Why Buying a Condo as Your First Home Isn’t a Bad Idea...

Perhaps you’re reading this as you’re considering to buy your first home, or perhaps a family/friend/child/acquaintance/co-worker or other is thinking of buying for the first time, and you’re curious to know the pros and cons of buying a condo vs. a home. From my experience, in working with a lot of first-time buyers, people have a somewhat visceral reaction to the idea of buying a condo/townhome over a house. I believe this mainly comes from a lack of education around the pros and cons to each purchase. Don’t get me wrong, for certain first-time buyers a house is absolutely the way to go, but I truly don’t believe that for every buyer a house is the right first-time purchase. Here’s a list to consider when deciding which is right.

Here are a few key terms to help navigate this brief overview and understand the backbones of condos:

• HOA: the Home Owners Association- largely most condos are a part of some sort of HOA (even single family homes can have a HOA). This is a governing body for the community that help enforce rules, keep budgeting, and maintenance on track for the community. HOAs are usually accompanied with “dues” which are usually a monthly fee (although can be quarterly, bi-annually or annually). Dues help fund and maintain the operation and upkeep of the community.
• Reserves: The reserves are how much money the community has to fund upcoming projects and improvements.
• CCR: Covenants, codes and restrictions. These are for simplest terms the “rules” that the community members and their property must follow.
• Special Assessments: A monetary amount that a HOA can tack onto each community owner’s dues or can be a lump sum payment to generally help fund low reserves or pay for an improvement which the reserves won’t be able to cover.

1. SOME condos are horrible investments

With condos perhaps one of the largest things to consider when looking at a unit is the financial strength of the complex, as well as, how maintained the building is. This can be where people, for lack of better words, can get screwed over. If there’s low reserves and/or a building is older and not well maintained more than likely the community could face special assessment(s). These can end up being thousands of dollars, and sometimes can exceed the equity that you have in your home. All condos in WA have a resale certificate which is accompanied by a whole host of documents including the HOA reserve studies. It is prudent that you, your agent, and/or you perhaps hire a third party that can help you read through everything to verify that from all the information available the financial health of the building to make sure it seems decent.

2. Lower entry purchase price

The starting entry price for a condo is less than the entry price for a house in our general area. This could potentially mean that you’re able to get yourself into a nice condo, putting less down, and still having a lower monthly payment. With that being said HOA dues can add up so, with all that was mentioned above, finding something moderate in both HOA dues and price is key to making a smart investment.

3. Condos are great for an active lifestyle

Condos afford the ability for an owner to just pack up, lock the door, and leave for the week. With homes this isn’t always as easy. Along with the ability to just leave and not worry about your condo. A lot of condos have a secure entrance or can even have a front desk manager who helps secure the building leaving an owner the peace of mind to not worry about there belongings when out and about.

4. Condos generally have low maintenance compared to a house

Most condo complexes have a master insurance policy that covers much of the common elements of the building that could need fixing/replacing such as the roof or major plumbing issues, and the buyer will usually purchase a wall-to-wall policy covering the interior aspect of the unit. (Please note all complexes are different so it’s important to read though everything to be confident in what your responsible for). This is drastically different than a home, when a house has a roof replacement/pipe burst/failed heating system—this is on the homeowner to pay for which could add up to thousands of dollars! So, on top of spending more for the place you’re also spending more for the upkeep, making sure you’re financially prepared for potential fixes is important.

5. First rental/value of the unit

With condos being less expensive, they can be great first purchases to pay off fast and use as a future investment property. The trick is to make sure your condo’s building has “no rental cap”. Rental caps will restrict the number of units that can be rented out in the complex. Some condos don’t allow rentals at all. So, if you’re planning on keeping this as an investment property, making sure the unit has no rental cap or alternatively allows for a lot of rentals in the building would be important. Another important note is that in general condos don’t appreciate typically as fast as single-family homes. You can compensate by maybe fixing up the unit or living in the unit for more than a few years to allow enough time for the market to go up.

Either way you go when deciding between a condo or a home, it’s important to do your research on both and truly evaluate your individual financial situation and what really would be the best situation for you. Condos are a great stepping stone to get that bigger dream house, they allow you to build equity, instead of spending thousands on rent. However, as seen with the above points, you really need to do extensive research on each condo before buying as they can really look like a good deal, but once you dive into the complex’s documents the condo can really be a terrible financial decision. Reach out to talk more about the Condo market/come up with a comprehensive home buying plan.