CONDO: Definition and Comparison of Condominium With Other Housing Types

Condo

The prospect of keeping a house and a yard causes anxiety in some house searchers. Fortunately, there are several types of properties to pick from that do not require a lot of upkeep – and come at a reasonable price to boot. A condo unit is one of these alternatives.
What exactly is a condo? Should you purchase one? Here’s a crash course in a condo and living in an apartment or house to help you decide if it’s suitable for you.

What is a Condo?

Condos are private residential units located within multi-unit buildings, developments, or communities. Condo residences frequently share walls, much like apartment units, but they can also be semidetached, like townhouses, or totally detached. Common grounds, facilities, and amenities, both external (yards, swimming pools) and internal, are usually shared by the residences (laundry rooms, garages).

Some condos are part of buildings or communities that were explicitly designed for that purpose. Others may be converted from rental apartments or restorations of previously constructed industrial or commercial space.

Condominium organizations play an important part in the lives of the majority of condo owners. An association, similar to a local homeowners organization, is governed by a board of directors and maintains the common areas, services, and amenities (HOA). Condo owners pay their associations on a monthly or quarterly basis.

The laws governing what condo associations can charge and what they can allow or reject vary by state, but they must all comply with federal housing standards such as the Fair Housing Act or the Servicemembers Civil Relief Act. Examine your state’s laws to see if there are any differences where you live.

Why should you Buy a Condo?

For many buyers, the answer to this issue is straightforwardness. Most condo buildings just require you to take care of the interior. A professional management organization handles everything else. There is no lawn to mow, flowerbeds to maintain, or snow to clear from driveways.

The cost is also an essential consideration. Condos have generally been more affordable than single-family homes, and this tendency is expected to continue. According to Black Knight data, condos appreciated at a slower rate than single-family homes in 2020 and sold for around 17 percent less, representing a savings of around $58,000, according to real estate company Redfin.

Condos are frequently less expensive in terms of taxes: a smaller space implies a lower bill from the county.

There’s also a sense of community that single-family homes don’t always have, such as common areas and amenities, gatherings, and so on. It’s a lot easier to go off and travel or live seasonally in another location when you know everything will be taken care of once you lock the door.

Types of Condo Buildings

Condos are classified into two categories: freehold and leasehold. In the case of a freehold condo, the tenant owns the unit outright. Instead of owning the unit, residents in leasehold condos sign leases with their landlord.

Individual condo units often comprise one building or a complex of numerous buildings in a condo community. However, you may come across a detached condo, in which owners live in their own independent house unit – more like a single-family residence – but pay into a condo organization that manages the community’s shared unit.

We’ll look at six different types of condos and how ownership differs.

#1. Condo Home

A typical condo home is a residential property in which the owner solely owns the area of the building that houses their home. In contrast, a single-family residence, or what you might typically think of as a “house” is owned by the owner of both the dwelling and the land on which it is built.

#2. Condo Share

A timeshare condo, also known as a condo share, is commonly used as a second home or holiday property. Its renters are given access to the condo for a set period of time and number of days each year.

Condominiums typically involve expenses like maintenance and property taxes and thus are not considered investment properties. These types of units can be difficult to sell, but they provide desirable property at a fraction of the cost of resorts or motels on vacation.

#3. Detached Condominium

Detached condos offer the benefits of condominium living with less maintenance and planned communities within an HOA. The primary distinction between these types of condos and condo residences is the absence of shared walls. Instead, a detached condo development is located near a city, and units are frequently packed together.

#4. Private Condo Or Private Own Apartment

Private condos or private apartments are owned by the landlord of each specific unit. These types of condos are typically rented out to renters, however, they differ from regular apartments. The application process, criteria, and deposits for different types of rental condos may differ.

#5. Condo Building

A condo building is a complex made up of independently owned units. Typically, ownership is governed by an HOA or community property management, which is in charge of property upkeep and some maintenance.

