Why buy when you can rent?
November 15, 2010 4:46 PM   Subscribe

I'm kind of clueless about condos. Help?

We've sort of been idly mulling over the idea of buying a home at some point in the next few years, and we had assumed that when the time came around we would be ready to move out to the 'burbs and find a nice, single family home that we could afford. Lately, though, I've been growing more convinced that I'd really rather stay in the city, where (affordable) condos are much more prevalent than single-families.

I really don't know the first thing, though, about buying or owning a condo. My biggest question, I think is this: how do they compare, "investment-wise", to owning a house? I put this in quotes because we don't want to use any property as investment/leverage, but I am concerned about being able to sell it if/when we would ever want to move further out of the city. Do condos retain value like houses? Is it easy to transition from condo to house, or will be basically be "starting over" when that time comes?

Second - condo fees. We pay them, what do they cover? What's considered reasonable, as a percentage of monthly mortgage payments, for a condo fee? What outside of our surrounding four walls are condo owners generally responsible for?

Other random questions: who owns the land under the building? The places we would be interested in are units in two- or three-family buildings - is owning in one of these remarkably different from a larger building? If you now own or ever owned a condo in the past, would you do it again?

Finally, is there ultimately one compelling reason for or against owning a condo versus renting a similar apartment?
posted by backseatpilot to Home & Garden (22 answers total) 13 users marked this as a favorite
Many condo owner associations have websites, research those, read the minutes, look at the budgets for the places and see the issues there.

Fees are your % portion of the cost of the group expenses, earthquake insurance, outdoor lighting, trash, water, plant care etc.

Small condo with few oners means your % is greater, for good or bad.

The condo world is complex and needs a good overviiew so good luck.
posted by Freedomboy at 4:52 PM on November 15, 2010

Where are you? The investment potential is all about location. I have a condo in Austin, which is massively overbuilt, condo-wise, but my building is in a residential neighborhood and has seen some pretty reasonable appreciation in the last five years. (Yes, THAT last five years.)

What condo fees cover varies based on the association, but it's something you'll learn when you're shopping. Mine cover garbage, water/wastewater, landscaping and whatnot, as well as funding things like foundation repair or roof work if the building needs it. We've had a couple reasonably small special assessments in the last couple years due to unforeseen foundation issues, but it was vastly, vastly cheaper to pay for that stuff collectively than if we'd had to do the work on single-family houses.

Responsibility - I am legally responsible for everything up to and including the drywall. Pipes between the walls, the siding, roof, etc, are the association's problem. There are restrictions on what I can do with the common property, but other than paying my dues and special assessments, I'm not personally responsible for anything else. Again, this probably varies depending on your association.

I really like my condo, and I'd totally do it again, although part of me kind of wants a yard.
posted by restless_nomad at 4:56 PM on November 15, 2010

The thing that strikes me about condo ownership is that I'm not sure it feels much different from renting. I used to rent a condo and the condo board was the micromanaging sort. When we moved, we weren't supposed to use the front door or move on Sunday (things the landlord never mentioned) so the head of the condo board glared at us from then on. We would also read the notes from the condo board meetings about how you could put a Christmas wreath on your door but you couldn't have a welcome mat in the hall because the hall was part of the common areas, etc. And it blows my mind that I could be paying that much money and someone could tell me I can't have a dog.

That said, my experience soured me on condo ownership but I know it's not like that everywhere and some developments with townhouses have similar issues (no flags outside, for example).
posted by kat518 at 5:05 PM on November 15, 2010

I say this as a condo owner and the reluctant resident of my condominium HOA:


Actually, I'm sure there are good condos out there and you're not doomed to a bad situation if you buy one. But there are so many things that are out of a condo owner's control that if I had it to do over again, and knew what I know now, I'd never buy a condo. It puts you in a position where you're too reliant on too many other people. That's nice when the building needs a new roof, and everybody pays a portion of it. But you're on the hook when units go into foreclosure and people stop paying their dues, or the Board of Directors doesn't act responsibly, or somebody sues the HOA, or the sewer lines break unexpectedly, or your neighbor leaves the space heater on and the place catches fire, and the list goes on and on.

If you do consider buying a condo, look very carefully at the minutes of the recent meetings for signs of trouble, disorganization, lack of participation, petty tyranny, etc. Look at the budget, and make sure there is plenty of money in the HOA's reserves. If not, you're likely to have special assessments in your future. Look at the maintenance history of the buildings, to see if there are any big maintenance requirements likely to come up soon that haven't been budgeted for. Talk to people who live there. Talk to the property manager. Just do everything you can to make sure you're not getting yourself into a situation where you'll regret relying on other people to make sure everything is being handled properly at your home.

