You may still decide a condo is the right choice for you. Millions have. However, you should know what to expect before you buy. But the building itself and any surrounding land will belong to someone else.
So you have a legal interest in your building and surroundings. Indeed, it usually works well for all parties. But there are both pros and cons to be aware of. Check your mortgage options Nov 13th, And you get those extra amenities mentioned above. But someone has to. And you, along with all the other unit owners, will have to pay them. When you add your monthly HOA or condo fees to your mortgage payment, you may well find you pay less for a single-family home, even when you account for home and yard maintenance costs.
And those savings will compound over time. So do the math before you buy. That pool and gym in the brochure are sure to impress your visitors. If you decide a single-family home is the way to go, for example, you can always get a gym membership, and that would certainly cost you less than a condo and its amenities.
Lenders look especially closely at condos to make sure they comply with special requirements. Whether or not you can get a mortgage depends on your specific condo building and the type of home loan you hope to use. For example, your condo development will have to be on an approved list for you to get a mortgage backed by the Federal Housing Administration an FHA loan.
What if you want a conventional loan? A well-run HOA or condo company should normally have a pile of cash saved up. Residents pay their condo fees to ensure the care and maintenance of common areas. On one hand, this is a fair and sensible system. For example, shared hallways are the responsibility of the Homeowners Association.
Also, this can minimize minor neighbor disputes, such as falling out over what color to paint the hallway walls. When it works, it works well, but there are several drawbacks to the HOA, condo fees system. Members of the HOA board are not necessarily experienced or qualified to plan an ongoing maintenance schedule, budget, capital improvements program, emergency response plan, etc.
This can lead to all kinds of intentional or unintentional financial mismanagement such as:. So you see, HOA fees are a necessary evil, and it is actually vital to ensure the costs are high enough to ensure you can avoid special assessments and not to minimize them to reduce your monthly outgoings. Unfair as it sounds, when you are making an application for a mortgage, your condo fees will be factored into your monthly outgoings, subsequently affecting the amount the lender is willing to offer you.
So, for example, if you were to pay a single family home, you would have to pay utility bills, but although you would be advised to take these into account when you are planning, these amounts are not part of the loan calculation process. When you buy a condo, your monthly condo fee will be taken into account, even if it includes everything from common area management to internet and utilities. If you are considering a purchase in an established condo development the historical records can tell you a lot about what might be happening in the near future.
If the monthly fees have remained the same for several years, they may be due to see an increase. This is especially true if the reserve funds are low. If nothing is written into the rules, you could see your fees triple, or worse, overnight and there will be nothing you can do about it. There are plenty of condos in which, if a resident is a second late with their HOA fees the board will pounce, demand payment, and do everything in their power to extract the money including putting a lien on the property or taking the resident to court.
This is not always a good thing. Anyone might find themselves in a temporarily tight financial situation, and a little flexibility and human kindness are essential. In these cases, you can find yourself in a building where some owners meet their responsibilities and pay their fees on time, while others never bother. Not only does this mean less money in the day to day management and reserve funds, but it also results in the decent owners having higher fees levied upon them in order to take up the slack.
Every condominium project begins with the developer officially being in control but once a certain percentage of units have been sold, the development company hands over the reigns to the condos Home Owners Association. The HOA must also hold an annual general meeting, have regularly scheduled meetings for the membership, make all documents available for all residents and unit owners, and establish and implement both short-term and long-term budgets and plans.
Depending on the particular HOA, either all owners and residents or just the condo owners can run for a position on the board of an HOA.
Board members control the day to day management of the condominium. As a result, you may find yourself buying into a condo which has an established, hard-line HOA whose board members rule with a rod of iron.
This can have a significant impact on your lifestyle and enjoyment of your condo, so never rush into buying a condo. It should be evident fairly quickly whether or not you have a dictator or a band of bullies at the helm.
Perhaps you want to live in a building that is pet free , or child-free, or does not allow short-term rental. You, as an investor, call the shots and have full autonomy to choose the best investment strategy to maximize your real estate portfolio in the long term. Whether you choose to invest in a condo or a single or mutli family home, make sure you run a thorough market and property investment analysis to arrive at the best decision for real estate success.
Buying a condo for investment is a tricky subject and you will find many conflicting answers on the topic. Nevertheless, we give you 7 reasons why it might not be such a good decision to invest in a condo from the get go;. Obtaining a mortgage for a condo is much harder than financing a single family home.
Not only do burrowers have to qualify, but the condo association has to also qualify. Burrowers face two major issues when getting a mortgage on a condo;. These issues arise because lenders aka banks must adhere to strict guidelines set by Federal Housing Administration FHA for condo mortgages. Some requirements include, but not limited to;. With many requirements and restrictions, buying a condo for investment and getting a loan to finance your condo requires lots of time and patience.
Be sure to factor this cost into your monthly payment calculations because you cannot escape these high condo fees. Buying a condo for investment is more costly than you think. Do not discount condo association rules; these are common rules that every condo owner must adhere to. Some of these restrictions may apply to owning pets or renting out your condo to tenants are good possibilities. Make sure you know what these restrictions and common rules are before buying the condo. Again, you may not be allowed to rent out your condo to tenants.
Some homeowners decide later on to move out and rent out their home for an extra source of income, but if such restriction holds according to condo association rules, you will not be able to use the condo as an investment strategy.
Buying a condo for investment is much more affordable than single-family homes and generally score higher rental income.
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