You’ve probably heard people throw the term “condo” around, but what exactly is a condo? If you aren’t familiar with real estate terms, it can get confusing, especially in comparison to apartments. After all, they’re both units in a building with shared walls, with the responsibility of common spaces falling to someone else.
However, there are more nuances to condo ownership than meets the eye. Here’s what you need to know about what condos are, and what they aren’t.
What is a condo?
A condo (short for “condominium”) is a privately-owned, individual unit in a multi-unit property. Structurally, it’s similar to an apartment, but the difference is in the ownership.
An apartment is a rental unit in a multi-unit property; one landlord owns the building, and tenants pay that landlord rent. With condos, units are owned by individuals. In the case that an individual decides to rent out their condo, they wouldn’t be the landlord for the entire building, just the individual unit.
A condo is usually managed and controlled by an HOA, or homeowners’ association, which is responsible for collecting dues from condo owners and using that money for maintenance and amenities, among other things.
What can condo HOAs control?
HOAs, in the case of condos, have a fair amount of control over the complex or building. They can determine:
- Who’s allowed to live there
- Whether or not smoking is allowed
- If you can have pets and how many pets are allowed
- Guidelines for noise and/or quiet hours
- Trash pickup
- Outdoor and balcony decorations or anything that’s displayed on common and shared walls
- Upgrades to units, including construction
They can also place restrictions on who you’re allowed to rent to, and increasingly, HOAs are tightening their restrictions on allowances for Airbnbs and VRBO rentals.
But HOAs aren’t all bad! They’re also responsible for keeping up amenities in the complex, such as:
- Activities rooms
- Common areas
Condo HOAs are also responsible for building maintenance and any structural problems outside of the individual units. A good HOA will keep your complex looking nice, and have all the amenities functioning properly.
Sometimes an HOA will even have a discounted homeowners’ insurance policy that owners in the complex can purchase. “A lot of times, there’s a blanket insurance policy that everyone in the community will use,” says agent Nick Rice, team lead for Phoenix-based agent Brett Tanner. “It’s kind of rolled into the HOA, and they’ll make a deal with the insurance company,” adds Rice.
When looking at a condo, keep in mind that you need to budget for HOA dues, which can run from hundreds of dollars a year to thousands of dollars a year, depending on the location and provided amenities. HOA dues also tend to go up over time to address the costs necessary to keep the complex functioning and looking nice.
The basic rule for condos is: you’re in charge of maintaining anything inside your condo, the HOA covers the rest.
What features do condos have?
With condos, you have the ability to purchase individual units instead of purchasing a whole house or building. Usually, a condo complex will have a large garage or other parking structures with one or more spots assigned to each resident.
Often condos have additional amenities, such as:
- Gyms or recreation areas. A great feature of living in a condo is that you often have a fitness center onsite, so it eliminates the need for a gym membership. Sometimes there are other recreational amenities like tennis courts or basketball courts, too.
- Indoor and outdoor common gathering areas, such as grilling areas or clubhouses
- Business centers
- Pet-related amenities. Increasingly, condo complexes are putting in pet-related amenities like dog runs or pet waste disposal stations to accommodate their furry residents.
- Opportunities to socialize. Oftentimes, the HOA will appoint a person as the “social officer” to plan activities — like movie nights — in the common areas.
Should I rent or buy a condo?
There are arguments to be made for and against both renting and buying.
Renting: The pros
- Amenities. Condos are typically nicer than apartments, with better features, fixtures, amenities, and security.
- Test drive. You can try out a condo and see if you like the lifestyle and the area of the city before buying a unit there.
- Down payment. You don’t have to come up with a large sum of money for a down payment, although you will probably have to pay a security deposit, as you would with an apartment.
Renting: The cons
- You’re not building equity. Because your money is still going toward rent and not a mortgage payment, you’re not building any equity in the property. “If there’s a lot of demand for rentals in your area, it’s going to drive rental prices up more quickly than the prices of the units themselves,” states Rice. “If you’re looking long-term for a financial investment, you’re better off paying down your own mortgage than paying someone else’s mortgage.”
- You can’t change anything. Because you don’t own the property, you’re at the mercy of the owner, so any changes you might want to make have to be approved by them.
- You might be responsible for repairs. Depending on your lease, you might still be responsible for repairs to the property, even though you don’t own the unit.
- You’ll have no pull or say with the HOA. If you don’t like the rules, too bad. The HOA will be dealing with the unit owner, so any problems you have can only be addressed with your landlord.
Buying: The pros
- Building equity. Since you’re paying a mortgage every month instead of rent, you’ll build equity and increase your net worth.
- Pull with the HOA. If you have a problem, you can address it directly with your HOA, and even run for a board position, if you want.
- Affordability. If you’re looking to invest in a property but don’t have enough for a house, a condo gives you the option to build equity instead of renting, and you also won’t have to pay as much as you would for a mortgage on a house. Property taxes on condos are usually lower, as well.
- Amenities. Once again, you’ll have access to the amenities a condo complex offers, which can include recreation facilities, common areas, security services, and more. Plus, you’ll have a say with the HOA in what goes on with the maintaining and upgrading of those facilities.
- Investment property. If you purchase a condo and decide to move up to a single-family home later down the road, you can keep the condo and use it as an investment property.
Buying: The cons
- HOA fees. As the owner of the condo, you will be responsible for all HOA fees, which can add up to thousands of dollars per year. HOAs will sometimes have occasion to collect a special fee if there is a maintenance issue that pops up that they don’t have the funds to cover.
- Rental policies. With the rising popularity of short-term rental services such as Airbnb and VRBO, HOAs are now including clauses restricting the use of properties in the complex for short-term rentals, and some HOAs are outlawing them entirely. Some HOAs are even more restrictive, preventing owners from renting out their properties to anyone at all. Be sure to read a condo’s HOA rules if you’re planning to use your condo for that purpose in order to ensure you wouldn’t be breaking any rules.
- Fines. If you (or your tenant, if you rent out your property) break any HOA rules, you are responsible for paying the associated fines.
- Risk. Any property is an investment risk, but condos tend to be riskier because you’re sharing the building with other people whose actions you cannot control. If someone in the building forecloses, for example, the whole building’s value can take a hit.
- Maintenance. You break it, you bought it. If your unit needs maintenance and you own it, you are solely responsible for paying for that maintenance.
|Maintenance||You are fully responsible for any maintenance inside the unit.||Unless otherwise specified in your lease, your landlord will take care of maintenance.|
|HOA rules||With condos, there are HOAs to protect and maintain the complex. You are required to adhere to their rules or risk being fined.||Not usually applicable. There is a landlord that sets rules, but not an HOA.|
|HOA dues||As the owner, you are responsible.||N/A. You don’t owe any additional fees to the landlord for maintaining the property.|
|Equity||You will build home equity, increasing your net worth.||Rent is paid to the landlord and you don’t build any equity.|
|Cost||Approximately equal to an apartment.||Approximately equal to a condo.|
|Pet policy||Set by HOA||Set by landlord|
The differences between an apartment and a condo are subtle, and your choice between them really depends on your financial goals and lifestyle preferences. If you want to start building equity and have a down payment saved, a condo may be a good investment. But you will have to deal with an HOA and pay dues for that HOA, so be aware of the extra cost there. Hopefully, a better understanding of the differences will help you make the best decision for you!
Header Image Source: (Nadine Shaabana / Unsplash