Then, if you find something you're comfortable with, rent somewhere else anyway.
posted by Balonious Assault at 5:06 PM on November 15, 2010 [11 favorites]

The HOA fees vary a lot by location and amenities.I pay about 1/10 of a percent of the value of my place in HOA fees, but I don't think there's anything that's customary.

The fees should cover maintenance. They may cover insurance. Some condos have gyms or pools or club houses, others are more bare-bones, so this is really something you'll need to research on your own.

Be aware that if say the roof needs to be repaired and the HOA doesn't have enough to cover it, they may hit all the owners with a special assessment in addition to the fees they pay.

I don't like HOAs because in my experience you get busy bodies on there that want to get up in everybody's business. The live and let live types are usually too busy to bother with running or serving. That's just my experience and I guess I (or you) could solve it by actually running, but who has time for that?

Recent FHA rules may make it harder to sell a condo that it used to be as they're are only allowing a certain percent of units to be financed with FHA loans. Most lower income buyers (the type to opt for condos) can only really qualify for FHA loans, so that will shrink the market.

Generally condos will appreciate slower and drop faster than single family houses.

The nice thing is maintenance is taken care of for you, so if you're like me and don't want to deal with mowing the lawn (not that you'd have much of one in the city), it can be a nice deal.

Also, if you get a loud or otherwise bad neighbor in an apartment, it's easy enough to move in a year or so. In a condo, you're probably stuck together for at least a few years and maybe longer.

I wouldn't say don't buy a condo, but these are some things to be aware of.
posted by willnot at 5:08 PM on November 15, 2010

I don't know if MA's specific laws make owning a condo different than other jurisdictions, but here are my opinions.
Do condos retain values like houses?
There isn't a formula that will tell you how well a condo will retain or appreciate in value. Location is important, just like a house. Is it a block from Harvard Square or up in Nashua? It is harder to update the look of the condo when it is time to sell. If you want to freshen up the look of your house you spend a couple of grand on a paint job. Doing that for a condo will take votes from the other owners and everyone will have to pitch in the money or approve paying it out of reserves. Some people would be willing to do this, others don't want to pay a dime.
Condo Fees - typically cover:
- insurance for the structure, but not the interior. If a fire destroys the unit the insurance will not pay for any of your belongings.
- management fee - you can self manage if you are a very small org, but that means somebody has got to pay the bills, field complaints, hire contractors for repairs, etc
- landscaping and routine maintenance
- reserve fund contribution - towards new roof, siding, etc

Large complexes will get the benefit of slightly cheaper dues on average just due to economy of scale, but if the complex has lots of features like a pool or clubhouse that economy can disappear.

The land, in my state, is typically owned by the association of which you would have an interest based on your percentage of ownership.

Small complexes have some serious risks and you must be very careful about examining all available documentation. Get copies of recent financial statements, arrearage reports, and meeting minutes. You want to find out how many people are not paying. One person not paying their dues in a 3 unit complex will fill you the other 2 will not only have to pick up the slack, but pay the out of pocket legal expenses to compel payment. Ultimately the other owner is responsible for those fees, but they could declare bankruptcy and leave you in the hole.

The other big risk is maintenance. Make sure there are adequate reserves to pay for a new roof or sidewalk, parking lot, etc. If not, you could be tagged with a special assessment next year. People that bought at the top of the market don't have any equity in their units and it could be hard for them to come up with the money.

I think it boils down to going into the process with a critical eye. Read the reports and minutes and be very suspicious. Verify that everyone is up to date and that there are adequate reserves.
posted by Crashback at 5:16 PM on November 15, 2010

how do they compare, "investment-wise", to owning a house?
This is 100% market-driven. A shitty condo in the middle of nowhere is not going to appreciate like a house in a growing market. A great condo you can rent in an urban center is going to do a lot better than a house out in a cornfield.

Second - condo fees. We pay them, what do they cover?
Things like the roof, the elevator, cleaning the common areas, garbage/sewer/water, etc. Generally if you look at a house of similar value, you'll probably be looking at about the same monthly expense for house maintenance as you would for condo fees.

who owns the land under the building?
You and your neighbors. "Condominium" = "con" (with, shared) + "dominium" (ownership). You'll own some % of the land based on how many units your building has and how big your particular unit is.

