Why You Should (Not) Buy A Condo

Dated: July 16 2020

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condo building with blue sky

Like every other investment property, owning and running a condo comes with a couple of pros and cons. This post will highlight the reasons you should or should not consider buying a condo. Let’s start with the former.

These are the reasons you should buy a condo:

1. You get the best facilities.

The facilities that you find in a condo are not available in other rental properties. This is because an average tenant cannot afford them. For instance, you will find a children’s playground, fitness center, or a community clubhouse in a condo.

2. Security is top-notch.

Security arrangements are top-notch in condo properties. From security personnel to gated entries, tenants are well-secured in a condo. Plus, people are always stationed around the property to assist with emergencies.

3. Maintenance is minimal.

If you are looking for an income property that will cost you very little to maintain, condo is your go-to option. You can get professionals to handle almost every aspect of the maintenance – roof fixing, general cleaning, grounds maintenance, and others. Outsourcing these responsibilities relives you and your tenants avoidable stress.

4. They are close to major cities and towns.

Most condos are found at strategic locations – close to major cities and towns. This gives your tenants easy access to city centers, such as restaurants, bars, lounges, and what happens there. Such locations are also close to commercial centers, so your tenants get to live close to their workplaces. This will help to save the cost and stress of transportation.

5. Condos are affordable.

Condos are relatively cheaper, compared to other income properties like multi-family and single-family homes. So, if you are just starting out and you do not want to risk much, condos are the way to go.

6. Condos appreciate.

The cumulative effect of all the above-listed benefits is the reason behind the faster appreciation of condos. Condos will appreciate more compared to other investment properties.

Now, let’s consider why you should not buy a condo.

1. There is little or no privacy.

Condos are designed such that the units are close to one another. This means that the occupants (neighbors/tenants) will be sharing close proximity – sometimes on either side of the walls. Therefore, condos are not the best for tenants that like privacy and quietness.

2. You will pay Homeowners Association (HOA) fees.

The mortgage is not the only expense you incur on condos. As the landlord, you are also expected to pay the Homeowners Association fees. The money goes into the maintenance of the amenities in the complex and the establishment of new amenities. With the HOA fees, the garbage, grounds, pool, security, water, sewer, and others are covered. The amount payable as HOA fees depends on the quality, location, and size of the condo. However, you should expect to pay up to $1,500 as HOA fees in major cities like New York and New Jersey. Lastly, the fee is not always fixed – an increment may be necessary in line with the current economic realities.

3. There are rental caps.

The rental cap helps to regulate the number of owner-occupied vs. rented-out units in a condo. It is a rule usually enacted by the condo board or the HOA. The specific stipulations of the Rental Caps differ from one neighborhood to another. For instance, you cannot rent out a condo in some areas. This is why you should dig deeper about an area before buying a condo there.

4. Litigations may arise.

You are not immune to litigations if you are a condominium owner or developer. These litigations usually spring from issues like construction disputes and defects, foreclosures, deceptive trade practices, implied warranties, professional malpractices, liens, and fraud, among others. These litigations, in very serious conditions, may lead to loss of ownership, or the temporary loss of ownership for an extended period. You can avoid this by researching and doing due diligence before putting your money on a condo.

5. Mismanagement of funds.

If capable individuals do not manage the HOA in your area, the funds will be misappropriated. HOAs run two types of accounts – a reserve account and an operating account. The reserve account is for major or long-term projects, such as a new gym, restructuring of the clubhouse, or erecting a new fence. The operating account, on the other hand, contains the funds budgeted for daily maintenance – lawn mowing, ground cleaning, snow shoveling, and the rest. Unless these funds are well managed, you and other homeowners are at the risk of paying extra fees when an emergency arises, and there is no fund.

6. The HOA rules can be too stringent.

The Homeowners Association is the governing body in any area. They introduce the rules and expect both residents and tenants in the area to adhere to them. In some cases, they can go as far as banning pets and holiday decorations, or enforcing landscaping and layouts. Your tenants’ failure to adhere to these rules may warrant a warning from the HOA, or fines in extreme cases. Some background check on the HOA rules of an area is recommended.

Lastly, do not buy condos in areas where the HOA rules are too strict.

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