#6. Condominium Developments

The developer owns the ground on which the units are built in a freehold condominium complex. When a tenant purchases a condo, ownership is passed to the buyer. The primary distinction between freehold condo developments and regular condo unit buildings is that owners are responsible for their own unit upkeep and maintenance, including external walls, whilst management maintains common areas.

An Overview of Purchasing a Condominium

Loan Problems

Buying a condo can be more challenging than buying a house. Lenders use extreme caution when making loans for this type of residence. They normally require that a specific percentage of the units be occupied by persons, or be “owner-occupied.”

Another restriction might be the number of condos that can be bought by a single investor. Lenders typically do not want a single person to hold more than 10% of a building’s units. Lenders frequently have occupancy-rate regulations. Before issuing funding, several lenders ask that at least 90% of the units be sold.

Discrimination in mortgage lending is banned. There are actions you can take if you believe you have been discriminated against because of your race, religion, gender, marital status, use of public assistance, national origin, handicap, or age. Filing a report with the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development is one such process (HUD).

Lenders may also impose stricter loan-to-value (LTV) ratios and limitations on individuals purchasing condos. An LTV ratio compares the value of a condo to the amount owing to it. For example, if you paid 20% down on a house, your LTV would be 80%.

Section 234(c) loans are FHA-backed mortgages for condos that can last up to 30 years.

While the terms for borrowers are comparable to those for home loans, the limits on condos are numerous; for starters, the building must have more than four units.

Other Fees

There may be additional charges associated with buying a condo. Even if your HOA provides insurance, you may need to carry supplemental homeowners’ policy. Read all papers carefully to ensure that the HOA’s insurance does not shift risk to you in order to keep premiums low.

You should also be informed that you will be required to pay a monthly condominium fee. All condominium complex owners pay fees to cover ongoing maintenance and repairs to the complex’s shared amenities. Fees often pay for the upkeep of areas such as lobbies, elevators, pools, leisure rooms, parking lots, and the complex’s grounds. Some cash may be set aside to cover major repairs, such as a roof replacement or exterior painting. The cost of a condo unit varies substantially based on the size of the complex and the amenities provided.

Avoiding Problematic Condos

Researching the HOA and attending an HOA meeting are two of the most critical things you can do to protect yourself when purchasing a condo. You could also speak with the neighbors to determine if they are satisfied with how the condo is managed. Examine the bylaws to see what is covered by the HOA. You can also request minutes from recent board and member meetings, as well as information on how much the HOA dues have climbed in recent years.

Another thing to look at is the board’s lawsuit history, both for tax and general reasons. If you buy, you may discover that there are cases pending that you do not want to be a part of. Due to unpaid HOA dues, some condo organizations have been forced into bankruptcy. If they fall behind on payments, lenders may discontinue issuing financing on the units, which might have an impact on resale values.

Examine financial statements for delinquencies and reserve monies. A good organization should set aside at least 25% of its gross income for emergencies and repairs. If they run out of funds, you may be subject to an assessment. Also, keep an eye out for current property tax assessments. If the sale price of your condo is modest but the tax assessment is high, you may end up with a greater tax bill than you planned. Make certain that the taxes are proportionate to the property’s genuine value.

Apartment vs Condo

 
Ownership
CostsMaintenance
CondoUnitHOA, mortgage, taxesIn-unit
ApartmentNoneMonthly rentNone
HouseHousePropertyMortgage, taxesInterior, exterior, property
TownhouseUnitPropertyHOA, mortgage, taxesInterior, exterior, property

Condos and apartments may be thought of as interchangeable types of housing. However, there is a significant difference between the two. In essence, you rent an apartment and purchase a condo, which you may also rent.

Condos and apartments are similar, but they differ significantly in terms of who owns them, how they’re administered and governed, and the prices associated.

Ownership

An apartment building unlike a condo is often owned by a property management company. Condos are buildings or complexes that consist of independently owned units. Instead of reporting to a property manager as in an apartment, condo residents form a condo association that collects dues to cover maintenance costs for the condominium complex’s common facilities. When you rent an apartment, you must deal with the property manager to pay your rent, arrange for maintenance, and resolve any problems. When you rent a condo, you are renting directly from the person who owns that specific unit, who is also your landlord.

