Do you want a condo or an apartment or both?
It’s the age-old debate, condo vs. apartment living. What’s the main difference and which one is better? Generally, condominiums (condos) can be purchased while apartments are rented. While you may have an option of buying an entire apartment complex, most of us are not in that position.
Which Is Better, An Apartment Or Condo?
To see how they match up, we will evaluate the pros and cons of living in and renting an apartment versus the pros and cons of living in and purchasing a condo. In the past, I lived in an apartment and also purchased a condo. I will share with you my unique perspective and experiences with both.
The Apartment Experience
Let’s start with the experience of apartment living. When I was younger we lived in an apartment for about a year. Apartment hunting wasn’t so bad. Go online and look at pictures, email the property manager, and start from there. You sign a lease and pay the security deposit, usually a first and last month’s rent, and you move in.
Apartment living typically doesn’t involve apartment maintenance. When something goes wrong, you typically aren’t responsible for any repairs – unless the damage or issue was caused intentionally or by your negligence. The property owner takes care of everything in and outside the apartment unless you break something, then they send you a bill after they fix it.
Paying rent and living in an apartment has its advantages. If your working and don’t have time to deal with the complexities of property maintenance and ownership, then apartment living is actually a pretty good idea.
The Best Apartment Floor To Live On
From experience, I can tell you that the top apartment floor is the premier floor and the most sought after floor. Due to this, some apartments also charge a premium for this location. The reason the top floor is the best becomes painfully obvious if you have ever lived below apartment renters with children who jump and stomp everywhere.
Living on the top floor has its perks, but it also has unique downfalls. Having to hike stairs on a daily basis or wait for the elevator can be frustrating. In addition, have you ever moved furniture up stairs? It’s as big of a pain as it sounds.
The Condo Experience
What about a condo? Condos are usually individually owned so it can get complicated, pretty quick. Generally, you have two options when it comes to living in a condominium. You can either buy a condo to rent out or live in, or you can rent a condo from an independent owner.
With the price of a single family residence quickly becoming out of reach for the average person, owning property and building equity is much more difficult. Luckily, depending on location, condos can be an attractive option to afford a piece of property and provide quality housing for your family.
Finding a condo is relatively easy. The same sites that advertise apartments may have a link to condo listings. You can look at only one site for listings but you’ll probably want to look at as many online listings as possible to get the best selection.
Purchasing A Condo
Once you’ve found a condo that looks to be what you want, generally, the only person you can contact is the real estate agent – who probably hasn’t been inside the actual unit in a while.
Realtors are usually easy to deal with, but if you call a number from a listing, you’re getting the sellers agent, which means they work for the owner, not you. If you find yourself getting overwhelmed, then you’ll need to contact a buyers agent, which is the same as a sellers agent, except they’ll work for you instead of the seller.
What’s The Difference Between An Apartment And A Condo?
For this discussion, we are going to assume the debate is between renting an apartment versus owning a condo.
Common Area Maintenance
If you live in an apartment building and you see something wrong outside your window, you call the property manager to fix it. If, after buying a condo, you see something wrong outside your window, you contact the property management company that does the maintenance, and they will fix whatever it is. So regarding exterior maintenance, there’s not much of a difference.
On the other hand, if you are living in an apartment and want to paint or remodel, you are required to get the manager’s approval, and they may say no. If you’re living in a condo, you can do pretty much whatever you want as long as you get permission from the condo association, who will most likely welcome any work that improves the condition of a unit.
There’s also the local building ordinances to contend with, but if you use licensed contractors, they can keep your project legal so you won’t have to worry.
If you live in an apartment, you may need renters insurance. If you live in a condo and you own it and finance it, you will have to purchase homeowners’ insurance. Depending on where you live, insurance may be extremely expensive or quite cheap. States that routinely deal with earthquakes or hurricanes are usually going to charge higher insurance rates than states without frequent natural disasters.
If you own a condo and rent it out, you should require your tenant to get renters’ insurance. You will also need liability insurance, which is different than homeowners or renters insurance. Your agent might offer building collapse or sewer backup insurance as well. Evaluate how much these extras cost to see if it’s worth it to get the insurance or go without.
Generally Speaking, Are Condo’s Nicer Than Apartments?
