3 negative things to know before buying a condo

  • The high costs of owning a condo can be overwhelming; at least the initial purchase price might appear reasonable 
  • Monthly maintenance fees and other hidden expenses can quickly add up
  • Special assessments can be imposed by the condo association for unexpected repairs or improvements

Condo units may seem attractive with their luxurious amenities and convenient locations. Still, there are some serious drawbacks that you need to consider before making such a big financial commitment.

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George Nicola

George is a seasoned interior designer and property marketing strategist with over 13 years of experience. He specializes in transforming properties into visually stunning spaces, helping clients recognize the potential and beauty in each property. With an impressive international client base of exciting projects throughout Europe and America.

I’ve been researching condo living lately, and I have to say buying a condo might not be the best idea.

Condo units may seem attractive with their luxurious amenities and convenient locations. Still, there are some serious drawbacks that you need to consider before making such a big financial commitment.

It’s like a never-ending financial burden that can strain your budget.

But not just the financial aspect makes buying a condo a bad idea. Lack of control is another major issue to consider. When you own a condo, you’re subject to the rules and regulations the condo association sets.

From restrictions on pets and noise levels to limitations on renovations and decor choices, you might feel like living in a glorified apartment complex.

It’s like your freedom to decide about your property is taken away, and that loss of control can be frustrating and unsettling.

This article is for informational purposes only and should not be considered a substitute for professional legal or financial advice. Please use caution when relying on our experiences.

Is it a good or bad idea to buy a condo now?

buying a condo vs house
buying a condo vs house

Buying a unit in a condominium involves a comprehensive analysis of various factors.

Here’s a quick overview of key points to help guide your decision:

Pros and Cons of Buying

Pros of buying a condo: Condos typically require less upkeep than single-family homes and offer access to amenities like pools and gyms. They can also provide a sense of community.

Cons of buying a condo: Condos ownership comes with association fees and potential special assessments, which contribute to the reserve fund for major repairs. Rules contained within the bylaws might limit your freedom in terms of renovations or even pet ownership.

Guidance from Real Estate Professionals

A real estate agent well-versed in condominium can provide indispensable guidance. They can help evaluate the pros and cons, review the bylaws, and even provide insights on the health of the reserve fund.

Financial Considerations

Obtaining a loan for a condo can be more challenging than for single-family homes, especially with the Federal Housing Administration (FHA) since they have specific requirements condos must meet to be eligible.

Potential as a Rental Property

Remember to check the bylaws if you’re considering using the condo as a rental property. Some condo communities limit or even prohibit rentals.

Risks

Be certain about your ability to pay your condo fees, as failure to pay can lead to severe consequences. Condos generally appreciate at a slower rate than single-family homes. Banks may hesitate to finance condos because they are considered riskier investments than single-family homes.

Condos may not appreciate in value as quickly as single-family homes because, almost always, what’s appreciating is the land, not the building.

This can be especially important for first-time homebuyers looking at their purchase for investment potential.

What are the key factors affecting the cost of condominiums?

to rent or buy a condo
to rent or buy a condo

The cost of a condominium in the US depends on various factors such as location, size, amenities, and local housing markets. Here’s an informative breakdown of what to expect when purchasing a condo:

1. Sales Price

  • The average sales price of condos in the US: $266,300 (2020)

2. Building Costs

  • The average cost to build a condominium building: $1.5 million to $4.5 million
  • The typical cost for a mid-range 20-unit building: $3 million

3. Single Condo Unit

  • The average cost to purchase a single condo unit: $303,000
  • Condo prices vary by region

4. Condo Fees

  • Condo fees: $100 to $700 per month, depending on amenities

5. Price Ranges by Location

  • Low-end prices: $140,000 in Ohio
  • High-end prices: Over $1 million in California
  • Nationwide average price (November 2022): $370,700

6. Fee Variations

  • Complexes with higher fees: $100 to $1000 per month or annually

7. Factors Affecting Cost

  • Location
  • Size
  • Amenities
  • Age of building
  • Local housing market

Consider these factors when considering purchasing a condo, as the cost can vary significantly depending on your priorities and the specific unit you choose.

Condominium mortgage

buy and rent out the condo as an investment
buy and rent out the condo as an investment

Getting a mortgage for a condo can be a bit different compared to landing a standard home loan.

Due to the unique nature of condo ownership, which involves shared common property and individual units.

Factors to consider include complex-specific issues, reserve funds, management, condo board rules, comparative market analysis, local market factors, income potential, property balance, and financing options.

All these aspects are critical in making informed decisions and clearly understanding the responsibilities and advantages of owning a condominium unit.

