Condos – Page 4 – Real Estate Info Guide

Condos have developed a reputation as being difficult to sell, and as such, something you should avoid if you plan on moving again any time soon. Setting aside the buying vs. renting in the short term debate, if you are asking Are Condos Difficult To Sell? You need to delve much deeper into what makes a good property investment. Condo vs. Single Family Home is not what you should be wondering. Are condos difficult to sell? Condos as a whole are no more and no less difficult to sell than single family homes or townhouse. The critical thing to consider is whether the condo represents value for money, is appealing to a wide range of buyers, and is in a location that will retain its appeal in the foreseeable future. So, as with almost every other type of property question, the answer to this is “It depends.” Now, I know, isn’t immediately useful so I am going to explore the “Are Condos Difficult To Sell?” question, and help you understand the critical features that will make each specific unit a winner or a loser in the great resale competition. Are Condos Difficult To Sell? Just like buying any other home, all other things being equal, finding the right condo is more important than whether condos, generally, are a good bet. For this article we will touch on what it means to own a condo in general, discussing how the ownership of a condo differs from that of a single family home. We’ll consider the elements that make condos popular and what can dictate whether a unit might be a same day seller or sit on the market for months. Finally, we’ll finish up with how some of your target buyers can be excluded from the condo market entirely. Townhomes have been excluded from this discussion because they may or may not have a condominium structure or a homeowners association. Let’s jump straight in. How Is Owning A Condo Different From Owning A Single Family Home? Two significant elements differentiate condo ownership from that of single homes. Rights And Responsibilities - When you own a single family home you can, within the law and within reason, of course, do whatever you like with your property. Feel like replacing your metal and glass front door with a heavy hand carved wooden model? Go right ahead. Want to invite a group of friends to stay over for the summer? No problem. Your House - Your Rules. On the other hand, in a condo, there will be multiple restrictions on what you can and cannot do. From the style and color of your front door to the number of people you can have staying, the Home Owners Association, which is responsible for the management of the communal aspects of a condo building might have rules about it. The flipside of this is that condo owners usually have significantly less to worry about when it comes to responsibilities for repair and maintenance. No yard to take care of, no worries about the electrical or other utilities, and if you suffer a leak, you can just pick up the phone and have someone else deal with it. What You Own - As a general rule when you buy a single home you own the land and everything on it. There are exceptions to this rule, but for this article, we’ll consider it to be everything. Meanwhile, when you buy a condo what you do and do not own varies significantly and this, in turn, has an impact on those rights and responsibilities we’ve just discussed. For example, ownership of a particular condo unit might include only three of the walls while the fourth is communal, something that can stop you doing something as simple as putting up a shelf without permission. Some condo owners would claim that you have to be more social and community-minded to enjoy condo life and that single-family homes are better if you are the more private type. Personally, I feel that you can be as social, or otherwise as you like in both kinds of property and one is no more inherently communal than the other. What Makes Condos A Popular Style Of Home? As well as having fewer maintenance demands and less responsibility involved in their ownership, condos are popular for plenty of other reasons, including the fact they are: An affordable option in locations where single-family homes have become excessively expensive. Popular with retirees who are looking to downsize. A way for first-time buyers to get their first step on the property ladder. Often in locations which are convenient for work, entertainment, shopping, and public transit. A less expensive way for those who are newly single, to remain in their current community. Which Factors Affect A Condos Value? There are some specific factors which affect the value of a condo, and these are the things to consider when deciding whether or not to purchase a condo. Location - Neighborhood Choose a condo in an area which is already in high demand, preferably a position that will appeal to a wide demographic. The building should be close to dining, entertainment, shopping, and transit, without being in the center of a dangerous or rowdy neighborhood. Condos in your chosen location should be priced significantly lower than the average single-family home in the area. This will ensure they hold their commercial appeal. Avoid areas where condos are springing up left, right and center. If you are buying in the first of many buildings, excessive supply may drive condo prices down in the long-term. Location - Within The Building In general, the higher the unit, the better, the only exception being is if the condo is in a walk-up building, in which case the upper-floors are less popular. Corner units have fewer shared walls and more windows and as a result, are more sought after. While the view doesn’t have to be the stuff of jaw-dropping vistas, nobody wants to look out of their window and see into another condo, look at a blank wall, or be greeted with any other ugly eyesore. Least favorite are the units next to the elevator. These may suffer from extra noise and activity from people coming and going all day and night. Being close to building amenities is important, but close does not mean right next to. Having the pool or gym close enough to crawl, exhausted, back to your unit is a bonus, but sharing a wall, or having your widow look onto these conveniences is not. Facilities - In The Building More doesn't always equal better, and this is especially true when it comes to amenities in a building. For each and every communal extra in the building, you can add additional dollars to your Housing