Author Topic: Does owning a condo make sense?  (Read 7870 times)

MgoSam

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Does owning a condo make sense?
« on: May 13, 2014, 07:58:34 AM »
I am going to be moving out of my parents place and in with a friend of mine in a few weeks. I'm renting a bedroom, a garage, and use of the common areas of his condo for $500 a month. The area is ok, it's safe but nothing exceptional. I'm doing this as I haven't truly lived on my own and would rather do this for a few months (lease is for 3 months and then month-to-month) and see about finding my own place. I want to see if a condo is worthwhile to live in.

Does anyone here live in a condo? Pro/Con?

For me the con of course would be any restrictions on what you can do with it, that you are sharing a wall, and associate fee/assessments. The benefits is that I could buy a place at far better location and most of the maintenance  will be provided for by the association fee.

What do you all think?
« Last Edit: May 13, 2014, 08:00:50 AM by MgoSam »

Rebecca Stapler

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Re: Does owning a condo make sense?
« Reply #1 on: May 13, 2014, 09:32:23 AM »
This may be different in other areas, but condo values in my region were the first to plummet in the recession, and still haven't recovered.

I have looked at a lot of condos on the market now, and it seems like the monthly fees are just too high to even justify the purchase because the fees are in addition to property taxes and utilities.

To me, buying a condo never seems worth it because we can do lawn maintenance ourselves and we're OK with DIYing repairs or calling someone to fix them.

Another Reader

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Re: Does owning a condo make sense?
« Reply #2 on: May 13, 2014, 09:37:31 AM »
Why don't you try the condo life for a few months while you live with your friend?  That will give you an idea if it is suitable for you.


CarDude

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Re: Does owning a condo make sense?
« Reply #3 on: May 13, 2014, 09:37:59 AM »
I personally don't think condos are worth it unless you plan to live in them after you're married and with children, if you plan on having those someday, or else you're just setting yourself up for a condo sale and home purchase in a few years. I base this on how many single people (usually in their 20s or 30s) tend to buy condos, then promptly try to sell them as soon as they find someone they want to marry and start a family with. To me, it makes more sense to just skip the condo step and instead rent or buy a real house.

Now if you're single and are sure you'll stay that way, that's a different story. But for most people, condos seem like an attempt to make money or assert independence by buying an apartment. At the end of the day, it's still an apartment, and most people (in the US) don't want to live in an apartment forever.

desrever

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Re: Does owning a condo make sense?
« Reply #4 on: May 13, 2014, 11:52:13 AM »
Certainly there exists a price at which it makes sense to buy a condo, and for the same condo, there exists a price at which it does not make sense.

For myself, I would never be willing to purchase a condo if the HOA placed any restrictions on letting you rent your unit out -- something that I've seen happen to two different friends, when they decided to move out of their condo earlier than they thought, had no luck selling, and were prevented from converting to a rental because of some cap on the number of rental units in the community. If you can't rent it out, do you really own it?

That constraint aside, a dominant hidden cost to real estate in the US can be the 6% commission that is charged when a unit is sold. The longer you hold onto your place, the more years you get to amortize this cost across, so effectively the cheaper it becomes. This commission roughly works out to a years worth of ownership costs, so if you sold your condo after two years, the commission would be a third of your total cost of ownership. That's huge. You would have been better off paying someone else to own the property for you -- i.e., renting.

The effect of these high transaction costs shapes a rule of thumb where a five year or longer horizon is required to make ownership cheaper than renting. Swings in the housing market kind of cancel out, because all properties are owned by someone, and landlords costs of ownership are ultimately reflected in rents (modulo rent control and property tax schemes other than assess-to-market). If you do decide to own and then your 5+ year horizon is cut short, you really want to have all options open to you, including converting your unit into a rental.

gimp

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Re: Does owning a condo make sense?
« Reply #5 on: May 13, 2014, 01:29:04 PM »
HOAs are killer for me. If it's insanely cheap, then maybe it's worth buying a condo; otherwise, no. Bullshit restrictions imposed by people with nothing better to do, and large fees to boot.

Cromacster

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Re: Does owning a condo make sense?
« Reply #6 on: May 13, 2014, 01:36:15 PM »
HOA's and shared walls are a killer for me.  I am just not a fan of HOA's or anything they provide.  The way I look at it, do they provide anything that I am willing to pay for if I didn't have an HOA? (ie lawncare, snow removal, basic maintenance)  If you answer yes, then maybe you are alright with an HOA.  Also, take note of the rental stipulations as mentioned above.

While I've had mostly positive experiences living with shared wall, noise from neighbors tends to distract me quite a bit.  I don't get annoyed, it's more of a curiosity about what they are doing.