Differences in Condo Mortgages

Condo mortgage rates tend to be higher, and the requirements can be more stringent.

A significant distinction is that lenders will scrutinize your financial health, assess the condo association’s health, and how the condo project is run.

Costs and Qualifying Criteria

Extra costs could be associated with condo mortgages, not evident in standard home loans. Remember that you and the homeowners’ association must qualify for the mortgage.

Do research, for example in some states, particularly Florida and Nevada, lenders could levy higher rates for condo mortgages.

Loan Options

Despite these differences, you’ll have access to the same types of loans available to single-family homebuyers, such as conventional, FHA, VA, and USDA loans.

Conventional Loan Requirements

Conventional loans can offer financing for condos with as little as 3% down with a minimum 620 credit score.

They also come with cancelable private mortgage insurance (PMI), so you’re not tied to a 20% down payment.

These loans utilize guidelines from government entities like Fannie Mae and Freddie Mac, which means your condo must be warrantable or eligible under these guidelines.

Condo Association Health

An important aspect of obtaining a condo mortgage involves thoroughly evaluating the condo association’s financial health.

This evaluation looks at how the condo project is owned, managed, and the number of units purchased, which can impact the mortgage loan options available.

Five cons of buying a condo for first-time

Should seniors buy a condo?
Should seniors buy a condo?

When buying a condo unit, one must know the lack of features that can impact property values.

It is equally important to consider potential environmental hazards to make an informed decision when investing in real estate.

High costs

Key Takeaway: Buying a condo can be costly, with expenses beyond just the purchase price. One of the main cons of condo life is its high costs.

The condo development fees are used for common area maintenance, repairs, and improvements. These fees can vary greatly depending on the size and location of the condo, but they can quickly add up to hundreds or even thousands of dollars per month.

Condo owners are responsible for paying homeowner association (HOA) or condo fees, which cover the cost of shared utilities, insurance, and other community amenities. These fees can further increase the financial burden of owning a condo.

Another aspect to consider is the potential for a condo to be a rental property. While this may seem like a way to offset some of the costs, it comes with its own set of challenges.

Many condos have restrictions on renting out units, either through rental caps or specific policies. This can limit the ability to generate rental income and make it difficult to recoup the investment.

Being a landlord comes with its responsibilities and potential headaches, such as dealing with tenants, maintenance issues, and legal obligations.

Obtaining a condo mortgage may be more challenging than getting a traditional home loan. Lenders often have stricter requirements for condo mortgages, including higher down payment percentages and more thorough property inspections.

This can make it harder for potential buyers to secure financing for a condo purchase. Furthermore, the resale value of a condo may not appreciate as much as that of a single-family home, making it a less attractive investment option in the long run.

Lack of control

Key Takeaway: When you don’t have control over your living space, unforeseen limitations can arise, hindering your ability to make it your own. This lack of control is one of the major downsides of buying a condo.

Unlike owning a single-family home, where you have complete control over your property, living in a condo community means you must abide by the condo association rules.

These rules can dictate everything from what color you can paint your front door to whether or not you can have pets.

This lack of autonomy can frustrate those who value their independence and want full control over their home.

Living in a condo means that you are part of a larger community, and decisions about the building or complex are made collectively by the condo association. While this can be beneficial in some ways, such as shared maintenance costs, it also means that you have limited control over the decisions that affect your home.

For example, if the condo association decides to raise monthly fees or implement new rules, you must abide by them even if you disagree.

This lack of control over the decisions that affect your living space can leave you feeling frustrated and powerless.

When you own a condo, the association takes care of certain aspects of your home, such as maintenance and repairs.

While this may sound appealing, it also means that you have less control over the quality and timing of these services.

If you prefer to handle maintenance tasks or have specific preferences for repairs, living in a condo may not be the best option.

This lack of control over the upkeep of your home can be a source of frustration and make it difficult for you to make your living space your truth.

Condo Resale challenges

Key Takeaway: When you decide to re-sale your condo, this can present significant challenges, making it difficult to find a buyer who truly appreciates the value of your investment.

When it comes to condos for investment, the real estate market can be unpredictable, and condo communities often have restrictions and regulations that can limit your options when it comes to selling. Another major downside of buying a condo.

Unlike traditional single-family homes, condos are a form of shared ownership, which means that potential buyers need to consider not only the unit itself but also the overall condition of the entire building and the financial health of the homeowners association.

In addition to these factors, the competition in the condo market can be fierce.

With increasing numbers of investors looking to purchase rental properties, the resale market can quickly become saturated, making it challenging to stand out.

This can lead to longer listing periods and potentially lower selling prices, ultimately affecting the return on investment you had initially anticipated.

