Considering Buying a Condo? Here’s What You Need to Know
You might be considering buying a condo as your first step into the real estate market. Perhaps you’re just starting out as a family, or you’re a student or younger person looking to own something, rather than spending money every month on rent with no return. Alternatively, you could be an older person whose children have moved out, and you want to take advantage of selling the family home to downsize and save the remaining profits.
All of these situations are common for prospective condominium buyers. However, there are quite a few downsides for at least two of these demographics. Let’s explore some common misconceptions about buying a condominium and what the reality looks like.
- A condominium is similar to a house as an investment, in that it will increase in value. This is not always the case. Condominium complexes are often being built, so the market is never in short supply. In fact, the presence of newer units in newer buildings may cause the value of your condo to actually fall!
- Condominium mortgage payments are equal to what I would pay in rent anyway. This is a common belief, and it’s partially true. The down payment on a condo is often low, and there are tax deductions available that don’t apply to renters. However, you need to factor in the association fees that come with condo ownership. These fees typically rise every year, sometimes dramatically, and will continue as long as you own the unit.
- A condominium will serve as a source of income when I’m ready to buy my own house and move out through renting. Unfortunately, this often doesn’t play out as expected. Condo owners will be competing with the building’s management when it comes to renting and selling. The building owner can offer a better deal to potential renters, and if you try to match that, you may end up losing money. Plus, there’s always the risk of a bad tenant.
- Condos offer community living without an invasion of privacy. This is true. If you enjoy the idea of living in a complex where you can build relationships with neighbors and participate in common area activities, condo living might be perfect for you. However, if you don’t plan on using amenities like the pool or communal spaces, you might want to reconsider.
- Condos are easier to upkeep than houses. This is also true. With a condo, you don’t have to worry about tasks like mowing the lawn or repairing the HVAC system. But remember, any tasks you don’t handle will be done by someone else, and those costs are covered by your association fees.
Consider the Community and Long-Term Costs
Of course, community living can come with its own set of challenges. Groups of people often form social hierarchies, and if tensions arise within the condominium complex, it can make for an unpleasant living situation. It’s important to assess how well the building’s residents get along before committing to a purchase.
The bottom line is that purchasing a condominium may not be the best investment for people just starting out in life, such as newlyweds or younger individuals. The investment is unlikely to pay off in the future due to competition and falling sale prices. However, for those looking to downsize, a condominium purchase could work well. There are benefits like having neighbors for company and access to amenities and recreation. Even so, this demographic should carefully consider the association fees before making a purchase, as these costs always rise — sometimes dramatically. Compare these fees with the cost of renting a similar unit.
Unless you live in a university town with a steady stream of renters, a condo may not be a sound investment in the long run.