Just sharing my process of a few reasons to why I bought a house...

ShortInSeattle

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Re: Does owning a condo make sense?
« Reply #7 on: May 13, 2014, 02:02:31 PM »
We've been in a condo for 3 years.

Pros: Awesome building, totally maintenance free from the walls outward, (they even come in to change our air filters 2x year), always someone to sign for packages, great amenities (gym, rooftop deck, theater room, gas BBQs, bike storage), strong board of directors comprised of former CFO/Attorney types that run a tight ship, well funded reserve fund, common areas stay clean and up to date without us needing to do anything, great location in a walkable city. Quiet and polite neighbors, lots of retirees. Small space makes for low electricity bills.

Our "restrictions" are very minor. No loud parties after 10pm, and you can't paint your exterior door a unique color. Nothing that has been a problem.

We purchased our place at a big discount during the housing crash, so we've seen about 20% appreciation in three years.

Cons:

$$ Our HOA fees are *very* high. ($700/mo) When we pay off our mortgage we'll still have monthly costs - and need to build that into our budget. All those amenities cost $$. When you factor in our old housing expenses (roof replacement, paint, repairs, yard equipment) and the included things (gym, gas heat, building maintenance, internet, insurance) it sounds a bit less nuts, but it is still a significant expense.

Limits to optimization.  Our heating and internet and insurance costs are pooled. We can be responsible (and we are), but when your neighbors run A/C all summer everyone pays a bit more.

Quality of People-Risk: We're lucky in that we have a great set of neighbors and a really experienced board. They are proactive and frugal and good communicators. Lots of retired executives in our building, I think. People here really value our building and want it to stay a great place to live, and keep property values up. If our neighbors or board were full of asshats, it would be a very different experience.

I think a good condo is about finding a building you love, in a place that is likely to continue to have strong housing demand, and research the hell out of the board of directors. Even attend a meeting if you can. Ask about what kind of preventative maintenance is done and get a list of pending and prior assessments.

Hope this helps.

BlueHouse

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Re: Does owning a condo make sense?
« Reply #8 on: May 13, 2014, 02:11:16 PM »
HOAs are killer for me. If it's insanely cheap, then maybe it's worth buying a condo; otherwise, no. Bullshit restrictions imposed by people with nothing better to do, and large fees to boot.
+1

Unless you're willing to get elected to the board, you have no control over the decisions they make.  And no one else really seems to care.  The board and the fees are what's driving me to want to sell as soon as prices recover. 

Thegoblinchief

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Re: Does owning a condo make sense?
« Reply #9 on: May 13, 2014, 02:22:24 PM »
Condos always seem harder to sell than a house.

Even if it's a "hot" building, it probably won't be when you sell, the way projects go up in a lot of cities.

If you want the amenities experience, find an equivalent style apartment complex.

jfer_rose

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Re: Does owning a condo make sense?
« Reply #10 on: May 13, 2014, 02:37:51 PM »
I'm team condo. I technically live in a co-op. If anything it's the same as a condo but a tad more restrictive. In my high-COL area, it just makes so much sense. There simply are not houses that I could afford in areas where I want to live. Period.

I'm also small-space living evangelist. Turns out that I'm actually passionate about living in a small space and feel great about not using resources unnecessarily.

Interesting aside, I took a Real Estate Finance class in grad school. The professor taught us that in our culture, buying tends to be more expensive than renting. But he said it doesn't have to be that way. His reasoning was that people tend to buy more than they need at the moment in time that they buy. So, the single 20-something buys a big home in hopes of having a family down the line. But for however many years that 20-something stays single, they are paying increased costs. I bought my place 10 years ago and I took out a 5-year adjustable rate mortgage at the time figuring that for sure I would want to live in a bigger place by the time the interest rate adjusted. But I'm still single, loving my tiny place more than ever. And because I don't have more home than I need in this phase of my life, I am able to save 70% or more of my income.

I do think others are giving good advice in terms of giving some thought to the real estate market in your area and whether condos make as much sense in your area as they do in mine.

kmm

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Re: Does owning a condo make sense?
« Reply #11 on: May 13, 2014, 02:38:36 PM »
A condo was my first home, and I still own it as an investment property. In my HCOL Northeast city, condos are popular and hold their values very well. Rents are very high in our city so my condo turns a good profit.

My association has pretty minor restrictions and they are ones I support: no smoking in common areas, no personal stuff left in the hallway, keep the noise down after 10 PM. Common courtesy stuff.

As a single parent with a demanding job and minimal DIY skills, I liked living there because of the low maintenance. I find ownership of a single family to be much more time-consuming and stressful, and even though I love my house I often think wistfully of my condo. Especially when we get two feet of snow and I'm the one who has to shovel it.