The places we would be interested in are units in two- or three-family buildings - is owning in one of these remarkably different from a larger building?
See above for other comments on this. One good thing about a smaller building is the "control nazi" factor: in any given population, ~3% will be control nazis. In an association of 100 people, you will get 3 control nazis running the board, and they will micromanage the fuck out of you for any perceived slight. In an association of 30 people, there will be maybe 1 control nazi, and the rest of the board will tell them to STFU already. My building has 15 units and the board is very easy-going.

Part of your offer contingency should be getting an extensive history of HOA minutes for the past few years. Read the entire thing. Be prepared to back out if it sounds at all fishy ("Unit 3C is storing two bicycles on his balcony when the limit is one")
posted by 0xFCAF at 5:31 PM on November 15, 2010 [1 favorite]

I've owned a condo in a 15-unit building since 1994. For my needs, it's been perfect.

When it was a new conversion, the monthly assessments were insanely low, to spur sales. Once we got those to a reasonable level, which is to say, to cover expenses and future maintenance and improvements, it was more expensive, but we also now do not need special assessments to cover a new roof, boiler, hot water heater, porch upgrade, you name it.

The best way to ensure that you understand what's going on, and that your investment is protected, is to sit on the condo board. (I've done three two-year stints.) You do need to engage professional building managers who know what they're doing versus a self-managed condo, to include a maintenace person to shovel snow, keep the stairwells clean and do odd jobs as requested.

Another advantage to condo living: when the furnace blows, you share the cost of replacement with the other owners. Ditto plumbing problems tuckpointing, you name it.

Investment-wise, my condo is worth about twice what I paid for it, even after the RE bust. YMMV.

Finally, to your question about owning versus renting, the big difference is in your tax deductions. Renters can deduct nothing. Owners can deduct mortgage interest and propertie taxes. In my own case, that's a bigger tax refund of about $1200 annually.
posted by Short Attention Sp at 5:50 PM on November 15, 2010

In my experience, condos are a form of group living in which the governance is an experiment in participatory democracy known as the Homeowners' Association. Residents are voted into office who know nothing about running an organization or building maintenance or finance or planning. Some residents may feel that they can do just about anything they want, since they own their unit and there is no parent figure (i.e., landlord). The HOA may respond be becoming idiotically petty and grimly controlling. Think long and hard about how much you value your independence before you commit yourself to living under such a system. By comparison, owning a single-family home involves more upkeep on your part (shoveling, mowing, painting, watering), but your are your own boss.

The appreciation of a house depends on how well you keep it up, and how well the neighborhood does. The appreciation of a condo depends on how well you keep it up, how well the HOA does its job of finances, management, and maintaining the property, and how well the neighborhood does.
posted by exphysicist345 at 6:13 PM on November 15, 2010 [1 favorite]

Just a bit of a side note on condo fees/associations. When my husband and I bought our condo in a four-unit building, there was a management company involved. Eventually the owners of the four units fired the management and we opened up a joint checking account for ourselves that the water and other joint bills get paid out of. This works great, saves money, and makes it easier to get things done (we had our backyard landscaped over the summer with no financial hassle), but it requires that you be on really good terms with the other owners. So in our current situation, things go really smoothly, whereas before with the management company there was lots of drama and difficulty getting things accomplished.
posted by tetralix at 6:14 PM on November 15, 2010

Nthing balonious assault's sentiment. A condo actually forces you part of a little (or in some cases, big) group that has to make financial decisions together. The group doesn't always make a decision that you agree with, and the members of the group that have the most free time tend to have the most influence.

I think, generally, association fees end up being around 1/5th the size of your monthly mortgage payment.
posted by ignignokt at 6:25 PM on November 15, 2010

"forces you to become part..." I meant!
posted by ignignokt at 6:26 PM on November 15, 2010

The answers above are all very good, particularly the advice to ask for and review the board's financials and minutes.

condo fees. We pay them, what do they cover?

The answers above give some good examples of what condo fees (sometimes called "CAM" -- Common Area Maintenance) are used for. A shorter answer is to say that they cover "everything." The basic idea behind a condo is that you own your unit outright, to the exclusion of everyone else, and everything else is owned in common. So, CAM includes all the stuff listed above, plus elevator service, removing cat piss from carpets in the hallways, maintenance of central HVAC, etc. Everything. Also, legal fees if the condo association is sued, which is not at all rare.

That may sound dire, but the flip side is that you have (hopefully) professionals taking care of all that crap for you, unlike the hapless homeowner who has to deal personally with each crisis.

who owns the land under the building?

