is a major plus.
Part of the reason is that condos in our area are significantly less expensive, foot for foot, than their single-family counterparts. Much of this may have to do with the cost of land, which is a big portion of the purchase price for a detached home.
The effect is that buying a condo has any, or all, of the following benefits:
- You can lower your overall purchase price, mortgage cost, and money required at closing.
- You can get more bedrooms or square feet to live in, for the same or lower cost.
- You can look at living options in a more urban setting, typically closer to work and shopping amenities.
- As a result of the last item, you can potentially reduce or even eliminate your transportation costs.
The actual (and potential risk of) maintenance costs is also reduced, because you’re only directly responsible for the things going on inside your apartment. I wrote last week that renting is a form living insurance because it spreads out the risk of major costs between tenants–it turns out that condo living also does this to some extent.
Ongoing utility costs paid out of pocket also have the potential to be reduced, since the common walls shared between units often make condos more energy efficient.
Fees & Common Expenses
Fees are neither a pro or a con to me. If a condo is managed effectively and you do your research before you buy, I think you can easily get your money’s worth in terms of HOA fees. It turns out that it’s not exactly “money down the drain,” even with some higher-end associations charging $500 to $1,000 or more per month in fees.
What do your fees actually cover?
HOA fees typically cover things like common area maintenance (cleaning, lawn maintenance, painting, upgrades, etc.), the cost of providing amenities (on my personal list of wants are a swimming pool and tennis courts), some utility costs like trash and cable TV, and hazard insurance for the building enclosure.
Fees are also a shared expense, which I believe makes them more efficient versus individually purchasing maintenance and insurance services as a single-family homeowner. Common area amenities are another perfect example. Rather than 100 (random number) tenants individually buying and maintaining something like a pool, they can share in the cost of a single common pool at the clubhouse.
Rules & Regulations
Condo apartments, just like gated communities and other forms of shared living, have a set of established rules and regulations that limit what you can do and when you can do it. Typically, this includes things like improvements to your home, policies about guests, and the use of common facilities.
In the context of a single-family home, these rules are something I really dislike and more often than not, I consider them unnecessary and overkill. For condos however, I think they are absolutely necessary and even beneficial.
Because of the proximity to your neighbors, these rules provide a framework for expected behavior and a recourse in the case that someone turns out to be a bad apple. If you own a single-family home outside any HOA authority, the only recourse you have is your own power of persuasion, the police, or possibly the court system.
Unlike single-family homes, “condos” as a group come in a wide variety of shapes and sizes. Some of the potential condo setups you might encounter include:
- High-rise towers
- Apartment buildings
- Loft units
- Attached townhomes
- Duplexes or quads; attached or semi-detached
There’s really no end to the imaginative options developers and builders are coming up with for condo styles, even “inventing” their own building types.
The setting in which these are placed also varies significantly, but you’ll find many of them as part of a community that includes some of the common amenities I already mentioned. They may also be part of a larger development that mixes condo and single-family types.
This wide selection of condo options is one of the things I really like about the possibility of living in a condo, particularly some of the options that combine components of single-family and condo living.
Condo living is not for everyone, particularly those who like their space. I personally enjoy the urban-living feel to a condo if it’s in the right setting.
Having a garage and a garden to call their own is very important to some people. Actually, it’s somewhat important to me as well, which is why we’re also looking into condo options such as town homes and duplexes, which often provide an attached garage and a small piece of dirt behind the house.
As part of a condo, we can expect to be much closer (in proximity at least, if not in heart) to our neighbors, which means a greater expectation of extending common courtesies like picking up after ourselves in the common areas, keeping noise levels down, managing large groups of guests effectively, etc. There are trade-offs in freedoms that someone with a single family home (outside a gated community) would expect to have, because you need to be considerate of others.
One curious phenomenon of condo living in Florida is that many of the condos in our area are second homes, which means they are primarily occupied only during season (December-April) and sit empty the rest of the year. This is either a good or bad thing, depending on what you’re looking for from your condo experience.
Much of the information in this section is particular for Florida (and especially South Florida), and it has the unfortunate potential to derail our entire idea of buying a condo. Obtaining a loan for a condo is significantly more difficult than for a single-family home, according to many of the people I’ve talked to in recent years who have gone through the process and most of the information you can find online.
One of the reasons is that lending standards must approve your financial state and the financial state of the community you wish to buy in. In theory, the bank’s standards should weed out any potential financial problems with the community that slip through your own research (you are doing your due diligence, right?). In practice, getting a condo mortgage in Florida is hard and frustrating work.
The lender might check metrics like the owner-to-renter ratio (the more owners the better), owners delinquent on dues, bank balance, outstanding lawsuits, and more. Depending on the underwriter (Bank, Fannie Mae, FHA, etc.), requirements are more or less lax.
The same goes for down payment requirements which with FHA, similar to single-family homes, can be in single digits. However, and it’s a big however right now, the condo must be on an FHA-approved list to qualify. Otherwise, you may be looking at 20% down payment requirements as an absolute bare minimum, with many lenders walking away from questionable condo deals entirely.
This is still a relatively new procedure, so many condo associations are only beginning the process, or may be entirely unaware or unmotivated to get on this list, to the detriment of potential buyers.
There’s a lot to think about, and your best bet if you’re serious about buying a condo or any kind of property is a lot of research and a face-to-face with a banker who can go through all the available options. The light at the end of the tunnel is that, as foreclosures work through the system, bankers catch a breath and condo boards catch up with current standards, the local financing picture should change for the better.
Options & Life Plan
Last and certainly not least, we’re trying to look at this decision within the larger context of our life.
At this point, we’re still not sure where and when we want to buy for the long-term, or whether we want to build a home ourselves versus purchasing something off the market. We’re also unsure of whether we’re going to try to have a second home somewhere outside of Florida if that’s a possibility for us in the future.
The cool thing about condos, and especially a condo in a nice tropical location, are that people are always looking for part-time or full-time rental opportunities. A well-kept condo in a good location can easily pay its way in rental income if we decide to relocate locally or somewhere out of town.
There are no simple or definitive answers here, and it would be fair to say that we haven’t even begun to make a decision when it comes to buying a condo. It’s simply one option, and we’ll have to look further into it as the journey to home ownership continues and things change.
I think the biggest obstacle we face right now if we go down this road is financing, and I think that time is one of the few things that can alleviate it.
There is, of course, another side to this, and that is the pros and cons of buying a single-family home. For my own benefit at the very least, I plan to consider those ideas by the end of the month. Cheers!