Rules and Responsibilities:

Apartment rules are defined by the property manager and are usually the same for every tenant. This is not often the case in a condo, where the regulations are decided by the condo association, a governing body made up of people who own units in the complex. When you rent a condo, you will be bound by these guidelines as well as any rules imposed by the owner of the unit.

Fees:

Condo owners must consider a variety of costs, including the mortgage payment, condo fees or HOA fees, and property taxes. If you’re renting, you might not notice much of a difference in price between an apartment and a condo. If you rent a condo, the composition of your payments may be slightly different. Your landlord may stipulate in your contract that you are responsible for condo association fees, or they may increase your rent to cover the cost. Check your lease before signing; you don’t want to end up with an unexpected fee every month that causes your rent to be $200 higher than intended. Similarly, the owner may cover utilities for you, or the associated fee may cover them. Read your lease agreement thoroughly to ensure you understand what you’re responsible for.

Facilities:

Both condos and apartments may offer certain community amenities. In general, what you get is determined by where you live and how much you spend living there. Whether a tenant chooses an apartment or a condo, they should inquire about what services are available to them both inside and outside of their unit. Of course, if you own the condo, you can do whatever you want as long as it doesn’t interfere with anything outside your unit. You can paint, reconstruct the kitchen, and hang as many nail holes as you wish on your walls. The amenities available to the entire community will differ. Many condo units or apartment complexes have amenities such as a gym, a pool, or extra security.

Condo owners are normally responsible for any maintenance or repairs that are required within their unit. This is true not only if they live in the unit themselves, but also if they rent it out to a tenant. All landlords are responsible for providing their tenants with safe living circumstances. An apartment owned by a major corporation, on the other hand, maybe better positioned to supply this than an individual renting out their condo unit. An apartment will most likely have a maintenance crew that is knowledgeable on how to deal with most problems and can swiftly remedy a problem, unlike a condo. There is no maintenance staff in a condo, so you must rely on the owner to get things done.

House vs Condo

Because single-family homes are often more expensive than condominiums, they are frequently acquired outside of metropolitan cores. Typically, the decision to buy a condo vs. a house is dependent on whether you want to live in a city or have greater square footage.

Ownership:

A house is a self-contained construction with no shared walls with other residential or business structures. Homeowners own both the house and the land on which it sits. The property may have a front yard, a backyard, and a garage.

Rules and responsibilities:

Homeowners are often more drawn to these types of properties due to the purchase’s autonomy. As a homeowner, you may not encounter HOA laws that limit home alterations in and out of the home.

Costs:

In general, detached single-family homes are more expensive than condos. They normally have the larger square footage, and when you buy a house, you own both the house and the land on which it sits. Consider additional costs such as yard maintenance and property taxes as a prospective home purchase.

Amenities:

In general, single-family free-standing homes do not include any additional amenities. When you own a condo, you must also pay condo association costs, which can include utilities, exterior upkeep, gyms, and pools.

Maintenance:

Because you are responsible for both the house and the lot, maintaining a home is substantially more labor than maintaining a condo. While renovations can raise the value of a house through sweat equity, it’s crucial to remember the initial time and money expenditure.

Townhouse vs. Condo

A townhouse is a cross between a condo and a single-family home. Townhomes are typically multi-story buildings with shared walls, but not above or below the unit.

Ownership:

There are two types of owners in townhomes: condominium owners and fee-simple owners. Your unit obligations are arranged similarly to condo units if you own a condominium in a townhome. Specifically, you own the inside of your unit, while HOA costs cover shared areas and the exterior. When you own a fee-simple townhome, you are responsible for both the property and the land it sits on.

Rules and responsibilities:

Because townhomes require less care, condo organizations generally have stronger rules than townhome HOAs. When you own a fee-simple townhome, you are responsible for the interior, exterior, and lot maintenance.

Costs:

Because the lot size is often larger than that of a condo, townhomes are less expensive than condos. You’ll also pay less in overall HOA fees, but you should factor in the price of the house and property care.