SDREMNGR

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Re: Does owning a condo make sense?
« Reply #12 on: May 13, 2014, 02:53:42 PM »
People's personal choices of things they like or don't aren't relevant, I think.  I've lived in apartments, condos, and houses, and it's all personal preference.  The noises and neighbor issues with a shared wall, are somewhat mitigated with a house, but not completely.  I have a house with one neighbor that's got a yappy dog that never shuts up and I can hear it as well as anyone within 1 mile radius and the other neighbor is a very large lady who walks around the neighborhood in her nighty and scares anyone with useable sight.  So if you have good neighbors in a condo, then it's better than bad neighbors in a house.  In both cases, you can sort of try to figure it out before you buy. 

As for what is a better investment, it's also on a case by case basis.  I've seen homes go down in price just as much, and it depends on the market.  The bigger issue is the area that you want to live in and affordability.  If it's a personal residence, I think location is more important than just the investment criteria.  And when it's time to move out, and the market is not a seller's market, I'd say just rent it out until you can sell it in a good market.

ZiziPB

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Re: Does owning a condo make sense?
« Reply #13 on: May 13, 2014, 03:03:14 PM »
Single person here and really enjoying my condo (a townhouse).  I owned a house in the past but doing yardwork turned out to be an unpleasant chore due to severe outdoor allergies.  Plus, it is expensive if you don't want to stick out like a sore thumb in your neighborhood with a brown lawn and need to keep your lawn watered, weed free and mowed...  The reasonable condo fee that I pay now is well worth it in my mind.

LAL

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Re: Does owning a condo make sense?
« Reply #14 on: May 14, 2014, 07:07:14 AM »
Townhouse owner here for 9 years and condo owner 3 years previously.  Living in HCOLA can't afford a SFH.  It is what it is. There is a time and place for everything.   Depends on where you live?

nataelj

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Re: Does owning a condo make sense?
« Reply #15 on: May 14, 2014, 07:17:27 AM »
Lots of answers here but I feel like maybe some questions are in order. Are you buying this to live in and then sell, live in and then rent out, or just to rent out? It could make a big difference.

I'm in the process of trying to buy the condo I'm renting now with the idea that I'd fix it up and rent it out. It's below market, since it's older and needs upgrading, so I can do some upgrades myself and then rent it out a few years down the road when I move. It's in a good location so it should hold rental value well. All those details are specific to my situation though and could be very different in yours, details to share?

Iron Mike Sharpe

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Re: Does owning a condo make sense?
« Reply #16 on: May 14, 2014, 07:35:13 AM »
Have owned a townhouse for a little over a year.  I'm single, no kids.  Love it. 

For my price range, I would have been able to afford a piece of shit house.  But, now I have a gorgeous 1200 sf townhouse (under 10 years old).  I'm an end unit, so I only share one wall. 

My HOA fees are relatively cheap at $105/month.  For that we get landscaping, snow removal, trash service and outside maintenance like painting.  No clubhouse or pool which I'd rarely use.

rmendpara

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Re: Does owning a condo make sense?
« Reply #17 on: May 14, 2014, 07:44:48 AM »
It depends. In general, they are more expensive relative to what you get. They tend to be in denser urban areas, or built as high rise buildings, which some people are willing to pay a premium for (unfortunate for us frugal folks :/).

I had a good experience, but that was more because of the good price I got in 2012. Today, the same condo would not be such a clear bargain (bought at $95k, and a conservative value is probably $120k today... Zillow says $147k).

I used to live in it, and it was a great deal then, but now that I had to move I am renting it out. Yield is decent for a ~100k property ($1,200 rent - 450 HOA - 125 tax - 25 ins = +600 cash flow per month). This excludes a property manager I will likely hire in the future (probably another $100/mo), and right now the condo is paid off. I am charging slightly below market rent as I had to move quickly and found some friends/acquaintances who were able to move in quickly (no agent involved).

In the future, I'd like to target $1,400 for rent, which would normalize my yield a bit. Regardless, it's a relatively small real estate investment, and the rent is eaten up by HOA/taxes... however, I have next to zero maintenance in the event a tenant leaves and the property is vacant (just have to keep paying fees).

As long as the headache is small, and the unit remains in good repair, I do plan to keep it. I think 2-5 years will be reasonable for the housing market to normalize a bit, maybe rise some (though likely not much), and to collect the cash flows along the way.

