Buying a condo is a serious undertaking. Not only are you putting up a significant amount of cash on the property, you’re also picking out your home – somewhere you’ll live for five, 10, maybe even 20 years of your life.
You might move your new spouse in. Raise kids there. Get a puppy. It’s a big deal, and because of this, it’s important you go about the buying process carefully, thoughtfully and thoroughly.
First of all, you should ask yourself why you are considering buying a condo. Here are the five steps you’ll want to walk through.
1. Learn what are the implications of owning a condo
A condominium, often shortened to condo, is a type of real estate divided into several units that are each separately owned, surrounded by common areas jointly owned. (Wikipedia)
This type of property presents unique challenges, as you are buying full ownership of one or more individual units and partial ownership in shared “limited common elements”.
Units renovations have limitations: which materials you’re allowed to use, working hours, elevator access and so on. Limited common elements might need some work as well, but who’s responsible? Keep reading to learn more…
2. Understand the reasons why you should be buying a condo
Affordability/Location: Condos are popular in areas with high property values, where a single-family home could be prohibitively expensive. A condo could allow first home-buyers to afford living close to work, in a lively area of a major city.
The Condo Lifestyle: Living in a condo could also have unique benefits no other type of property has, just imagine the city views you could have from the top floors of a high-rise building in a big city.
Flexibility: Also, if you decide to travel for 1 year you can just leave your condo and stop worrying. The level of maintenance for a condominium is way lower than a single-family home in general. This allows for greater flexibility.
3. The risks of buying a condo
Before getting too far into the process, you’ll want to consider the risks that come with buying a condo. These include several lifestyles and financial risks, long-term value risks and the overall market risk you take with a condo property.
Let’s look at each one more in depth.
Before buying a condo, always ask how many renters are currently in the building – and the maximum number that are allowed. Renters tend to decrease the value of the building (and subsequently your unit), and this can have serious consequences in the long-term.
On the other end, you might want to make sure to be able to rent out your unit if you want to.
- Neighbors: Your neighbors pose the biggest potential lifestyle risk when buying a condo. Though you may say hello to one in the hall when viewing the property, you won’t really get to know them until you move in – and by then, it could be too late.
- The noise – Condos come with a considerable amount more noise than single-family properties. There are residents above, below and beside you, and if you’re on a busy downtown street, you’ll probably hear the traffic below, too. Timber condos are especially susceptible to increased noise.
- The co-ownership – As a condo owner, you don’t have rights to the entire property. You share it with dozens, maybe even hundreds of other people, and there’s a lot that can go wrong in that scenario.
- The rules – Much like an HOA, condo properties have rules. You need to make sure these rules fall in line with your lifestyle and goals. Can you not decorate certain areas or host parties? That might not be ideal for the budding interior designer or social butterfly. Are you planning to rent your condo out on Airbnb or something similar? The condo association might not allow it.
There are also financial risks you’ll want to consider before buying a condo, most of which boil down to the lack of control you have on a shared property.
- Limited Control: For one, you can’t control the building’s overall condition. The condo association or building owner is responsible for keeping up the care and maintenance of the building, while other renters/owners are responsible for their own individual units. You have no way of controlling how well the building is kept or whether its value depreciates over time.
This is why it’s vital to understand the condition of the building before buying a condo. A comprehensive condo inspection can help. This is way is important to rely on the opinion of an expert when considering the purchase of a condo, especially during the inspection!
- HOA/Reserve Balance: In the same vein, you’re also at the whim of building management. If they have financial problems or are struggling to stay afloat, that puts your building – its condition, its care and its value – at risk. It could even put you out of a home if the company goes under. Always evaluate a condo’s building manager before opting to buy. What’s their reserve balance? What happens if they have an unexpected expense? Do they have regular meetings? Do they participate actively in the community
Always make sure capital and operating balance are on different accounts, to make sure there is enough money in the reserve balance to cover unexpected expenses. Be aware that often smaller building might combine the two on a single account.
It’s also important to understand your financial obligations in the shared setting of a condo community. What are you responsible for if something breaks or needs replacing? Who covers the costs of repairs and maintenance of shared areas? How do you report those and how quickly are they tended to? Make sure you’re not on the hook for more than you can afford.