Amenities

Townhomes often have fewer amenities than condos, though modern townhome communities may incorporate resort-style living amenities such as pools and playgrounds.

Maintenance:

As previously said, a townhome does not have as many HOA fees as a condo, but you are responsible for more upkeep. When you buy a condo, you are solely responsible for the interior, but when you own a townhome, you must pay for the interior, roof, exterior, and property maintenance.

Factors to Consider when Purchasing a Condo

What is the distinction between an Apartment and a Condo?

Condos and apartments may appear structurally similar, but the main distinction between the two is ownership: You own a condo and rent an apartment. (However, in some limited markets, such as New York City, you can buy an apartment.)

Both types of residences often feature numerous levels with units on each, as well as shared amenities and common areas such as a gym, pool, and parking. Condo owners in some communities can also rent out their units to tenants.

What is the distinction between a condo and a house?

It’s your home, but it’s not a house if you live in a condo. That’s a crucial distinction, especially when it comes to upkeep.

Consider the following scenario: you own a detached single-family house and the roof has to be repaired. That cost would be solely on your shoulders as a homeowner. If you bought a condo, the cost would most likely be shared by other owners in the complex, with a portion of it covered by the homeowners association’s reserves.

Sharing expenditures can be beneficial, but it’s vital to remember that condo owners are frequently subject to additional laws and community limitations. There could, for example, be aesthetic standards to follow, such as a requirement to install the same windows as every other unit. Simply said, you may not have complete control over your condo decisions, whereas you will have far more leeway with a house.

Should I buy or rent a condo?

Your financial situation will be the primary deciding factor in answering this question. When buying a home, you’ll need a considerable sum of money for a down payment as well as closing expenses, according to John Ameralis, a registered real estate broker with Compass in New York City.

Renting a condo can also be a fantastic way to test out a specific building or region of town before committing to long-term ownership.

The Benefits and Drawbacks of Living in a Condo

If you’re considering about buying a condo, you should weigh the positives and drawbacks so that your selection fits your lifestyle and budget. Here are some of the most important factors to consider.

Pros

#1. Low-maintenance living:

Because the HOA handles most, if not all, exterior maintenance on condos, “condos are perfect for buyers who don’t want the higher maintenance (responsibility) of owning their own house, such as mowing their grass, mending a leaky roof, and so on,” Ameralis adds.

#2. Sense of safety:

Some condo complexes employ security guards, and the entrances are more difficult to reach from the outside than those of single-family homes or townhomes. “Many single individuals don’t like living alone, and being in a condo makes them feel safer,” Leonard explains. Depending on the building, you may have guarded entrances and parking, a doorman or concierge, and other security and safety features. This can also be advantageous if you work irregular hours or travel frequently.

#3. Possibilities for socialization:

Some HOAs organize social events such as pool parties, barbecues, and doggie playdates. Furthermore, because you see your neighbors in passing, you are more likely to meet them in person. “Because you’re close to your neighbors in a condo, it’s a terrific way to meet people,” Leonard explains.

#4. Affordability:

Because condos are often more compact and require less land than single-family homes, they might be a more cost-effective option to own property. Property taxes are typically reduced as well. Condos are perfect starter houses for some first-time purchasers because they don’t require the upkeep and maintenance of a detached home while still providing the benefits of ownership and developing equity.

#5. Amenities:

Depending on the condo community, you may have access to first-rate amenities such as a grilling area, a business center, a pool, a dog park, covered parking, a clubhouse, and more, and the cost of these advantages are shared by all members.

Cons

#1. HOA Restrictions:

One of the most common complaints about living in a condo community is that the HOA rules can be restrictive, dictating everything from trash pickup and noise levels to what types of objects can be stored on your patio and how many pets you can have. “[Read] the covenants and bylaws before buying a condo to ensure the restrictions won’t be a problem for you and your lifestyle,” Leonard recommends, noting that violating HOA rules might result in fines.

#2. Investment risk:

“Because you share ownership with other people in the building, condos can be a riskier investment,” Leonard explains. “Because you’re in the same complex, if one person forecloses or short-sells their condo, it might have an impact on your value.”

