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I'm looking to get a comprehensive idea of all of the cons of owning a condo. This is the list of cons I've put together so far:
1. HOA on-going litigation could impact condo owner's ability to sell.
In my case, I purchased my condo 3 years ago and it has appreciated about $100K since then. The
HOA had on-going litigation against the builder. I looked into the issues and determined that they were
not foundational and also learned that the HOA was close to a settlement with the builder. So I moved
forward with the purchase, acquired financing and successfully closed escrow. Just as expected, the
there was a settlement not too long after I closed escrow and the HOA moved forward with repairs and
repaint.
But with the issues in the litigation resolved and fixed, isn't it still possible for other litigations to come
up in the future? Maybe an owner will file a lawsuit against the HOA, or some other litigation could
come up? If so, that would significantly narrow the number of viable buyers because most lenders will
not give you a mortgage on a condo if the HOA has on-going litigation. That leaves me with only cash
buyers.
2. HOA could have restrictions on ratio of owners to renters, impacting the buyers' options of lenders due
to lenders having a specific ratio that is acceptable.
In my case, my HOA has no such restrictions or ratio.. or it's not significant enough to be an issue.
Owners so far have been free to rent out their units without issue. I know the rules are more strict
in some other condo communities. But could the HOA change the rules at any time and impose
a requirement to maintain a specific ratio of owners to renters?
3. You share a roof with other condo units, which increases risk of a neighbor's unit accidentally starting
a fire and having it spread to other units. The external is the responsibility of the HOA to maintain and
they have some insurance for this possibility. For condo internals, there is home owners insurance.
Other possibilities because the units share one roof and are a part of one larger building is pest issues
could spread to other units.
4. Condos appreciate in value less than single family homes.
This may be true but in my experience it hasn't been a big difference, and the total sales price is
less than a SFH.
The reason I'm trying to come up with a comprehensive list of cons is to determine if I should really worry about the cons and sell the condo, or if I should hang on to it and rent it out to someone. At some point, I would sell it during retirement, so wondering if I should also worry about the above cons and also cons that I have not even realized yet.
If you are experienced with condo ownership, rental, sales and could provide feedback, that'd be greatly appreciated.
Condos are attached housing units, so depending on whether the style is a flat or a townhome, there is the potential that you will hear your neighbors through the ceiling, walls or floor. And they may hear you, too. For this reason alone, I will always prefer to live in a house. But I know that's not always feasible for everyone, depending on the area and your financial situation.
Condos are attached housing units, so depending on whether the style is a flat or a townhome, there is the potential that you will hear your neighbors through the ceiling, walls or floor. And they may hear you, too. For this reason alone, I will always prefer to live in a house. But I know that's not always feasible for everyone, depending on the area and your financial situation.
That's a good point. Luckily for me, because of however my building of 3 units is designed, in the past 3 years I've only heard each of my two neighboring units' occupants once each. In each case, it was behind either my bathroom wall or wall where my staircase goes from front door to upstairs, and the neighbors were doing something like moving furniture or doing some repair or project that produced a noticeable noise. Otherwise, I don't hear them at all, but believe it's a general downside of condos. In fact, I used to own a house which was maybe five feet apart from my neighbor's house, but sitting downstairs on the sofa against my wall that was next to their exterior wall, I could hear their kids running up and down their stairs!
Anyway, in this case, for this condo, I wouldn't be concerned about noise from neighbors being an issue (so far, based on 3 years of experience). The only other noises I hear are when one of their garage doors opens, because the garages are directly below my unit's main living floor. I don't personally mind and it's not that loud, but it is noticeable enough. The other noise would be people talking loudly or car doors shutting in the parking spaces across from my building.
Seems to me you are getting extraordinary appreciation. If you rent it out to cover expenses you will be getting some nice passive income. Perhaps it’s a condo by the sea. To lose the ability to rent it out a high percentage of association members would need to add that to the rules. I’m guessing your current tenant could not be kicked out even if they succeeded.
Condos are attached housing units, so depending on whether the style is a flat or a townhome, there is the potential that you will hear your neighbors through the ceiling, walls or floor. And they may hear you, too. For this reason alone, I will always prefer to live in a house. But I know that's not always feasible for everyone, depending on the area and your financial situation.
A condo is a type of ownership. It has nothing to do with the style of building. There are condos that are single family style where you only own the interior to the studs. There are not many of this type, but they do exist.
