Buying a condo

Factual Questions
1

I’m currently in the process of trying to purchase my first home. I have two choices - wait a year or two until I pay off a few more debts, in order to free up some extra money per month, and then buy a house; or purchase a condo now, with an eye towards keeping it for a few years, then selling it and purchasing a house then.

The main reason I don’t want to wait is that I’m sick of throwing away close to a grand a month on rent. I would much rather be sinking that money into equity on a home that I own, even if it’s a place I’m going to be selling in a few years. The condos I’ve been looking at that look appealing tend to be about half as much as the cheapest house I could find in a non-scary area that would fit my needs. However, I have some questions before I seriously commit to the whole thing:

  • How does the appreciation on a condo compare to that of a house, all things being as equal as possible? If I’d likely be gaining little, or even losing out, in the long run by buying a condo, only to sell it in a few years, there’s not really much point.

  • How is property tax figured on a condo, as compared to a house?

  • Are there any other costs associated with a condo that I may be overlooking? I’m anticipating property tax, homeowner’s insurance, and likely some sort of homeowner’s association fees. Anything else?

  • Any other random bits of info I should know? Anybody had a particularly good or bad experience with owning a condo I should know about?
    Thanks a lot,
    Jeff

2

I think it varies so much with condos, it will be hard to get a straight answer here. The conventional wisdom is that condos are not as good an investment as a house, but in our town that’s not the case. We live in a condo and we and our neighbors have all be delightfully flabbergasted at the appreciation in our property. We’ve had people stop by and ask us if we’d think of selling, and the realtors send mailings all the time.

Here are a few things I’ve experienced/learned about condos:

Townhouse condos are better than stacked condos. That is, a private entrance and no one above or below you is the best way to go if you have a choice. End units are also better, as you have one less shared wall and the opportunity for more light because of the third wall of windows.

Because so much of the property constitutes a “common area,” condos tend to have a lot of rules. How they are enforced is up to the condo association. Ours has at time felt like a police state; however, we have had people run for board positions in the hopes of turning it back into a “neighborhood,” and we’re getting there. You ideally want something in between utter chaos and absolute fascism, although it might be hard to tell when you’re buying (and things can change–you can have a hand in it if you’re unhappy with how things are).

Taxes, at least in our community, are the same for condos as they are for houses: based on the value of the property.

Don’t forgot to figure the cost of the association fees in when you’re calculating your cost. You pay them separately from the mortgage, but it’s a monthly expense. These vary a lot depending on what amenities the condo association offers. Remember that you are not just paying for, say, snow removal and mowing. You’re also paying into the pool of funds that pays for repairs to common elements like roofs, sidewalks, gutters, etc.

3

Other things to keep in mind:

The older the units, the more likely it is that some sort of general repair to all the properties is going to be required soon. All the units were probably built within a few years of each other; when the roof starts to need repair, they will ALL need repair, and the cost will likely have to be borne among all owners. Similar case with siding, balconies, sidewalks, etc. Sometimes major problems are found just after the builder’s warranty expires, and this can cause major expense.

The current owner or condo association can (and in most places I think is required to) tell you the annual fees, taxes, utilities, and so on. In NJ, there is a thing called a disclosure statement that must accompany all real estate transactions, in which the current owner must tell you everything about the condition of the property. Obviously, in CA the laws are probably different.

Be sure to check out the same things you’d check for a house, such as the age, type, and quality of the heating & cooling system, and its annual cost.

As Cranky said, find out what the homeowners assn. rules are before you commit. Sometimes they have rules on what color the external side of the draperies may be, or whether you may put a pot of flowers on your porch or balcony. I also second the townhouse style vs. the stacked apartment-type condo. The latter is often less expensive, but then you have to be concerned about your neighbors. In a condo we owned, the upstairs neighbor had a new appliance installed. It leaked. There was an incredible hassle figuring out who paid for what.

4

I’m buying one right now. I’ll let you know.

My main reason for buying a condo is that houses are too expensive, and require too much attention. Many of my friends who own houses say they regret doing it because of all the maintennance.

I too have thought that perhaps I’ll upgrade to a house eventually. But I’ve hedged my bets by purchasing a condo I really like and could probably live in for a long time happily.

