Over the last decade, I have rented a handful of various condos and townhomes. Being that I like to know a little bit about everything, I spent some time researching what it would be like to own a multi-family style unit. During an open house today, I met with a sales agent who better explained what it is like to own these types of units.
What exactly do you own?
When you buy into a multi-unit building such as a condo or a townhome, you are purchasing a vested interest into the living space of your unit. The units belong to the developer who owns the building and everything on the exterior of the innermost wall of the units. When you buy the unit, you own everything inside the innermost wall. These units have what is known as a zero lot line, meaning that you have no yard whatsoever.
When you purchase a unit, you pay a sale price to take ownership of the inside of the unit. In addition, you will be paying a HOA or home owner’s association fee. This fee is typically monthly and will vary from year to year. This fee covers the maintenance of the exterior of the building and the landscape around it. For example, the unit I am living in now has an HOA and they repaint the buildings every seven years, replace the roof every fifteen years and have a landscaping crew that handles the grassy areas and planters around the property every week. In addition, there are water sprinklers that are run by the association in the yard areas that is not billed to my water bill as it is covered under my association fee.
Long Term Issues with Owning Condos
As a potential investor, I am looking at the long term issues associated with the cost of buying a condo unit. While I would at some point be able to pay off the loan for the purchase of the unit, I will never actually own the property. The HOA fee is a never ending charge and they have an existing lien on the unit as soon as you buy it that enables them to put a claim on the unit if you fail to continue to make these payments. As costs increase, these rates will increase as well, even if the value of the unit falls in the future, making reselling difficult.
If you are going to invest in a multiunit complex, think about the value of the amenities they are including with the cost of the ongoing HOA fees. If you are getting a value equal to those fees and will continue to use those amenities throughout your living in the unit, it’s a fair investment with the purchase price being your admission cost to the neighborhood. If you are not going to be using the amenities enough to validate their required ongoing costs, consider a single family home in another division.