#3. Lack of privacy:

Because condos share common areas such as the lobby, corridors, outside patios, and facilities, Ameralis advises that if you value your privacy, a condo may not be for you. There are also noise difficulties in the shared space. For example, if your upstairs neighbor gets out of bed early for work, his or her footsteps may jolt you out of bed as well. If you prefer more privacy or frequently entertain, a townhouse may be a better alternative.

#4. Minimal outdoor area:

Because condos often optimize real estate by building up, there is generally limited outdoor or green space. “If you need to park work vehicles at home or if you need a lot of outside area for work or pleasure, a condo may not be for you,” Leonard says.

#5. Rising HOA fees:

HOA fees often increase over time to cover maintenance costs and any additional features. HOA fees should be factored into your homebuying budget, especially in increasingly expensive housing markets. Keep in mind that condo associations have the authority to levy special charges on all homeowners in order to cover unexpected expenses or to provide additional amenities.

#6. Restrictive rental policies:

When you buy into a shared building, you agree to follow the rules, which may limit the number of units that can be rented at any particular time. “Many condominiums do not allow owners to rent out their units after they purchase, so if you’re looking for an investment property, make sure to verify the rental restrictions,” Leonard explains.

Other types of housing:

House type
Who it’s right for:
ApartmentApartments are suited for anyone looking to stay in a prime location for a cheaper price near shopping, restaurant, and entertainment centers, often at a more affordable cost than buying a condo or single-family home.
TownhouseTownhouses are a particularly good option for first-time homebuyers or other budget-minded homebuyers who want more space than typically afforded in a condo.
Modular homeModular homes are enticing to empty-nesters looking to downsize, couples looking for backyard units like tiny homes, or families looking to upgrade their dated properties in nice but expensive neighborhoods.
Single-family homeSingle-family homes are best for families who prefer a huge yard and plenty of room to spread out. Others still prefer a low-maintenance condo or townhome that includes benefits like landscaping, snow removal, and exterior maintenance.
Multi-family homeMulti-family homes are best for those who are interested in getting into real estate investing and are comfortable with the added responsibility and time commitment that comes with being a landlord.
Bungalow homeAt between 1,000 and 2,000 square feet, bungalows are a great option for young families looking for a starter home or retirees hoping to downsize in a home without stairs, or single homeowners who want the single-family home lifestyle without managing a huge property.
Co-opCo-ops are most often found in major cities, and they can be good for those looking for security or neighbors who largely adhere to the building’s rules and policies.
Patio homeTypically capped at one-and-a-half stories and part of a larger association, patio homes are best for homeowners who don’t want to deal with stairs or maintenance.
Ranch homeRanch homes are ideal for anyone who prefers single-story living. Singles, couples, and families with children can find something to love about a ranch home. 

Conclusion

A condominium, often known as a condo, is a privately owned residential unit in a complex or building of similar units. Condo owners own their units, but they share common areas, amenities, and other resources. They pay condo fees, which cover maintenance costs, amenities, and common-area care. Condo owners will be assessed a special assessment if extensive repairs are required and condo association fees are insufficient to cover the costs. Despite the additional costs, owning a condo is often less expensive than owning a house. There are benefits and drawbacks to owning a condo. As a result, before making a buying decision, it is critical to understand the repercussions.

Condo FAQ’s

What is the difference between apartment and condo?

The most significant distinction between a condo and an apartment is ownership. An apartment is a rented residence that is often part of a larger residential building. A condo is comparable to an apartment in structure — usually a unit within a larger residential building — but condos are owned rather than rented.

Is a condo a house?

It’s your home, but it’s not a house if you live in a condo. That’s a crucial distinction, especially when it comes to upkeep. Consider the following scenario: you own a detached single-family house and the roof has to be repaired.

How much does a condo cost per month?

The average monthly condo fee is around $100 to $700, but this can vary greatly depending on what amenities are included. Condo costs can be several thousand dollars per month if the condo complex contains high-end common amenities such as a swimming pool, gym, and spa.

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