The homeowner’s association seems farily loose here, which is OK by me. I’d rather have that end of the specturm than the “police state”.

5

A couple of other things, if you’re considering buying a condo.

First, ask for a copy of the condo association’s most recent financial statement. In some states, the seller is required to provide it, but if a seller balks, walk away. What you’re looking for, besides general solvency, is to see whether the association is setting aside sufficient money in reserve funds to take care of big repairs. For example, you wouldn’t want to buy a condo that had a nice, low, monthly condo fee, then discover that it was time to repair the roof, that they hadn’t been setting aside any funds to do this, and that everyone has to chip in an extra $2000 this month to cover the cost!

Second, ask to see the minutes of the last few condo association meetings. If you can get the minutes of the Board meetings, even better, but at least get the minutes of the meetings of the association as a whole (usually once or twice a year). Just reading through them can sometimes tip you off to lurking problems, like battles between residents and the Board, or impending legal troubles, or accusations of conflicts of interest (Board members hiring their relatives to do repairs, for example). Those kinds of unresolved problems might be a good indication that you’d be better off looking elsewhere.

6

Here’s something I haven’t heard knocked around a lot, but once I was told it seems to hold true much of the time.

My pal in the business said that (at least in Virginia), every row of town houses has a–well, he called it a “bitch.” I’m sure there is a less offensive term for it out there.* The “bitch” is a single unit in a row which is built more cheaply than its neighbors, partly in order to advertise the row at a lower price (“From the 110s,” the sign said optimistically…), but also possibly because the “bitch” satisfies some sort of local ordinance which requires affordable housing to be provided in every development–or something like that.

At any rate, the “bitch” is usually distinguishable in a new row of town houses by having smaller windows and less external decor. It’s a little narrower and it might not have things like a finished attic or basement, and maybe the 2-car garrage is really 1 3/4. It’s always in the center of the row. The interiors aren’t usually terribly different from the neighboring homes because it’s not cost effective to buy cheaper materials for just one unit. A minimum of time and expense is spent on the place, but a minimum of time and expense is spent on most town houses these days, so perhaps you’re not missing much.

That having been said, you have to ask yourself if buying the “bitch” is a bad thing. In my secondhand experience it is not if it is bought new. A good friend of mine bought his “bitch” unit new for considerably less than the asking price of the neighboring units. When he sold it a year or two later, the price gap between his unit and the others had narrowed significantly, so he actually wound up making just as much money or more than he would have had he bought a normal place in the same row.

  • I strongly suspect that this is a colloquialism which spawns from the term “bitch seat” in cars: the cramped and sometimes raised space between two normal-sized adults in the center of the back seat.
7

What you may not realize is that real estate is not very liquid. Therefore, if you are only in it a “few years”, it may become a costly hassle to sell it later. When you do sell it, there is a chance you may not get the price increase you expect. Plus, you may be paying thousands of dollars to a realtor to sell it for you.

In the best case scenario, the property may appreciate enough in two years to cover your closing expenses.

In the worst case scenario, you will be paying 6% of the sale price to realtors, forking over cash to cover various BS fees, and you may not even sell it for the price you paid. Even worse, you may be paying 2 mortgages if you move into your new place before the condo sells. This may last many months before you line up a buyer.

It is doubtful that you will profit enough from the gain in equity over an apartment situation in 2 years or less. 3-5 years, maybe. Over 5, probably.

8

Condos usually have alot of rules. Be sure to read them, some of them are very weird & strict.

Also, isn’t it true that you don’t own it forever, but you own the condo for 100 years? We have condos like that here. Why don’t you consider a mobile home?

9

Contravert - thanks, that’s something to definitely consider. I’d forgotten about the whole lack-of-liquidity thing.

handy - Why not a mobile home? Because I’m too darned snobby. :wink:
Jeff

10

Here’s the Sacramento County Assessor’s website. The short of it appears to be:

1.) Confirming what someone told me in a different thread, the Assessor can and most likely will value a property at exactly what you paid for it, barring any reason to believe the value is not “market.”

2.) The tax rate appears to be 1% of assessed value, plus any other special assessments or levies. Somewhere on the site the Assessor says the average total property tax is around 1.1%. There doesn’t seem to be any “assessed to sound” ratio, so “assessed value” should be equal to “market value.”