Long-term Value Risks:
With any property you purchase, you want to ensure long-term value. In the event you sell your condo down the line, you want to make back your money – and then some. Unfortunately, because so much is out of your control as a condo owner, protecting the long-term value of your purchase is a bit harder. You have to deal with:
- Mismanagement of the building: If there’s suddenly a big problem or repair needed on the property, does the building manager have enough cash reserves to cover it? What if they cut corners and do shoddy work? What if you want to sell? You’ll likely take a hit on your sales price if underlying issues are at work.
- Your neighbors’ sales: Comparable sales play a big role in how much you can list a property for when it’s time to sell. If your neighbor is in dire straits and sells their condo for 30% under what it’s worth, that hurts your ability to list yours at full-value, too.
- Building instability: Unexpected financial events, unpredictable neighbors and building management can put the building in an unstable condition. This could make it hard to find an interested buyer down the line, let alone one willing to pay a good price.
Condos are also simply more sensitive to market change. They gain value faster when local conditions are positive (meaning they’re great for a short-term investment or flip), but this also makes them a riskier buy, because it’s hard to predict their long-term ROI.
Still, risks aside, their market sensitivity does come with a few advantages. For one, you might be able to get a really nice property in a high-end neighborhood without paying nearly the price you would on a single-family home. You also get to enjoy a low-maintenance, low-responsibility living situation – another advantage over single-family properties.
4. Identify Your Priorities
Once you’ve weighed the potential risks of buying a condo, it’s time to think about your lifestyle priorities – what you want from the condo today, tomorrow and 10 years down the line.
You’ll want to consider:
- Living vs. renting – Do you want to live in the property or rent it out? If you’re considering renting it, make sure you know the rules for your condo building. If you want to live there, be sure it checks all the boxes regarding space, amenities, location, transportation access and more.
- Pets – Do you have a pet? Would you possibly want one in the future? Many condo buildings have strict no-pet policies, and some also have restrictions on certain breeds and animal types. If your furry friends are a priority, find out early on what a building’s pet policies are – and make sure those aren’t changing anytime soon.
- Appliances – Is there a fridge in the unit? A washer and dryer? If not, do you need to buy and install them? Or are you forced to use shared units or laundromats? Make sure the condo has all the appliances you need or, if it doesn’t, that you’ve budgeted enough cash to cover them yourself.
- Access – Does the condo have balcony or roof access? Somewhere you can grill a steak or take a dip in the pool? Does it offer easy access to trains, subways, metros and bus lines? Are there parking spots for your cars? Think of all the things you want access to in your day-to-day life, and make sure your condo can offer it.
These may seem like small details, but they can make a big impact on your everyday life. You don’t want to fall in love with a place, buy it and move in only to find out Fido’s not welcome or you need to buy $10,000 worth of appliances just to cook and clean your clothes!
5. Location, location, location!
Finally, it’s time to weigh potential locations. In Chicago, condos are everywhere. You can find them in virtually every neighborhood and every community. Some are housed in historic, centuries-old buildings, while others are brand new, modern and hip.
Honing in on the right location is crucial – both from a financial standpoint and a lifestyle one.
Not sure where to start?
Here are Chicago’s top five condo neighborhoods as of May 2018:
Logan Square is known for is small, more modern new condos, as well as its vintage units upgraded with contemporary features and amenities. Condos in Logan Square are popular with younger buyers and families, due to the great local schools.
West Town has a great mix of condos. From small, affordable, pre-2008 units to more modern, midsize ones from the last five years, there’s a little something for everyone in this neighborhood.
Luxury and boutique condos are a popular sign in River North, as are lofts – another type of property that’s hot with Chicagoans. The neighborhood boasts tons of new construction as well as existing mid-rise buildings.
ALONG THE LAKE:
Whether you’re looking for mid-century high-rise condos with a lakefront view or a vintage courtyard condo with tons of charm, you’ll find it along the lake. Just beware of some of the older condos and be sure to have them inspected by a qualified condo inspector.
Chicago’s tech hub and the spot to go for a great meal or night on the town, the West Loop has become a popular spot for younger residents. The neighborhood boasts both modern and luxury condos, as well as lots of loft options.
Now that you’ve learned pros and cons when buying a condo you might want to look at locations and property types. Check these articles: