Condos

Condominiums and Co-ops

A condo is basically an apartment that you buy, with some of the advantages and disadvantage of both apartments and regular houses. A co-op is something else entirely, as I'll explain shortly. The main reason that people buy condos is to pay less for a home. The difference in the prices between houses and condos varies greatly from town to town, but where we live at the moment (Tucson, AZ - 2006) a nice two bedroom condo can be bought for about 40% of what a two-bedroom house would cost.

A condo is a unit that you own in a building. The interior is yours, while the exterior of the building, including the parking areas, and possibly swimming pools, yards, and laundry rooms, are owned in common by all unit owners. A condominium owners association administers and maintains these areas, and you pay a monthly fee for this.

The condo fee, sometimes also called an HOA fee or home owners association fee, covers different things in different condo properties, so be sure to ask exactly what it covers. Typically, it goes to pay for lawn maintenance, roof and other exterior maintenance and repair, electricity used in common areas, liability insurance for common areas, pool maintenance, and garbage collection.

Often the condo association is staffed by people elected from among the various unit owners. This board of directors or whatever they call themselves makes decisions as to when to repair or replace things, and when to lower or raise the monthly dues. They sometimes also have the authority to approve or disapprove of new residents, effectively limiting who you can sell your unit to.

- Lower prices, as explained above.

- Low maintenance living (someone else is cutting the grass and repairing the roof for you).

- Better security, since many condo properties have fences, gates and even cameras.

- Close neighbors, who can watch your place when you travel.

- Amenities you might not otherwise have, like swimming pools and nice landscaping.

- Rules that keep the place nice and clean and free of junk cars.

- Rules, including how big your dog can be, whether you can get your mail in your slippers, and how many guests you can have for how long.

- Less control, unless you want to play politics and get on the association board.

- Close neighbors, who may be playing their television on the other side of your wall.

- Possible trouble selling, if the board doesn't approve the sale.

- Fewer options, since you can't add a room, and may not be allowed to rent out your unit.

The bottom line is that as long as you can agree with their basic rules, a condo is a great way to buy a home for tens of thousands of dollars less than a traditional house. They are often bought as second homes or retirement homes. They are also bought as first homes, to be sold when a couple can finally afford the larger home they want.

The latter is a great strategy if you want to live in an area and can't afford a regular house. For example, here in Tucson, a small house is likely to cost you $220,000 (2006), while you can get a two bedroom condo for $80,000. If you put 10% down, the payments would be around $450. Even with the monthly dues it would cost close to the same as rent.

Suppose you aren't sure that you can afford the home at $220,000, so you buy a condo for now. You will be spending about $800 less every month for housing. If you can put even $600 of that savings in an account each month, in three years you'll have around $22,000. Add that to the equity from your condo, and you have a good down payment towards that house as soon as your income qualifies you. Condos can be a great idea at times.

This chapter continues here: Co-Ops