Therefore, you can probably expect to pay 1.1% of whatever you pay for the condo annually in property taxes, barring any special exemptions or whatever else. No different from a regular single-family free-standing house. The only break you’ll get is the fact that if you plan on paying less for a condo than you might otherwise for a regular home, you’ll be paying less in absolute dollars although the actual tax rate is identical.

A lot of mortgage institutions will take your money and put it into an escrow account, and then pay the property taxes themselves so as to assure they get paid and on time.

This is probably way more than you wanted to know…

Desdinova, Commercial Real Estate Appraiser

11

I doubt it. A condo is a parcel of real estate, just like any other parcel of real estate. The original concept was that it was a parcel of r e consisting of an air lot: an apartment. The building the apartment was in was subdivided into lots vertically instead of horizontally. It has now broadened so that townhouse condos are very common.

The original idea was to get away from a major defect of cooperative ownership, which required all unit owners to execute the mortgage, since all owned an undivided interest in the property. With the condo conception, you own 100% of the unit and have an undivided interest in the “common property.”

Vacation home condos were sold with a time limit. After a certain period of time, title would revert to the seller. That provision was, of course, written into the contract and deed. Many states have now made that illegal, SC (where I live) being one.

12

Financing for mobile / modular housing is very different than a mortgage for a house / condo / townhome. Very specialized, too. There are very, very few lenders writing mortgages that will also finance mobiles. The primary difficulty is that they are, in name, if not in practice, mobile. Never mind that the axles were removed when it was delivered and the two or three pieces bolted together and the joints taped and spackled inside. The mortgage industry still considers them portable unless they’ve been “bolted” to the ground, and you own the land. AFAIK, “bolted” is a legal term - what size bolts would you use, anyway?

Also, mobiles tend to depreciate a heck of a lot faster than stick-built houses, and not last as long. Final insult is once you find a lender to finance it, you’ll pay 2-5% more on the loan than a mortgage.

13

Condo Association El Presidente checking in.

Most has been covered. But this:

Don’t be alarmed if you are refused this request. The board is not required to air its dirty laundry to the general public, prospective buyer notwithstanding. During a recent sale, I had to refuse a prospective buyer access to the minutes because I feared a lawsuit from the realestate agent (due to loss of commission on the sale) if the buyer backed out based on something in the minutes, or a suit from the owners (due to loss of sale).

However there should be a statement signed by the seller stating that there are no expected additional assessments in the near future. This gives some assurance that the roof is not slated to be replaced any time in the near future.

Stay away from huge buildings with 6 elevators, party & meeting rooms, health club & pools, etc. unless you are okay with paying a $350 condo fee on top of your $1200 mortgage. Even if you’re a non-swimming, non-partying couch potato on the first floor, you’ll still be paying for all of that stuff via your condo fee.

Being in a smaller building/complex generally means lower condo fees & a better chance for you to get yourself elected to the board, where you’ll have more of a say in what happens to your money.

14

I bought my place 5 years ago and it has appreciated 50%. That is, it’s now valued at 150% of my purchase price - good on me.

However, I am in a location with a “hot” real estate market so that has an effect.

Regarding privacy - you will have less in a condo than in a house - because your actions have direct bearing on the value of your neighbour’s home you can expect them to be interested in you actions. For instance, in my complex you’re not alowed to hang out laundry, or store bikes in the public areas, including balconies. Any changes made to the outside of the property have to be approved, as do pets - we have a maximum dog size, for instance.

However, that being said, it can also be a positive - things that benefit the global property value also benefit my property value. Yea me! :slight_smile:

The greatest benefit, as far as I’m concerned, is not having to worry about yard maitenence, garage maitenence, roof maitenence, etc. These items are contracted out.

One thing I would suggest - get an owner run condo association - fellow owners are much more interested in keeping costs down than some nameless, faceless boob at a corporation - after all - it’s not his $$ being spent. Additionally, owners have a vested interest in keeping things ship-shape and are more likely to share concerns re. noise, large animals, etc, etc.

15

Sac condo owner here, located near Fair Oaks and Howe. I also own a smaller, less expensive unit near Madison and Manzanita that I rent out.

A previous poster is correct - the taxes are based on the value of the condo at the time of purchase.

