Condo Q&A
Addressing the most common condo questions
For some reason, people get confused about condos. I think it’s because most Americans -myself included- grew up in a single family home and the idea of owning only a piece of a building is weird. But, condos are a great way to get started on the property ladder and they don’t have as many downsides as you might think!
Today, I am going to take a look at the most common questions people have about condos.
Why do I have to pay an HOA fee?
People hate homeowners association fees. It’s only natural to have a visceral reaction to the idea of a fee on top of the already high costs of a mortgage and taxes that go along with homeownership. I think it’s also because people don’t know what they are actually getting with an HOA, which is substantial.
HOAs, at their simplest, are simply a way to spread the costs of maintenance and repairs on a building across many people and across time. You pay HOA fees as a single family homeowner as well. Anytime you replace the roof, reside the outside of the house, replace the deck, or even plant a new garden. With a condo, these costs do not come out of your pocket, but instead are taken from the HOA as needed. The HOA simply amortizes the cost of maintenance. Crucially, HOAs also take care of the ADMINISTRATION of the maintenance… in other words you don’t have to go and call the roofer when your roof needs to be replaced.
So, yes. You need to pay your HOA fee. But, you should get something of equal or greater value from it.
In some condo’s, HOA’s can even cover utilities or other costs, as well. To make it easy on you to compare how the costs of maintenance and common spaces are shared in different types of homes, you can take a look at the chart below, or read my more comprehensive post about HOA fees.
| Item | Condo | Townhouse | Single Family |
|---|---|---|---|
| Inside maintenance | Owner | Owner | Owner |
| Outside maintenance | HOA | Owner | Owner |
| Common area upkeep | HOA | Owner | N/A |
| Capital replacements | HOA | Owner | N/A |
| Power/sewer/garbage | Varies | Owner | Owner |
| TV/Cable/Internet | Varies | Owner | Owner |
| Amenities (pool, etc) | HOA | Owner | Owner |
Can you renovate a condo or a co-op?
Yes! Since you own a condo outright, you are generally allowed to make changes to the unit. You can paint, replace the carpet, fix the old windows, put in a new kitchen, what have you.
The big difference with condos and single family homes is that you won’t be allowed to change the exterior of the building, because it is a shared space that isn’t completely owned by your unit. Sometimes, there are small exceptions to this where an HOA will allow owners to enclose a balcony or improve a yard area that the unit has access to. No matter what, you want to be sure to ask the right questions before buying a condo to be sure the renovations that you want to make are actually possible.
Another difference that is important to note is that there are often protections made by the HOA to ensure that owners do not adversely affect other owners. For instance, you may not be able to add hardwood floors if they are too loud for the unit below you (or, at all).
My own condo renovation was an adventure, but one that had a big payoff at the end. I would do it again if I had the choice to make again, but I would definitely do a few things differently.
The bottom line? You can renovate a condo or a co-op. In fact, I love condos as an entry point to the real estate market in expensive cities. And, you can even take out a HELOC to finance your remodel.
Having just purchased a condo and renovated it (see pic to the right), I can tell you with confidence that you can renovate a condo and make a profit, but you need to know what you are doing -and what you CAN do- before you get started.
So how would you find a condo? Luckily, the right place can be fairly easy to find if you follow these guidelines.
Can you rent out a condo?
Yes! If you own it, then you have the right to rent it out. Generally, condo owners have the flexibility to choose to rent out their unit if they choose to. After renting out my own condo for the past two years, I can also report that it is a relatively easy and pain-free way to start making investment income off of real estate, and profitable as well.
Before you run off and buy a condo to rent out, there are some important and common restrictions HOA’s will place that are important to be aware of. You should be able to get the bylaws of the HOA to see if any of these restrictions apply to the condo you are interested in BEFORE you buy it. Consider that a tip, as well ;)
The most common restriction is on the number of units in the building that can be rented out at any given time. For instance, my associated limited this to 4 units, but recently raised it to 9 to give owners more flexibility. They also recently changed the bylaws to state that owners must have lived in the unit for at least two years before renting it out. I think they did that because of me, lol.
Another common restriction is on the amount of time a unit can be rented out, whether that be in terms of years or in relation to the total time of ownership
Generally, there are exceptions for close family that make it easier to rent out condos
Can you have a mortgage on a condo or co-op? Can you have a second mortgage on a condo or co-op?
Just like any other home, you can have a normal 30 year mortgage on a condo, and you can even take out a HELOC to access the equity that you have in your home for a renovation or other purposes.
There are a few differences between a condo mortgage and a “normal” single family home mortgage that are important to know, to set expectations.
Mortgage rates will usually be a little bit higher on a condo mortgage than a SFH mortgage
If you have PMI on your condo mortgage, it will likely be a tad more expensive than on a SFH home
HELOCs usually have higher equity minimums with condos
All of these restrictions exist because lenders have traditionally seen condos as higher risk than SFH mortgages. Over time, this may change, but either way it shouldn’t make condo ownership too much more expensive than SFH for you.
Hopefully condos are a little less intimidating now
Condos just haven’t been as common as a form of home ownership until recently, so people don’t know too much about them. However, they can be an incredible way to get on the property ladder. You can get a traditional 30 year mortgage on them, renovate them, and rent them out, even. Not a bad way to get on the property ladder.
If you’re interested in learning more about condo remodeling, subscribe to RFG to read more.
