The Pros and Cons of Owning a Condo

Christian: [0:00] Hello, hello, and welcome to another episode of the Awesome in Seattle podcast. This is Christian Nossum of the Awesome Nossum Group at Wilson Realty Exchange, Inc. And, uh, a couple episodes ago we covered the pros and cons of owning a townhouse. We are going to continue a similar discussion, but today we're gonna go over the pros and cons of owning a condo. So we're gonna explain what the differences are between condos, and townhomes, and single family homes, and some of the pros and cons of owning both. So before I get into that, though, let's first introduce my co-hosts, the awesome, hardworking agents of the Awesome Nossum Group. First up, we have Mr. Les Cutting.

Les: [0:38] Hello.

Christian: [0:40] Hello. We have the one, the only, the Seattle native, Reed Watson.

Speaker 3: [0:44] That's me.

Christian: [0:45] We have Mel G, Melanie Gadani.

Speaker 3: [0:48] Hey.

Christian: [0:49] And the data guru, Mr. Jason Saldarriaga. Hello. All right, so first, let's, let's kinda clarify what a condo is so that we're all on the same page. So condos, AKA condominiums, they are individual housing units within a residential complex. So, um, an easy way to visualize this is everyone knows what an apartment building looks like. A condo is similar to that, except you actually own the unit that you live in, that you own, versus renting one, like in an apartment building. But they're very similar, uh, styles, shapes, um, sizes. They can be anywhere from a very small complex of just a few units, maybe even like two, three, four, up to hundreds and hundreds of units, uh, just like a- an apartment building. Another thing to compare this to is similar to a townhouse. We talked about townhomes a couple episodes back. Now, a townhome, just as a quick reference, you actually own the land underneath it. You own your specific unit. There might be a shared wall still, but you own the land and the unit and the exterior and the interior. With a condo, you basically own just from the drywall in. That is it. You don't own necessarily the exterior, although you are a part of a homeowners association that is responsible for maintaining and updating the exterior and the grounds of the condo complex. So let's quickly revisit the hierarchy of appreciation. We've gone over this in numerous episodes, but just in case you haven't heard it before, in general, and this is very broad brush strokes here, but in general, single family homes appreciate faster than townhomes. Townhomes, in general, appreciate faster than condos. So that's general hierarchy of appreciation. Just because this is true doesn't mean, and you shouldn't let this scare you into thinking that condos aren't, you know, necessarily something that's not gonna appreciate. They still do appreciate in value. And in fact, especially right now, we are in March of 2022, the condo market is somewhat soft, and there are potentially some deals to be had. Due to COVID, condos were not very popular, and because of that, prices did not really appreciate as much. So As everything else has skyrocketed in value, condos could potentially be a deal. So yeah, condos can be a really good deal, especially right now. But there are differences that you need to be aware of. One of those big differences when you own a condo is that there is a homeowners association.

Speaker 3: [3:26] That's right. So a homeowners association, or an HOA as we will likely refer to it, is a group of residents in the community who form a board and oversee the management of the residential community. Uh, some neighborhoods or townhomes will have HOAs, but almost every condo complex has an HOA, and it's more rare for single-family homes or townhomes. So HOAs establish and enforce rules or regulations for the complex and its residents, and in most cases they also maintain shared community spaces and the exterior of the building or buildings. So that means that the HOA is also going to be financially responsible for things like the maintenance and upkeep of siding, the roof, shared driveways, landscaping, and also the replacement of some of those big-ticket items if they fail. Some HOA dues even cover things like security guards, pools, elevators, gyms, and these types of things can raise the HOA dues a little bit, which are the monthly dues that every resident pays towards the HOA. Some HOAs will also hire an external management company to take over some of these things, like security, facilitating repairs, landscaping, and managing their financials. So they might not do everything directly, but they do set the rules and regulations for the condo complex. Some HOAs also cover utilities, which can be nice because you just pay that and you don't have to worry about your utilities every month. And homeowners association dues range quite a bit. They generally will start around $350, but they can go all the way above $1,000 a month. It really depends on the type of property, and again, it depends on what those HOA dues cover. HOAs also regulate things like quiet hours, smoking, again, pets. So sometimes it can be a comfort to have very clear rules that all of the residents and owners have to follow to, you know, just maintain a nice quality of living for everybody in the condo complex.

Les: [5:47] Just to piggyback off of what Reed said, as a condo owner, you may also be required to pay an additional fee for larger projects, and that is called, my friends, a special assessment HOA normally have a reserve fund for regular upkeep and unexpected repairs and maintenance just in case anything does happen. But if there's a large project that needs funding, such as an unexpected roof issue or maybe an elevator needs to be replaced, homeowners may be required to pay a special assessment.