This can vary from project to project (and, probably, state to state). The most common situation is that each condo owner owns a percentage of the land under the project, but other arrangements are possible.
posted by lex mercatoria at 6:33 PM on November 15, 2010

My condo experience:

1. Value: My condo is very small so it is the cheapest housing option in town aside from buying a boat and living on it. Even with the housing crisis, my condo has held it's value as well as the houses in the area and, because it was cheaper, I have taken far less of a hit. My condo has held it's value better than buying a manufactured home.

2. Condo dues: My dues pay for water, sewer, garbage, heat, lighting in the common areas, maintenance and cleaning of the building, snow removal, and fund large projects like a new roof. It also pays for an insurance policy that covers non-personal-belongings losses should something happen to my place that I wasn't the cause of, like my neighbor blowing a hole through my wall and killing my fridge. I pay for my lights on my own and am responsible for any maintenance from the drywall in. So, leaks from outside? Condo will replace drywall and paint. My sink leaks? My responsibility. My condo fee is about half as much as my mortgage so it is rather high.

3. land: Most condo associations own the land they are built on but some have rental agreements. If they rent, you can only get a loan for as long as the terms of the rental agreement. Be aware!

4. number of owners: The smaller the number of owners, the faster things get decided on. The caveat: one crazy person can take group decisions down a dark path. There is a zero lot line in my neighborhood where the other owner refuses to replace their half of a rotten roof.

5. Would I do it again: I really dig my neighbors and I am on the board which is currently populated with some great people who are sensible. I would do it again but I wish I didn't feel like I had to take an active part in the board. On the other hand, when the shit hits the fan and the gutters are clogged up on a stormy night and the city tells you that the retaining wall needs to be replaced, it doesn't all fall on your shoulders. Nice.

6. Compelling reason not to: If you have a hard time going with the flow, get frustrated by slow action, or have a short fuse with people you think are not as sensible as you, you will have a big problem with the communal nature of condo living. Also, there will be rules you hate. Different condo orgs have different rules. My condo allows pets but no smoking or grills. The other condo in my area is the exact opposite.
posted by Foam Pants at 7:20 PM on November 15, 2010 [1 favorite]

People have touched on the possibility of assessments. My best advice is to ask after the financial standing of the condo association and the planning involved in infrastructure maintenance. I pay a relatively high condo fee but my condo is financially stable. I've never had to pay an assessment though we have work being done all the time. However, I did have a friend in another condo community where a parking garage was in danger of collapse. Residents had to each pay a huge assessment--huge like bank loan huge.
posted by Morrigan at 7:44 PM on November 15, 2010 [1 favorite]

Yes, what Morrigan said. Be wary of condo associations that are always taking loans out to do things like replace a roof or a water heater. This shows a lack of planning on their part and they probably have crappy reserves. Also be wary of associations who have little in the bank and haven't done a major project in the last few years. There is always something on the way towards needing to be replaced and they probably have a long list of deferred maintenance and no money to do it with.
posted by Foam Pants at 10:33 PM on November 15, 2010

I live in a condo. All condo developments are different.

My condo board of managers lets me do anything I want. I can even move non load bearing walls. I can rip everything down to the studs and redo anew if I want.

MY board is responsible for any pipes in the walls, the outside of the building, the roof, the attic and the grass outside.

Resale value usually goes up and down with the market. Right now is the best time to buy a condo because their values are low. I bought mine at $150k and when the market goes back up it can be sold at $250k . That shows you the value fluctuations.

Check out the assesments first . Good condos will only do one assesment at a time. also an assessment will only stay for a certain amount of time. usually used for major major repairs like redoing the streets or the pool.

Also condo units can have ameneties. MIne has a golf course, indoor pool, outdoor pool, cafe and other things.

Also in total with maintanance fees mine ended up $100 cheaper a month then the qappartment i was renting.

I am in a condo development outside of NYC on LI.
posted by majortom1981 at 4:31 AM on November 16, 2010

For what it's worth, I'd take Felonious Assault's advice with a huge grain of salt. You list your location as Cambridge, so I'm assuming you're looking for condos in Boston. The Boston condo market is mostly 3-family houses split into three units, which are nothing like the associations being described above. No swimming pools and no concierge, just a lawn to maintain and a roof to keep an eye on. I'm in a 3-unit "association." There's me and my wife, and there are the two single women living in the two units above us. We pay our $150 a month in condo fees, and that covers insurance and common electricity. There's a joint checking account that we each pay into every month, and we use that account to write checks to the utility company and the electrician. Once every month or two, we sit down and have a couple of beers and some cookies, and we figure out how to divvy up the work associated with upkeeping the house. Some months, I shovel the snow after storms, or pull weeds in the front yard. Some months, I'm a slacker and neglect my leaf-raking duties, and get a friendly "hey, dude, you were supposed to rake the leaves" email, and I respond with "yes, I suck, and I will do it this weekend." Pretty low-intensity. We shared a CSA share with our third floor neighbor this summer, and we watch each other's cats on vacations.