You've missed what I would consider the biggie in any HOA- assessments. The HOA fees should be enough to cover most maintenance and hopefully have a fund built up for some of the "every x years" expenses without asking for more money. I live in a neighborhood of detached homes and we're building up a decent fund (previous Boards kept the dues too low) but we're situated around a lake and will eventually need to repair a leak in the dam and dredge the lake. Condos may need major work on the roof, the parking lot or recreational facilities such as a pool, gym or tennis courts if they have any.
My neighborhood last had an assessment for $750 in 2013 for work on the dam. When we surveyed owners to see what level of assessment might be difficult for them to pay, about half said anything over $1,000.
Condos also mean that anything external to your unit is going to be decided by committee. If you wind up living in a building (or complex or whatever) with other owners whom you agree with and are reasonable, this doesn't end up being a problem. But, if you wind up in a HOA with one or two combative owners, or ones who just don't see the value in what you want to do or vice versa, things can get ugly or even grind to a halt.
On the same note, a disadvantage in some areas can be the cost of the HOA. It's not uncommon to find properties with a monthly HOA well over $1,000. If you get a condo in a building with a doorman, elevator, or amenities like a fitness room or attached parking garage, the costs can start ramping up fast. Much like renting, that money is also all going into a void, never to be deducted or returned.
I've found that condos tend to appreciate on par or better than SFHs in my area, but part of that is that a true detached SFH is a unicorn, and the SFH townhomes start at around for $2 million for a gutted-to-the-studs shell up to over $10 million for the nicer ones. So, condos are the only option for most buyers.
I'll add that there is a whole list of issues besides the ongoing litigation that will disqualify your unit for a buyer using a conforming loan; sufficient line item for reserves in budget, number of owners delinquent, number of units owned by same entity and others. A lot of condo sellers have found out after they had accepted an offer that their buyer couldn't get a loan to close the deal because of issues with the association.
There could be a negative change in use restrictions (like rental term minimum) that was grandfathered to the seller but will revert to the more restrictive uses when title conveys.
Deferred maintenance for which there is no reserve. There may be a million in reserves but if it ain't designated for concrete restoration, expect a special assessment when time comes for that.
Boards that are hostile to owners who aren't part of an insider clique and who overstep their authority. This is very common in my area.
Not having enough in reserves is a big one. I was interested in a condo in a different townhouse complex until I found out that there was a high assessment on each unit that I would take on with a year left on the assessment payments if I bought there because they had to fix a drainage problem for which there was no money in the reserves. I also found out from someone who lived there that they had hired and fired new management companies every year for the past five years. So, that one got scratched off my list.
Another downside is that condos don't appreciate like sfh's do. You don't seem to have experienced that, but I have. I bought in 2010, and my unit was just appraised for my refi. Appraisal is still $10k less than I paid for it ten years ago, and I was happy to see it had risen that high.
I'm not going anywhere, and I need a place to live, so it's OK, but I've got neighbors who bought a couple of years before me at the height of the bubble, and they are never going to be able to recoup what they paid for their units.
I've been on the board, and there is another issues that people haven't mentioned and that's the number of unit owners who fail to pay their fees. It is not easy to get them out. We had one who even wrote an Internet book on how to get away without paying for things. Our legal rep tried to put a garnishment on her wages, and people KNEW WHERE SHE WORKED--in a supermarket nearby--and yet they couldn't do anything because she apparently was using a different SS number for her job than the one under which she'd bought her condo, and because she is such small potatoes, nobody who is in a position to do anything about it cared. It took years and a lot of legal costs to get her out. Others know how to declare bankruptcy so that their $20K or whatever in arrears is wiped out and they get to continue to live there and enjoy having all their neighbors get their fees raised to pay for their share.
Then if you do get them out and the association ends up with ownership of the unit, it's usually trashed so badly that extensive work has to be done at the association's expense before it can be sold.
Most people are decent, but there are some rotten lowlifes in every neighborhood. We also, bizarrely, have trouble every two or three years (I forget what it is) when we require proof of dryer vent cleaning. It doesn't cost much, $45 or $60 or so, and you can literally kill your neighbors if you allow a fire hazard like that, but it's still like pulling teeth and threatening fines to get some people to do it.
In ten years here, the only special assessment we have had so far was for snow removal one year when we had much more snow than anticipated and blew out the budget. Everyone had to pay an extra $150, and you could pay in one lump sum or $50 for three months.
This is not something common to all condo HOA's, but some of them tend to be very political.
You'll have a core group of persons on the board and living in the building that are on a first name basis and are very buddy-buddy with each other. Rules get bent, some are given a pass, but other rules are enforced on other residents. Approved contractors to perform repairs happened to be relatives of board members.
The board at my previous Condo was like this. If you were in the "clique", you got away with a lot that others wouldn't get a pass on.
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