Christian: [6:14] Yeah, so a special assessment often will be like a large lump sum that, uh, each owner will have to their, pay their fair share. So every unit is assessed a specif- specific ownership share of the complex. And based on the total cost, your percentage ownership will be charged, uh, that special assessment fee. Sometimes it's like, hey, you gotta pay, let's say it's $8,000 to pay your share of the new roof. A lot of times associations will try to get financing so that that can be split up over like a two or three or four-year timeframe. And instead of one $8,000 payment, it is, you know, split up into monthly payments over a specific term. So that's not always gonna be the case. It depends on the HOA and what they can find in terms of financing, but that's, uh, that's the role of the HOA to figure that out.

Les: [7:10] Thank you for that, Mr. Nossum. All right, so if there is a special assessment brought to the attention of the HOA board, usually the homeowners, they have, they get to vote on it, the board gets to vote on it. So whether you agree with it or not, you will be required to pay your fair share even if you don't like it.

Jason: [7:28] Congratulations, you own a condo. The joys of being a condo owner. But it also takes some of the ambiguity away, right? Because the HOA manages some stuff that you should be managing if you were on your own with a single family home, you know? So when buying a condo, there are a few differences on the lending side of things that I think's really important to keep in mind. First and foremost, you know, if you're looking at a single family home or a town home, you may be qualified for $700,000 l- uh, purchase price. If you then turn and start looking at condos, usually you're not gonna be approved for the, quite as much purchase price. So you might have to drop your max purchase price down, let's say, to 650,000 instead of 700. And the reason for this is your lender will Consider or include the HOA dues into your monthly cost versus a single-family home, th- they're not gonna include, you know, utility costs. So it's something just very important to keep in mind. Um, a lot of buyers forget this. When we're helping buyers that are looking at both types of properties, a lot of times we just set two different budgets, one for single-family homes and one for condos. And then of course, some condos have $100 dues each month, and others have $800 dues. So it's something to consider for each property. It needs to be taken into the calculation And then you can't always get an FHA or a VA loan for every condo complex. The reason being each HOA needs to apply and meet specific criteria in order to be qualified for these programs. You know, there's ropes to jump through for them, it can cost them money, obviously costs them time. So some of them just don't apply for it. That said, the government, what is it, HUD, um, has a database for FHA, and the VA site has the list for all the VA approved condos. So you can find those very easily online. There's other resources as well, and it's generally pretty readily available for all your agents to see on their end as well.

Speaker 5: [9:50] All right, let's discuss renting a condo you own and the parking. So one of the restrictions you may face as a condo owner could affect your ability to rent your condo. Many of the HOAs do have limits on how many units can be rented at one time, and most don't allow units to be used as vacation rentals by requiring a six-month minimum in rental agreements. So if part of your plan of buying a condo is to rent it out long-term or via a platform like Airbnb, make sure you understand the rental regulations in that complex before buying. Another thing to investigate is parking. Depending on the building, this may be another additional cost you need to factor into your monthly expenses.

Jason: [10:41] So as you can probably tell by now, buying a condo, th- there's just a lot of aspects to it that need to be considered in that process. And to aid in that journey, um, we have something called the resale certificate and the resale package. And what this is, this is basically a set of documents that the HOA prepares and provides to prospective buyers. Generally, after an offer is accepted, though not always, sometimes you get access to it beforehand. These documents include things like the budget, the rules and regulations, CC&Rs, minutes, meeting minutes, which is some of my favorite things to read because it, it can give you a sense of the dynamics at play with the HOA, with the community that you're potentially buying into. And so I really… I generally encourage buyers to really focus on all of it, all of the documents, but definitely read through the meeting minutes. Do they resolve complaints in a efficient and timely manner? That sort of thing. We already discussed CC&Rs in our town home episode, so definitely go back and listen to that episode for more Explanation on that end, but simply put, CC&R stands for covenants, conditions, and restrictions. It's also a heavy metal band. And if not, it should be. Um-

Christian: [12:06] They're from the '80s. I remember them.