It's real estate, just like a house is. If you buy now, you do so hoping the market will rebound. Boston-proper hasn't been hit as hard as places out by 495, so you're not likely to lose your shirt if the market keeps declining. But you might. We bought our place a year ago, and it's probably not worth quite what we paid for it, but we're going to stick around for a few years. For the moment, we're probably paying more in mortgage + condo fees than we would be paying in rent for a comparable place, but you've seen firsthand what rent in the metro area has done in the last few years--in five years, I bet we'll be ahead. When we inevitably have to cash out and head to the 'burbs, I don't foresee there being any major hassles.

The living experience is very comparable to what I was doing in an apartment in a 3-family house before I moved into the new place, except that there's no landlord to call when the doorbell stops working. On the flip side, the money that I pay for housing every month is going into an investment that can ostensibly be resold, rather than being hurled down the oubliette.

Make sure the association you're moving into is solvent, and doesn't have a history of doing crazy things. Then ask when the roof was replaced. If it's more than five or ten years ago, keep in the back of your head that it could go at any time, and you'll be responsible for 1/nth of the replacement cost when it does.

I spent 8 miserable months looking for condos, and can still talk with you in excruciating detail about neighborhoods in JP, Dorchester, Roslindale, and maybe-even-Somerville, if that would help--MeMail me!
posted by Mayor West at 5:35 AM on November 16, 2010 [3 favorites]

After a one-year search, I bought a condo on the Somerville/Cambridge line this summer. It took so long largely because a lot of condo associations in the area are run poorly. You need to do a really good job of looking into their financial standing and history of assessment.

Condos in your/my area tend to retain value well. As for the advantages over renting, the big ones that pushed me to buy were (1) my monthly expenses are actually less than renting given my mortgage (heavily affected by down payment size) and (2) I know I won't have to move annually, as I have done roughly since 2005.

Real estate listings in the Boston area tend to be very detailed in terms of what condo fees cover. In my association, the fees cover exterior maintenance, snow removal, water, electricity for exterior lights and basements (for dehumidifiers and the like), fees for an independent management company to oversee our finances, master insurance, and contributions to a reserve account for emergencies. Condo associations, in my experience, run one of two ways: (1) they have low fees and frequent assessments when problems occur, so you need to independently save for emergencies or (2) they have high fees and usually have enough money in reserves to cover most/all of the costs of larger projects. You need to decide what you're comfortable with -- personally, I looked for a middle ground.

Feel free to MeMail me with any questions. Good luck!
posted by cranberry_nut at 6:44 AM on November 16, 2010

My experience echos the above. All of that can happen, or none of it.

End game, however, is this: it is still real estate. If you can afford to buy and sell intelligently, you won't lose. It is cheaper than rent in almost all cases, and the longer you stay, the more true this becomes. Because your payment doesn't change, but rent always goes up.
posted by gjc at 6:45 AM on November 16, 2010

This is all great information, thanks. Plenty to think about!
posted by backseatpilot at 11:38 AM on November 16, 2010

As another condo-owner in Cambridge, my experience echos Mayor West's - there are some annoyances here and there, but I now have a place I can paint and otherwise decorate myself. My costs are similar to when I rented, but I have more space that feels Settled and is earning equity. Our fees are pretty low, we do the shoveling ourselves. I've been really lucky in my neighbors - we take each other's trash out when we can, try to beat each other to the shoveling. We have very occasional "meetings" of looking at the books, having a beer, and chatting.

Boston and Cambridge condos seem to have held their value -- I bought my place last year for about what the seller had bought it for 5 years before, and had a friend who lost a little selling a similarly aged place, but this was after the US bubble burst, showing that Cambridge condos stayed steady or lost only a very little. Overall, real estate around here (including condos) has done pretty well over the last 20 years.

You didn't ask about a buyer's agent, but Lisa Johnson on Mass Ave was Fabulous. I found and bought my place in just a few months start to finish.
posted by ldthomps at 3:51 PM on November 16, 2010

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