Re-sale challenges can also arise from the restrictions imposed by condo communities. These communities often have rules and regulations that govern everything from pet ownership to exterior modifications.

While these guidelines can help maintain the overall aesthetic and functionality of the building, they can also deter potential buyers who may not want to abide by such restrictions.

This limited pool of buyers can further complicate the resale process and potentially prolong the time it takes to find a suitable buyer.

When considering a condo for investment, it’s crucial to know potential potential resale challenges.

The unpredictable nature of the real estate market, combined with the restrictions imposed by condo communities, can make it challenging to find a buyer who appreciates the value of your investment.

It’s important to carefully assess these factors and consider alternatives before deciding whether buying a condo is right for your real estate investment goals.

Limited Appreciation

Key Takeaway: Despite the potential challenges, limited appreciation is another aspect to consider when investing in a condo.

While a condo may seem like a great investment opportunity, carefully evaluating the potential for appreciation over time is essential.

Unlike other types of investment properties, condos generally have limited appreciation potential.

This is due to various factors such as the shared ownership of common areas, limited control over property modifications, and the overall market demand for condos.

One of the main reasons why condos have limited appreciation is because of their shared ownership of common areas.

When you buy a condo, you purchase your unit and a share of the common areas, such as hallways, lobbies, and amenities.

This means that any increase in the value of the common areas will be shared among all the condo owners, limiting the individual appreciation potential.

The maintenance and repair costs of these shared areas can also impact the overall appreciation of the condo.

Another factor contributing to limited appreciation in condos is the limited control over property modifications. In most cases, condo owners have to follow specific rules and regulations set by the condo association.

This means you may not be free to make changes or upgrades to your unit, which can affect its overall value.

Unlike owning a single-family home, where you have more control over renovations and improvements, condo owners are often restricted in their ability to increase the value of their property.

Market demand for condos can also impact their appreciation potential. While condos may be popular in certain areas, they may not be as desirable in others. This can limit the pool of potential buyers when it comes time to sell, which can in turn affect the appreciation of the property.

Considering the current and projected market demand for condos in the area is important before making an investment decision.

A non warrantable condo

One major drawback of a non-warrantable condo is the potential for limited financing options. When buying a condo, it’s important to consider whether it falls under the warrantable or non-warrantable property category.

Non-warrantable condos don’t meet the guidelines set by Fannie Mae and Freddie Mac, making it difficult to secure a traditional mortgage. This means buyers may need to explore alternative financing options, often with higher interest rates and stricter terms.

The limited financing options for non-warrantable condos can significantly impact the affordability and long-term financial stability of owning a condo property.

In addition to limited financing options, owning a non-warrantable condo can also mean dealing with complex and strict rules and regulations.

Non-warrantable condos often have their own set of rules and regulations that differ from traditional condos. These rules can be more stringent, limiting the freedom of condo owners to make changes or modifications to their unit.

This can be a significant drawback for individuals who value independence and control over their living space.

It’s important to carefully review the rules and regulations of a non-warrantable condo before making a purchase to ensure they align with your lifestyle and preferences.

It’s crucial to consider the potential impact on resale value when buying a non-warrantable condo, as it can affect your long-term investment and financial goals.

Strategies for future condo owners

By now, you should be aware why buying a condo may not be a wise decision; several drawbacks must be considered.

Despite the multiple reasons, if you still consider buying a condo is worth remembering the following:

Additionally, researching local zoning laws can help identify areas where development restrictions exist due to environmental concerns like endangered species habitats or wetlands preservation efforts which would make them unsuitable for residential use anyway.

Finally, consulting with experts who specialize in assessing environmental hazards prior making any purchase decisions is always recommended when dealing with potentially hazardous properties.

Determine affordability: Be mindful of the costs associated with purchasing a condo – this includes mortgage payments, monthly fees, and maintenance expenses.
Assess control and freedom: Condo living comes with rules that may limit renovations and changes. If you value autonomy, this could be a deal-breaker.
Understand the resale challenges: Prepare for an unpredictable condo market and possibly lengthy selling process. Consider the potential impact on your finances and time.
Consider the appreciation potential: Unlike houses, condos may not appreciate significantly over time. Think about how this could affect your long-term financial goals.
Factor in the ‘Non-warrantable’ classification: Such condos are considered high-risk by lenders and might be difficult to finance, which might limit your buyer pool for future resale.

Yes, condos offer convenience and can have superb amenities. However, before deciding, pause and analyze the drawbacks listed above. Armed with this knowledge, you’ll make an informed choice that suits your lifestyle and financial goals.