Short answer: Yes, for the right price (obviously). As just an investment... you have to be careful since condos have annoying HOA's.

mnstachian

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Re: Does owning a condo make sense?
« Reply #18 on: May 14, 2014, 07:57:51 AM »
I live in a small (6 unit) hundred year old brownstone condo in a mixed residential urban area. It works for me. I walk everywhere. Maintenance is a bit higher than it would be if I was paying my own way in a house, but I travel a lot for work and it gives me great peace of mind that my neighbors are around while I'm gone. We've also set up our association to pay us back at the end of the year if we don't spend all of our fees. With a small building, it's easy to negotiate spending. If one of us wanted to mow the lawn in exchange for a reduction in fees, I don't think that any of us would have a problem with it. So, I guess I'm recommending that you think about your lifestyle. No one can answer for you; it's really a YMMV situation.
« Last Edit: May 14, 2014, 08:01:06 AM by mnstachian »

BFGirl

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Re: Does owning a condo make sense?
« Reply #19 on: May 14, 2014, 08:49:23 AM »
I just bought a new townhouse in a master planned community that is an end unit, so only one shared wall.  I absolutely love it.   I don't have to take care of landscaping or mow a lawn.  I have a patio for some outdoor space and even have a sidewalk from my patio on which I am growing herbs and veggies in earthboxes.  The taxes are high, but I think the HOA fees are worth it because the subdivision will have 5 pools, has lakes, wetlands and biking/walking trails and they are responsible for the roof and outside of the unit.  It will eventually have retail in the front part so that I will be able to walk to grocery stores.  This may be uncommon, but our HOA is currently commercially managed and they plan a lot of things for the residents like wine tastings, movies in the park, and lots of other things.  (I got a free manicure/pedicure for mother's day from the HOA). 

MgoSam

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Re: Does owning a condo make sense?
« Reply #20 on: May 14, 2014, 06:16:09 PM »
Thanks so much for your comments and advice. I am hoping that my upcoming move works out for me, the thing I like is that worst case it is 3 months and I do have alternatives should this not pan out. The way I am looking at it is

a. 3 months rent @$500/month with month-to-month lease after that
b. Option of moving back home should I desire to after 3 months, any month after
c. Rent another place
d. Buy a house or condo

In short, this is an opportunity for me to live outside my home. I still don't know what exactly I want, which has made looking for anything long-term difficult, but at the least with this lease I can tread water.

zurich78

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Re: Does owning a condo make sense?
« Reply #21 on: May 14, 2014, 06:56:39 PM »
I live in Orange County, Southern California in an area where it is more common to have an HOA than not have one.  However, I chose to buy in an area that does not have a monthly HOA due. 

The main reason I did this is because for the same amount of money, you can get more house in a non-HOA scenario.  So if you have a condo that is $1000/mo and it comes with a $200 HOA, then you still need to borrow enough money to afford $1,200/month.  But in the non-HOA scenario, you can use all of that mortgage payment towards the actual house.

Oh, and HOA dues aren't deductible come tax time either.

clarkfan1979

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Re: Does owning a condo make sense?
« Reply #22 on: May 14, 2014, 07:13:19 PM »
I would live in the friend's condo for $500/month. Sounds like fun. However, I wouldn't recommend buying a condo as an investment.

MgoSam

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Re: Does owning a condo make sense?
« Reply #23 on: May 14, 2014, 08:08:32 PM »
get more house in a non-HOA scenario.  So if you have a condo that is $1000/mo and it comes with a $200 HOA, then you still need to borrow enough money to afford $1,200/month.  But in the non-HOA scenario, you can use all of that mortgage payment towards the actual house.

Oh, and HOA dues aren't deductible come tax time either.

But wouldn't the HOA fees cover routine maintenence and other expenses that would otherwise cost you in either money or time? I realize that pay ___/month in HOA is money that is gone, but I'm also interested in seeing how much difference the cost would be if I were to do the work on my own. If I do get a condo, I'm not going to buy a condo in a place with a nice pool as I know that I wouldn't use it, and part of my fees would go towards it.

Hugh H

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Re: Does owning a condo make sense?
« Reply #24 on: May 14, 2014, 08:18:55 PM »
HOAs / condo fees are tax deductible when renting the unit out.

SJS

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Re: Does owning a condo make sense?
« Reply #25 on: May 14, 2014, 08:36:12 PM »
If you buy a condo - get on the board so you  have some input/say in the HOA fees!  Those can skyrocket and you really can't do anything about it - you're stuck having to pay whatever it is.  Then try to sell a condo with high HOA fees.  Are you paying for things you won't use (pool, exercise room, etc.)? 
 You are still responsible for anything inside the condo that goes bad (plumbing, wiring, etc.). 

Why not find a house and pay someone to take care of the yard.  Find a good handyman to call when you need him - or better yet, learn to do some of the minor repairs yourself? 

Personally, I'd go for buying a house, or renting something at an affordable price until you can afford to buy a house. 

Final decision is yours!  Good luck!