Again, the answer is: it depends. You get what you pay for, so generally, the more you spend on rent or mortgage, the nicer the place. But remember, apartments are usually a lot easier to walk away from than a condo. An expensive apartment in a downtown area may have great amenities while a low priced condo may not even have covered parking or a pool.
While landlords can only get away with charging so much for rent, the condo association can pass assessments endlessly like a city tax authority. This means if a landlord tries to raise the rent to pay for an appraisal for new road work in front of the apartment building, you can give notice and move out. Even if your in the middle of a lease, you generally can get away without too much hassle.
A condo association, however, can pass assessments for something like sewer replacement, and you’re stuck with it.
To make matters worse, if you don’t pay the special condo assessment, the association can foreclose on you. Remember, the realtor and building inspector can only tell you about the condo condition at the time of purchase. Anything that happens or you discover afterward is your problem unless you can prove negligence on someone’s part.
What Are The Disadvantages Of Buying A Condo?
Keep in mind, when you go to look at an apartment, it most likely will have been cleaned, or the manager might have a display model ready for inspection to show off all the apartment amenities. It will look beautiful and probably have modern appliances and furniture.
Now, when you go into a condo, you might find a new unit ready to move into, or you may walk into a condo where the previous tenant passed away six months ago – and it doesn’t have the best smell. Without getting too graphic, you never know what you’re going to walk into when you are condo shopping. Fortunately, that’s a worst-case scenario and not usually the norm.
You need to prepare for anything, and the realtor’s information may be limited. Even without icky details, remember that when people move into a condo, they tend to stay for a long time and may or may not have done much work while they lived there. In other words, the place might be a wreck and require a lot of time and money.
The property may have fifty-year-old paint on the walls or damaged linoleum in the kitchen and bathroom. It will probably need a new toilet unless you want to use a toilet someone else has used for years or decades.
My Condo Horror Story
In my early 20’s, I rushed out and purchased a condo because I couldn’t afford a detached residential home. I was in such a hurry to purchase, I signed up for an interest-only loan and signed a contract that was at the very top of my spending limit.
A few years later, the housing market crashed and my condo lost more than 70% of its value. Fast forward five years and my interest only loan adjusted and the payments skyrocketed out of reach. I was unable to afford my home and foreclosed shortly thereafter.
The housing market took a big hit but the overpriced condo community was especially volatile. My condo did not hold its value nearly as much as a single family residence would have.
Had I decided to rent an apartment for a while and later purchased a property with more cash, I would have been in an entirely different situation.
Condo Vs Apartment Analysis
If you can’t put at least 20% down on a condo purchase – renting an apartment is the clear winner.
Deciding To Make The Condo Purchase
Let’s assume you’re in a good personal finance situation and have made the decision to buy a condo. In the end, you liked the location and the common areas, and the monthly HOA fees are reasonable. You held your nose and made a low ball offer, and they accepted.
You have to pay closing costs and come up with a down payment if you’re financing a mortgage. Keep in mind that when you are financing any property, and you plan to live in it, you can pay as little as three percent down with a Federal Housing Administration (FHA) loan, or $1,000 down with a VA loan.
Why The Down Payment?
The mortgage company uses your down payment as a prepaid mortgage payment, which means you are paying your mortgage in advance. For example, if you close on your condo loan at the beginning of November, your first payment will not be due until January the next year.
It’s the same with your monthly homeowner’s association(HOA) dues, so your first HOA payment will be due in January. Also, you might get a tax credit for closing costs, but your accountant would know more details. You got through all that, and you are now a condo owner – welcome to the condo community!
Is It A Bad Idea To Buy a Condo?
This is a difficult general question to answer and it depends on a lot of things. In the apartment vs condo debate, you can walk away if you find too many problems in an apartment, but you’re stuck with condo until you sell it.
Lower Your Risk Before You Purchase
Mitigate unknown problems by getting a building inspector to look at the property before you buy it. The larger, more established realtor companies have access to everything buying and selling related, and they can arrange inspections and even help connect you with a mortgage lender. Tell the realtor, so they know what you want, or they will steer you to someone who can arrange these things.
Planning for the unexpected makes life much more comfortable.
Is Renting A Condo A Good Idea – Instead Of Buying?
Yes, sometimes it is because condos tend to have nicer amenities than apartment buildings. Condos can have things like indoor garbage collection, indoor pools, community and exercise rooms, and indoor parking. Apartment buildings usually don’t have all the extras unless you pay a lot more.