Jason: [12:08] Yeah. And, and their first single, Bylaws. Bylaws. And, uh, the CC&Rs establish the rules and regulations set by the HOA. You know, stuff like if … A- anything, but it … One that pops into my head is can you install a washing machine? And if so, are there limitations or a process in order to get that approved? S- some older buildings especially,

Christian: [12:36] if

Jason: [12:37] they were built without a washing machine in each unit, they might be, there might be limits on just installing your own, the reason being of noise. You, you wanna limit the, the impact, um, a loud washing machine would have on your adjoining neighbors. You don't wanna put a washing machine necessarily above your … A, a bedroom on the lower floor's unit. That wouldn't be very fun. These documents can illuminate so many issues that the complex is currently facing or could maybe be facing in the near or long term Um, a lot of times the biggest clarity comes from the reserve study, which is a very lengthy document professionally produced by a company that does this, and they go to the condo and they analyze every aspect of the condo that the HOA is responsible for, every piece. Uh, that can be the asphalt roof to the siding to the foundation to landscaping to the mailboxes, and everything else in between, and they give a lifespan, an expected lifespan for each of these products. Um, how much life, how old they already are, so, like, the remaining lifespan, and then how much it would cost to replace, adjusted for inflation and future cost projections over, you know, a 30-year period, and then they calculate. They break it down by each individual part. But at the end of the day, they calculate every month the HOA should be bringing in X amount and adding that to their reserve, uh, account in order to have the funds necessary to maintain the condo. Because if they don't have the funds necessary, um, we are … We kind of already mentioned it, but they would ha- likely have to vote on a special assessment, which is generally not very fun for owners to have to deal with. So all of these documents, and they can be hundreds of pages long, you have access to when you're buying a property. Generally, you have, like, five days to review, and then you can go back to the, the seller and raise concerns or back out if anything pops up that you're not really happy with.

Christian: [15:03] Yeah. One thing, too, is that this is your chance to question the HOA, either the board president or the management company, and get every single question that you might have that was brought up to your attention while reading this resale certificate. Get all of those questions answered. This is your time to do that. Um, after these five days, you're essentially … You're telling them, "I'm cool with everything in here and I'm continuing to move forward with the purchase." So if you do have questions, this is your time to get them answered.

Speaker 3: [15:34] One thing you might also want to look into in the resale certificate, and this kind of goes back to Jason's point about the washing machine, is the limits on remodeling your own unit When it comes to buying a condo and remodeling it or updating it, it's very important to know that there could be limitations on what you could do despite the fact that you do own from the drywall in. So o- one of the best examples that I've run into a few times is that wood floors, so hardwood floors, aren't always allowed, especially on units above the ground floor because of the sound transmission. Sometimes you're required to only install new carpeting, or there are also pre-approved floorings that have a air space to deaden the sound built in. In some buildings, those are allowed as well. You might face other restrictions due to the structure of the building itself involving not being able to move walls or change the layout of your unit. If the complex is made of concrete, it can be very, very difficult to adjust or reroute any electrical and plumbing as well. Generally, you're prohibited from making any exterior changes. The HOA sets these regulations to maintain uniformity. So for example, if you want to install a different type of window, you might even have to petition for all of the windows to be changed or updated, or else you won't be able to change just your own window because it will ruin that uniformity on the outside of the building.

Christian: [17:18] Yeah, I have actually seen, pulled up to condo complexes and looked up and gone, "Hmm, that's interesting. The- … windows in that building are white. The one in that building, the exterior of the windows are black. The one next to that are tan, and the one next to that are brown. Hmm, that doesn't look good." Uh, yeah. So definitely something to pay attention to when you are out there looking at condos, because that uniformity does help to keep values up. That, that's important. That's why that stuff's there. All right, let's go over some of the pros of owning a condo.

Les: [17:54] Well, it depends on what you're looking for, Mr. Nossum. Um, I have clients that have chosen to buy a condo because of their most important concerns is location, location, location. Living in a condo may give you easier access to the city, um, at a much lower price point, for example. Some complexes offer great amenities such as a pool or an on-site gym. A lot of that, especially in the South Lake Union area, you can always see all those healthy people just working out through the windows. Some complexes offer great amenities such as a pool or on-site gym that homebuyers couldn't afford if, or, uh, maintain if they bought a single-family home. Um, you're definitely gonna need a lot of space if you want to put a gym in your house. Though it may be a headache to deal with, some HOAs, uh, they handle portions of the maintenance. If you don't have the time or budget to maintain a yard, living in a condo removes that, removes that chore for you. Uh-

Christian: [18:50] Yeah, I would, I would piggyback off of that. Like, a lot of people that have bought condos with us, they love the fact that they get off work, they go home, they unlock their door, and they close it behind them, and they don't have to think about anything other than the inside of their unit. It's just peace of mind, just I don't have to worry about the maintenance. I don't have to worry about getting a yard person over. I don't have to worry about any of that stuff.

