Townhouse And Condo Ownership: Pros and Cons

title: townhouse and condos: pros and cons
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Townhouse and Condo Ownership: Pros and Cons

There are pros and cons to every decision. A positive for you could be negative for somebody else. Some homebuyers don’t like the idea of being in a homeowners association because of the rules and the costs. On the other hand, rules and dues keep the complex looking nice, the noise down, and the values up.

The difference between townhouse and condo ownership

Generally, condos are one-level units located in multi-level buildings. The unit owner does not own the space above or below. Condos don’t always have a private exterior space like a yard, patio, or balcony.

Ownership of the outside or “common” area is shared between all of the owners. Each owner owns the common area in percentages. The percentage is often based on the size of their particular unit. The larger the unit, the higher the percentage of ownership. Privileges within the common areas are limited. For example, your dog may have to be on a leash. Or pool access will be limited to certain hours.

Parking may be in a large shared garage or in individual garages or carports. Condos may have stairs to get to the front door of the unit but not within the interior.

Townhouses are multi-level units without a unit above or below. They often have another unit on either side. The property owner does own the land above and below. Parking may be in a common garage, enclosed garages or carports. Townhouses will have a private outdoor space like patio or balcony.

Pros and cons of townhouse and condo ownership

Townhomes and condos have monthly association dues. These dues can be positive or negative depending on your perspective. Association dues pay for various maintenance and repair items that are specific to the outside of the units. Examples would be the driveway, roof, fences, landscaping, and pool maintenance and repairs.

You won’t have to be out in the rain trying to clear out the clog in the gutters. Or deal with the landscaping company not showing up. You won’t be watering or mowing the lawn, or painting the outside of the building. Your HOA dollars will pay for the exterior maintenance and insurance. Someone else will also manage the repairman appointments, bids, and the actual repairs.

What is a “common area”?

Common areas can include parks, pools, pathways, and community rooms. Privileges are comparative to condo ownership. HOA rules should be followed when you’re using those spaces. Most will prohibit smoking, loud parties, or late hours.

There are some advantages sharing a common area like you do with a condominium. You often have access to superior amenities like a pool, sauna, hot tub, or a fitness center.

How much are the dues and what do they cover?

Funds collected will be added to the association reserve account to pay for exterior maintenance and repairs. Examples of items the HOA dues would cover are the driveway, roof, fences, landscaping, pool maintenance and repairs. 

Having monthly association dues can be positive, especially if you’re not used to saving for home repairs. The repairs are scheduled based on the lifetime usefulness of the item. So if the roof will need to be replaced in 20 years, the association will earmark money for that replacement long before it’s needed.

The association will manage issues with neighbors who don’t follow the rules. They’ll collect the dues, manage the repairs and the association funds. Maintain the exercise equipment and the pool service.
Having the responsibility to maintain the interior, is a good first step to owning a home. You won’t be calling the landlord to fix anything for you. You’ll have to learn how to be handy or who to call for repairs. But you’ll still have someone else to handle the exterior issues for you.

HOA Documents: Covenants, Conditions and Restrictions (CC&Rs)

When you purchase a unit within a complex, you’ll be given hundreds of pages of disclosures with regard to the HOA. It’ll be broken down into sections to help you read through them. 

The CC&Rs will include an annual budget, policy statements, architectural standards, assessment info, power, rights and duties of the board, maintenance funds, newsletters, etc.

The documents will tell you the “useful life,” “remaining life” and future replacement costs of each component that is covered by your dues. This information along with the other financial documents included will tell you how well the association is managed and the economic strength of the association. It’s really important to know how much the future repairs will cost and how much money is in the reserve account.

HOA Costs and Expenses

It’s also important to be clear on what the dues cover before you purchase the property. Do they cover the windows? Or doors? Decks? Garage doors? Know what you’ll be required to fix and be financially responsible for.

The documentation provided will also tell you whether or not there will be future assessments to cover any shortage of funds. Special assessments can be a significant amount of money that will be paid either monthly, in addition to your regular dues, or in a lump sum.

Assessments will have to be paid in full when a property is sold. So it’s important to know if there’s an additional expense, how much it is, and if the buyer or the seller will be paying it.

When you’re looking at the budget and expenses, you’ll also see how many owners are delinquent with their dues. You don’t want to be one of the few owners paying their dues and neither will the bank. It’s one of the questions the bank will ask the association to confirm the strength of the association and its fnancials. 

The association will have insurance for the common or public areas but you’ll still need to purchase what’s called an HO6 policy. It covers the interior and your belongings in case of fire or other damage of some kind.

How a homeowners association operates

As a homeowner, you are automatically given voting rights within the association. You’ll make decisions for the future of the organization. You can also become a member of the board. Make sure you know what you’re getting into on that one. It can be really contentious when neighbors disagree. You’ll have to disclose every detail when it’s time to sell.

What are the association rules?

It’s important to know if they fit your lifestyle before you purchase. One of the first questions I’m asked about complexes is whether or not they allow pets. Be aware that there will be breed, size, and number of pet limits. And the pet rules aren’t over once you move in. Dogs in the common area will have to be on a leash and extra noisy pets will be an issue to the neighbors. They’ll warn you once or twice about any issue, pet-related or not. Then they may start charging you for each incident.

Some associations have architectural committees. So although you are responsible for the upkeep of the interior of your unit, you still may have to obtain approval from the architectural committee before you make any major changes.

Some complexes also have inspections that are required at the time of the sale. An inspector designated by the board will come out to view the unit to determine if any unauthorized changes have been made. If they have, you may be required to remove, replace, or upgrade the item to current building code standards. Be sure to really understand what the rules are before you buy. Once you’re an owner you’ll be expected to know and honor the rules.

Are there any lawsuits against the complex?

Your agent should tell you right away if the association is involved in a lawsuit. If there is a lawsuit, it’s unlikely a bank will loan on the property.  The sale will require all cash. 

If you do have all cash, you’ll need to decide if you want take a risk of the association losing the lawsuit. It could cost you thousands of dollars. If the bank isn’t willing to take that risk, really consider whether it’s a good idea for you.

Lawsuits can be over someone tripping and falling in the common area. If the complex is less than 10 years old, there are often construction defect lawsuits over the quality of the building or the components used in construction. Another example would be an owner suing the board over a disagreement in architectural requirements or favoritism of one owner over another.

What is the rental policy?

Know the rental policy before making your final purchase decision. If there are too many units for rent as opposed to owner occupied, the bank will not loan against the property. Banks limit the number of units that can be rented in a particular complex because it’s been proven that owners will take much better care of their own property than a tenant. That policy may also affect the resale value. Some associations will create a waiting list for approval to rent out units.

Airbnb is an issue for most complexes as well. There are many that won’t allow owners to rent for less than 30 days. A visitor staying for a few nights is more likely to be loud and annoying.

Financing when purchasing a condo or townhouse

The mortgage company will consider the cost of the monthly dues in your pre-approval. The amount of the dues will reduce your loan amount because it’s a monthly cost just like a car or credit card payment.

Let your mortgage rep know if you’re considering purchasing a condo or townhouse. That way they can explain the pre-approval process that coincides with that type of purchase.

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