Should you buy a condo? Ask the pros and many will say yes. That’s because a condo offers the layout and livability of a single-family home with the low-maintenance lifestyle of an apartment.
That means you don’t have to worry about hassles like mowing, snow removal or replacing the roof. What’s more, the building may offer amenities like an on-site fitness center or pool. Other perks can include a doorman, clubhouse or concierge service.Find rates and terms for condominium loans (Aug 14th, 2020)
But condos aren’t for everyone. There are some drawbacks and risks involved. You need to investigate carefully before buying a condo. It pays to shop at various price points and consider different neighborhoods, too.
Condo rules can govern the pets you have, how you do your laundry, your garden, even when and where you wash your car.
Curious what the top financial gurus think about condos? Read on for insights.
Dave Ramsey’s advice
Dave Ramsey, national best-selling author and radio host, had this to say on his radio program:
“I own a couple of condos, and they’re fine,” he said. But “if you’re going to buy a $100,000 condo or a $100,000 house in the same neighborhood, on average, the single-family house is probably going to go up more in value.”
Ramsey says there are two big areas to consider before buying a condo. One is the condition of the neighborhood. The other is how well the condo association is managed. A poorly-maintained property is a red flag. So is a large ratio of rentals versus owner-occupied units. Both of these problems can prevent the complex from getting financing.
“If they can’t get FHA, VA or conventional financing, the values are going to drop like a rock. Because you’ve only got cash buyers and investment buyers at that point.”
Ask questions of the management company and/or Realtor involved.
“What are the reserves for the roof? What are the reserves for paint and the parking lot? Are they collecting enough to pay their bills? Are they actually paying their bills?”
If you buy your condo with a mainstream mortgage, the lender will investigate many of these issues, because it wants to minimize your default risk. But ask yourself questions, too.
“Would I want to live in here and have my wife and children here? Would a normal, reasonable person want to live here? If the answers are yes, then you’ve probably got a good, solid condo complex and it’s fine to do.”
Suze Orman’s advice
Personal finance expert Suze Orman was asked: Should you buy a condo instead of a house? In an Oprah.com column from a few years back, she wrote:
“If you’re set on owning, know that a condo’s lower price doesn’t necessarily mean lower risk,” she said. “Ask your agent for data on how local condo values have fared compared with single-family homes in recent years.”
Orman suggests meeting certain criteria before buying. One is being able to afford the HOA fees. Another is that at least 90 percent of the units must be owner-occupied. A minimum of 10 percent of the HOA’s annual budget should be put into a reserve fund. The yearly increase in the monthly maintenance fee should not have risen above the general rate of inflation (3 percent) in recent years, either.
Also, only buy a condo if “97 percent of the development’s residents are current with their monthly payments. Remember, it’s the other owners who must make up the shortfall when some owners fall behind.”
The building’s major mechanicals and roof should be newer as well. “If a development requires big upgrades, you could face a costly ‘special assessment’ charge after moving in,” she warns.
Lastly, Orman suggests talking to a few owners in the complex. “They can be your most valuable resource for learning about the development’s pros and cons.”Verify your new rate (Aug 14th, 2020)
Scott McGillivray’s advice
Should you buy a condo? HGTV Income Property host Scott McGillivray was interviewed about this for a blog.
“A condo is a very different purchase, obviously. A condo is a lifestyle. Typically you are in amongst many people. You’ve got workout facilities or shared accommodations, but you also have condo fees, which can get out of control.”
Still, he believes that condos make for great starter homes. And you can often purchase them for less than a comparably-sized detached home.
“Typically I say a condo is a good first step. A house is a good second step.”
One caveat? “Be aware if it’s pre-construction you’re getting into. The difference between possession date and ownership date. There’s a cost in there – phantom rent to the condo corporation.”
Sandra Rinomato’s advice
Canadian real estate pro and TV host Sandra Rinomato chimed in on this topic for an HGTV column:
“Brand-new condos tend to be smaller, sometimes no larger than one bedroom. While older units typically have more square footage.”
She said you have to brace yourself for maintenance fee sticker shock.
“You can’t negotiate maintenance fees with a condo, and those fees tend to go up periodically.”
The ratio of owners versus renters in the building is a big deal.
“You don’t necessarily want to buy in a building that has a high percentage of tenants because they don’t take care of the property the way they would if they owned.”
Lastly, prepare to forfeit some comforts or savings if you desire a hip urban location.
“If you’re going to live in a city, you often have to sacrifice space.”
Clark Howard’s advice
Consumer expert and host of his self-titled show, Clark Howard likes condos. For proof, consider his first real estate buy: It was a foreclosure condo bought 41 years ago.
“I still own it and it’s been a very profitable rental property for me over time,” he said on his website.
But should you buy a condo in today’s market? Recently, Howard has soured a bit on this type of home.
“In general, the condo market is fraught with a lot of dangers,” he said. These include “problems with people not paying their association dues and the direct impact that a foreclosure can have on every owner in a condo development vs. a single family home neighborhood.”
He believes the condo market is in high-risk, high-reward mode lately.
“Know that you could buy and not be able to sell for a long time. That’s the danger, even if you’re a cash buyer.”
Should you buy a condo, plan to keep it for the long haul.
“If you do buy, know that you’ll have to hold the property for at least 10 years.”
Do your homework
Should you buy a condo? That depends. Condos are a different type of property than detached homes. They have their pluses and minuses. But so long as you complete your due diligence, you shouldn’t regret a condo purchase.
Gather the facts and consult with experts of your own. These include your trusted real estate agent, chosen lender, and property attorney. Talk to residents in the building, too. And determine your life goals. A condo could be your perfect home for the foreseeable future.Verify your new rate (Aug 14th, 2020)