Association Fees. Consider the facilities in the context of potential buyers. For example, a state of the art gym, sauna, and fitness center might not be the most appealing feature to potential retiree buyers Elevators are essential in many buildings but cost more to maintain than staircases. Consequently, if the building is popular with active residents and is only a few floors high, an elevator might be a luxury. Facilities - The Individual Condo As a general rule, the more bedrooms there are in your condo, the more appealing it will be. The thing to be careful of is that each “bedroom” is legally classed as a bedroom and you are not buying a three bedroom which is actually one bedroom with a large closet, and a window bay in which you could place a bed. You should also avoid bedrooms or any other room for that matter, that is placed in such a way that there are no windows. The exception to this being the washroom. Likewise, the more square footage, the better, up to a point. If all of the condos in the building are 1,000 square feet and you buy the top floor unit, which is all one condo at 12,000 square feet, you could be purchasing a stellar property, or you could be buying a lemon. In addition, ensure the condo is well laid out with a usable floor plan which maximizes the available space. Hallways, walk-in closets, and “bonus rooms” can eat up space without adding livability value. Don’t be blinded by the quirky individuality of oddly shaped rooms or space dividers either. They make the placing of your furniture far more difficult. An additional half-bath or an extra full bathroom can be much sought after. Guess What? There is one big exception to the more bedrooms and more space rule. In some of the larger cities, one bedroom and studio apartments are the more popular choice and command the highest return on investment. The inclusion of secure parking is always a big selling point, just ensure that any extra HOA fees are in keeping with a unit in another building which may charge separate HOA and parking fees. Finally, just as in single-family homes, the little things can have a significant impact. High-value additional features in a condo include: Walk-in closets In unit washer and dryers Dishwashers Abundant kitchen storage Kitchens with space to eat. Secure, in building storage units Balconies or other private outdoor spaces. High-end finishes. Conversely, as always, some condos are now designed specifically for those who rarely cook or eat at home. These units may have the bare minimum in the way of kitchen space and facilities, using the space saved to enlarge the other living spaces. For some buyers, this is a bonus. Take this as a reminder that it is always important to know your buyer and know your market. Who Might Have Trouble Buying A Condo Instead Of A House? An issue of which many condo owners are blissfully unaware are the additional difficulties some buyers have obtaining a mortgage for a condo as opposed to a single-family home. The paradox of this situation is that those who have the most difficulty being approved for condo financing are the same buyers who are most likely to want to buy one. Bet you can’t guess why No? Ok, I’ll share. The Federal Housing Administration is the government body that guarantees certain mortgages. A mortgage provider which approves an FHA backed loan is protected in the event the borrower defaults on the loan if this situation arises the FHA guarantees that they will pay the outstanding balance to the lender. FHA loans are popular with first-time buyers, those with lower credit scores, buyers with a minimal deposit, and others who may not be seen as a “suitable risk” by the lender. However, the FHA has some rules around buying condos which would not necessarily apply to a non-FHA mortgage. The FHA requires: That at least 50% of units in a development are sold before they will support a mortgage application for a condo in a newly constructed building. HOA fees are included when calculating the amount of loan to be extended to an applicant which means a condo buyer may qualify for a smaller mortgage than the buyer of a Single Family Home. How does that work? If you imagine that two separate applicants, with all other elements of their application being exactly the same apply for the same mortgage amount. The borrower hoping to buy a condo will be offered a smaller loan because they will be seen as having to pay their mortgage + their HOA fees each month. This is despite the fact that HOA fees usually include the costs of utilities and the borrower making an application for a single family home will not have the amount of their monthly utility bills taken into account when calculating their outgoings for the purpose of the loan. Even when the buyer doesn’t require an FHA backed loan, lenders can refuse loan applications on condos for a variety of reasons. A review of the HOA documents, rules, regulations, and finance records reveal: Inadequate HOA financial reserves A high frequency of special assessments where owners have been required to contribute extra to the HOA in order to pay for unusual expenses such as a new roof. An excessive level of regulation which may put off potential buyer if the owner defaults and the lender sells the unit. HOA involvement in lawsuits The percentage of units which: Are unoccupied Have HOA fee arrears Are owned by a single investor Have liens or other restrictions placed on their resale Anyone of these issues could cause a lender to refuse a loan, although the financial situation of the individual applicant, the amount of deposit, etc., will all have an impact. Final Thoughts While condo ownership is different from owning a single-family home, condos are not inherently difficult or easy to sell. As with all properties, the individual characteristics of the property, the location, and the current property market are more important considerations. The other consideration is your target buyers ability to obtain financing for a condo mortgage. This possibility can be reduced by completing your own due diligence before buying the unit. This way you will avoid many of the red flags that scare lenders away from approvals, allowing you to enjoy your condo now and sell it without difficulty when it is time for you to move on. About The Author Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate. Check out the Full Author Biography here. This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policy.