Apartments are generally geared for the short term, while condos attract more long term tenants. The biggest problem with renting a condo is trying to find one to rent. Many condo associations don’t allow renters at all. Some condo associations are so strict they don’t even let owners have guests in the unit or on the grounds unless the owner is present.
However, don’t give up hope, there are still condos for rent out there. Try entering “rent condo” in a search engine, and see what comes back.
Purchasing Your Apartment Unit
Maybe your asking, “how do I turn my apartment into a condo?” The short answer is you have to buy your apartment from the owner – if they’re willing to sell. While it sounds easy enough, you would have to convince everyone else to buy their apartment as well.
The concept was quite popular back in the 1970s. Apartment building owners sold off the units one by one, and the condo association was born. Some people didn’t want to buy or couldn’t afford to purchase their apartment and moved out, while others stayed and bought their unit. Buying the apartment means taking out a mortgage or paying cash.
Most people can’t pay in full, so borrowing is the only option, which generally means coming up with a down payment. Of course, if anything goes wrong with the building or units, then the owner(s), meaning you, have to deal with it.
Making The Decision To Buy
If, after all of this discussion, you still want to buy a condo, go ahead. In an ideal situation, and if you have extra money to invest, you could form a limited liability corporation(LLC) and buy the condo for cash and put it into the LLC. That would give you some additional legal protections.
Aside from that, once you buy the condo, you can either rent it out while it appreciates in value (if the HOA allows it), or move in as your primary residence. You won’t find many people who think a property is a bad investment. I personally think real estate is an excellent way to diversify your investment portfolio.
You can contract with a property management company to deal with tenants, or maybe even the company that manages the condo’s would do the work for you in exchange for a fee or commission.
Condo Renting Tips And Tricks
A backdoor method you could or might use when trying to make money off tenants is to check the condo association bylaws on renting or have a lawyer do it for you. The association might forbid renters – but not rent to own agreements.
Rent to own contracts means you sign a contract to sell the condo. The benefit is you generally collect a lump sum payment upfront. After the lump sum, you collect monthly payments until a mutually agreed upon date, at which time the tenant must either buy the unit or move out.
A significant advantage is you can state in the contract that the potential buyer is responsible for all repairs and maintenance. If the deal doesn’t work out, then they move, and you keep the money paid to that point and find someone else. If the tenant does buy, then you get more money.
Become A HOA Board Member
Even if the association bylaws don’t allow renters under any circumstance, you could still try running for a seat on the condo board or ask for a vote at an association meeting. Other owners might have the same idea as you so you could band together and ask for a vote on the issue. The bylaws can change if there are enough votes.
Understanding HOA Dues
Another sometimes overlooked item is the HOA dues. The dues to the association cover various items. It may cover the heat in your condo and the hot water you use, as well and the sewer and overall water usage. It should cover garbage pickup if you live inside a building.
HOA dues also pay for common areas that are used by you and everyone else. The common areas might include a pool, exercise, and community room where you can entertain guests. It also should pay for outside lawn maintenance like grass cutting and flower planting in the spring, and summer and snow removal in the winter.
The association will most likely have some type of liability insurance to cover significant events like fires. However, the HOA insurance will most likely only restore units to their original state. So, for instance, if you have oak cabinets in the kitchen but the original cabinets were particleboard, then the insurance will only cover particle board cabinets if you didn’t pay for additional coverage.
The realtor can find out what is paid for by the association before you ever make an offer so you can make plans accordingly.
The Decision Is Personal
In the end, you have to make your own decision. Owning property is one of the American dreams. Having something to call your own can be extremely rewarding, both financially and psychologically. However, purchasing property when you are not in a good financial position can have the opposite effect. You could end up foreclosing, being unable to pay your bills, and digging yourself out of debt for years to come.
Apartment living gives you more freedom of movement. If you have the means, you could have it both ways. You could buy a condo that allows tenants and hire a management company to take care of the details. You could use the rental income to pay rent on your apartment and never move and still have ownership equity.
The condo vs apartment debate will continue to live on because purchasing a condo may be the right decision for one person, but the wrong decision for another. Write down a list of pros and cons and set yourself up to be in the best financial situation possible.