Condos are great. If you’re looking to own a property without having to worry about landscaping or lots of upkeep, it can be the perfect fit. But before you stroke a check and put in an offer, make sure you’re aware of what you’re getting into.
Is a Condo Right for You?
For starters, you have to decide if owning a condo is the right decision for you. If you’ve never owned a condo, then you might not be fully aware of all of the pros, cons, and nuances involved. As you do your research, consider the question, Am I a condo person?
Condos are usually suitable for (a) First-time homeowners who can’t afford a single-family residence in the area where they want to live; (b) Single people and/or young couples without children who want to live in a popular area without having to worry about some of the time-consuming aspects that come with owning a home (like landscaping); (c) Professionals who frequently travel for long stretches of time; and (d) Retirees who no longer need all of the space that a single-family home offers.
Condos are not ideal for people who love pets, want total autonomy over their property, need outdoor living space, and/or don’t have much interest in amenities like swimming pools, business centers, and fitness centers.
Prepare for Financing Quirks
When it comes to financing, purchasing a condo can be a more challenging process than purchasing a house. That’s because lenders are very cautious with the types of loans they give out for these properties.
In order to offset the risk of a bad condo investment, lenders usually have a requirement for what percentage of units are owner-occupied. And while this may not matter to you, there are also restrictions on how many condos can be owned by one person/investor. (Usually no more than 10 percent.)
“Lenders may also have tougher loan-to-value (LTV) ratios and restrictions for those buying condos,” Investopedia mentions. “An LTV ratio is how much the condo is worth versus how much is owed on it. For example, if you put 20% down on a home, your LTV would be 80%.”
Because all of these nuances can be challenging to navigate, you need to work with a real estate agent who is experienced with condo buyers in your area. They’ll understand the financing requirements, which lenders offer the most flexible terms, and how to handle each step of the process.
Do Your Research on the Condo
Once you decide that a condo is the right homeownership option for you, it’s time to research individual developments and units. You’ll want to take your time throughout this stage and avoid rushing the process. It’ll feel like drudgery at times, but meticulous attention to detail will pay off.
You’re going to “live” or “die” at the hands of your condo’s homeowner’s association (HOA). If the condo’s HOA is strong and responsibly managed, you don’t have much to worry about. But if they’re irresponsible and strapped for cash, these issues will come back to bite you. Condos need cash saved up for maintenance and big-ticket expenses (like a new roof). If there’s insufficient money in the account for these expenses, individual condo owners within the association will be charged special assessments to cover the cost.
As a member of the condo HOA, you also share liability with the HOA. If there’s a massive lawsuit against the HOA and the case goes to court, you become an unnamed party. Any legal action could involve you (financially).
Every situation is unique. There’s no cookie-cutter process for researching and buying a condo. However, if you put in the work upfront, your due diligence will ultimately lead to a smarter purchase that offers even greater peace of mind.
Don’t Go in Blind
Most people know what to expect with a single-family home. But when it comes to condos, every property has unique strings attached. In summary, you should begin by making sure a condo is a good fit for you. Secondly, be thorough in how you research different condo developments to ensure you’re aligning yourself with an investment that will suit your lifestyle for years to come.
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