Les: [19:15] Um, safety is another pro for owning a condo. Um, for example, if the complex has security guards and cameras, uh, you don't have to worry about things like having your packages stolen, and there's also additional security because, you know, once your, for example, your Amazon packages, once they get in, they can't leave the building. Also, the market for condos is typically less competitive, so it's easy to get your offer accepted. Generally, you know, you're not gonna get too much competition, so, uh, you know, you can get your offer accepted and you can negotiate, you know, things such as credit if they come up on the inspection. If you do have the opportunity to do the inspection, you can get credits and have the sellers repair things, uh, things of that nature.

Christian: [19:59] Yeah, I'd say one additional pro is that generally they're less expensive than a single-family home or a town home in that same location. I mean, you're living on Queen Anne in a 800 or 1,000 square foot condo. Trying to buy that as a single-family home or a townhouse, it's gonna cost quite a bit more. All right, so we went over some of the pros. Let's go over some of the cons so that people can, you know, have a full, uh, full scope, full scale of, of the pros and cons. That was dumb. Why did I say that? So now that we've gone over some of the pros of owning a condo, let's go over some of the cons.

Speaker 5: [20:36] So some of the cons of owning a condo is if you want to maximize the return on your investment, as Christian mentioned, condos don't appreciate as much as townhomes and houses. I've also seen the decision come down to the lack of a yard and limited outdoor space. If you're taking care of a family, which can require a lot of groceries and supplies, it can be a pain to transport all that stuff up elevators and stairs. The HOAs are not always run… Oh, sorry HOAs are not always run well, and there can be a culture of unnecessary drama and infighting. Some condo complexes have restrictions on pets, including cases where some breeds are allowed and others are prohibited. So if you have a pet, asking what types of pets are allowed may need to be your first question. And then other things like less freedom, rental restrictions, and remodeling restrict-

Christian: [21:34] Yeah, and there are, in general, most condos have at least some sort of rental restriction in place, whether that is saying only 20% of the units in total can be rented at a time, or 50%, or some complexes have, uh, they have no restrictions at all, so you could rent them out at any point. This could impact your desire to buy in that complex because if you're gonna plan to live there for two, three, four, five years, but keep it forever and rent it out once you're done, if the rental cap has been met and they're no longer allowing any rentals, but you don't wanna live there anymore, and you don't wanna sell, you're kinda screwed. And we don't want that to happen. So understanding what the rental cap is for that complex can be a very important piece of this puzzle, uh, in your, you know, deciding whether or not this condo makes sense or not.

Speaker 5: [22:31] Yep. And last but not least, potential for major repairs and costs to come up is just another, you know, thing to consider when purchasing a condo.

Speaker 3: [22:42] Or really a home of any kind.

Speaker 5: [22:43] Or, yep, or exactly. Could be

Speaker 3: [22:44] a

Speaker 5: [22:44] factor. Or a

Speaker 3: [22:45] home.

Speaker 5: [22:46] Yeah.

Christian: [22:46] Mm-hmm.

Speaker 5: [22:46] That's true.

Christian: [22:47] It's a very good point.

Speaker 3: [22:48] You just have less control over it as, as a condo owner.

Christian: [22:52] Yep. You don't necessarily- Um- … get to control when it happens.

Speaker 3: [22:56] Mm-hmm.

Christian: [22:57] Because the association might vote on it at a time that is inconvenient for you financially, but-

Speaker 3: [23:02] Exactly

Christian: [23:02] if, if the majority votes on that, then you might be stuck doing it anyway. All right. Well, great work today, guys. Uh, we covered a lot, and I think just like with anything real estate related, the best way to decide if owning a specific type of property is to understand and know what to expect, and the same is true for a condo. I- if condos are a potential option for you, I hope that this episode provided a lot of good information, really went over the pros and cons, gave you a real good explanation of what you can expect with a condo. As with any home-buying journey, there are many resources available for you, and doing a little research before you start looking is always a good idea. Uh, one of those resources is obviously us, the Awesome Nossum Group. So if you have any questions about k- buying a condo, buying a town home, or a single family home, or even a multifamily home, we would love to put our experience to work for you. You can always reach out, schedule a strategy session anytime right online, half an hour online one-on-one with us for free. Um, right at AwesomeNossumGroup.com/schedule. Very easy. Um, and if you forget that, just Google Awesome Nossum. You'll figure it out. Thank you so much for joining us on another episode of the Awesome in Seattle podcast. At any time, just reach out with any questions. We have monthly home buyer classes called Beers and Home Buying. You can check those out at beersandhomebuying.com (opens in a new tab). Um, and that's it. We'll see you next time.

Les: [24:35] Bye. Bye.

Speaker 5: [24:36] Bye.