It’s true that condos don’t appreciate as quickly as single family homes, but given the hot real estate market that we continue to experience, appreciation is high anyway. I’ve lived in mine for seven years and it has appreciated about seventy-five percent! (I know, I could buy a zillion acres in the Carolinas for the same amount, but I’m happy where I am.)

Your insurance cost is usually part of the monthly association fee and as such is less expensive than individual dwelling rates. I have my own homeowner’s insurance that covers the interior and my belongings.

It is law that the latest association financial statement is due to you before you sign the paperwork. It’s all mumbo-jumbo, but look at the bottom line on financial reserves, as well as the association vs. homeowner responsibility in maintenance. (How are new roofs financed? Fences? Dry rot repair?) If you purchase a new condo you’ll be spared these problems because you’ll be leaving before they occur.

This is simply an observation: the closer you are to downtown, the more relaxed The Rules are. In places like Gold River, you’re not allowed to park in your own driveway unless you’re washing your car. Visitor cars are hidden away. Very Stepford-ish.

Places like Woodside are far less expensive but a good place to get a start in equity building.

I haven’t seen any ‘bitch’ units, as described by a previous poster, in my searches. I never heard of the term until this thread, but that’s just me.

Finally, if you do get in a jam when it comes time to sell, there’s a huge market for condo rentals after elections when the legislators are expected to work in Sac but maintain their own homes in their own districts. Same is true of lobbyists, visiting professors at Sac State, McGeorge and UC Davis Med Center.

Oh yes, one more Finally: I have the snob factor too when discussing mobile homes but I must admit that those in Sac are more dreadful than some I’ve seen elsewhere. Well, maybe not.

16

Regarding meeting minutes…

Yes, that’s why I said “ask” instead of “demand.” And being an HOA “boardie” myself, I understand completely your refusal in the instance you cite.

The seller (condo owner) often has a right to examine the minutes of board meetings, but no right to copy them and pass them along to others. But the annual or semi-annual meetings of all the condo owners usually yield minutes, copies of which are distributed to all owners - those should be more easily obtained.

17

Just to ensure this is absolutely put to rest, a perusal of instruments of condos in the Tulsa area shows tons of General Warranty Deeds, conveying fee simple interests in the unit as well as a “0.00X interest” in the common area. It’s certainly not impossible that 99 year leases are signed on these things, but I can show you hundreds of condos in Tulsa County that are owned in fee simple by the occupant.

If you want a cite, check out Book 5581, Page 2401 of the Tulsa County Land Records :stuck_out_tongue:

18

I decided to do a little virtual town-home shopping to see if I could “spot the bitch.” In a great many cases I could not. However, I did find a few examples:

Look at the #2 home going from left to right in this illustration. No arched windows, no balcony over the door, not an end unit. The #3 house seems nicer to me, even though it’s also not an end unit.

I can’t quite tell what’s going on here, but I think I see three covered front decks while the #2 home only has a covered door.

This one seems pretty self-explanatory.

Though still nice, the red brick one here seems to be shoe-horned in between two much larger units.

A pretty classic illustration here.

And look at this one! It’s taken the “bitch” concept so far that if you want to visit the red house you’ll need a rope ladder. Okay, just kidding.

Overall, the idea seems to be a pretty sensible concept to me. The end units in any row are obviously the most desirable. Why not skimp a little on one of the middle ones to give the row a wider price range? Perhaps this is a little cynical, but such a unit might also be the perfect bait for a prospective buyer who might show up for the price and then switch to one of the larger, more expensive units.

19

I would recommend that you let a professional manager manage the condo. The manager cannot do anything without the approval by the Board of Directors (who are, of necessity, owners). It’s not the manager’s money being spent and he cannot spend it w/o such approval. It’s the Board and the officers elected who have primary responsibility regarding noise, animals, violations of the by-laws and regulations, etc. But a professional manager is in the business of managing condos and knows how to do it. It will have a staff that will do the bookkeeping, furnishing the financial statements, has the contacts to hire appropriate personnel, and has a lawyer or lawyers available if needed.

20

It’s also certainly not impossible that the property is conveyed in fee simple, with a reverter after 99 years. That is the way time-sharing condos were written, except that the time period was more like 7 years.