Condos vs Houses: What Is the Difference?
In some major metropolitan cities, it's not a choice between buying condos vs houses because urban houses can be too expensive. Condos almost always win out. Because they often cost less. Two of the biggest benefits to buying a condo are: usually condos are newer than a house, which means better upgrades, and the price is more affordable.
But there are other reasons buyers might gravitate toward condos vs houses.
To make a fair comparison price-wise, I suggest buyers consider the amount of the homeowner's association (HOA) fee upfront. Whatever that amount, equate that sum to an increased mortgage payment. For example, let's say your HOA fee is $250. At an interest rate of 4.5 percent, that could be an additional payment on a principal sum of $50,000.
What this means to you is without an HOA fee, you could bump up your price range by $50,000, buy a home and pay about the same amount every month. In other words, if you were planning to buy a $250,000 condo with a $250 HOA fee, you could spend the same amount per month and instead buy a $300,000 house. Because 50,000 at 4.5 percent interest over 30 years equals an additional principal and interest payment of $253.34. Or, pay $50,000 less and buy a condo. Give or take.
Not only is the HOA fee a consideration, but it depends on the amenities covered by the HOA.
For example, if your HOA pays the water and trash, that would be an additional expense you would have to pay on your own if you bought a house. Further, a house is unlikely to provide you with tennis courts, in-ground spas, an assortment of swimming pools or a clubhouse.
One of the drawbacks to buying a condo is your unit will never be worth more than an identical unit, plus upgrades.
Your investment relies on surrounding sales. If another owner sells under a fire sale at a cheap price, that might affect your market value. Parking is often limited to one or two vehicles. It can be a long distance to travel by foot carrying packages from your parked car to the kitchen.
Two Types of Condos
The two mains types of condos are those that were converted from apartments to condos and those that were originally built as condominiums. If you can't see the difference, it probably won't matter for future values. If your condo seems like an apartment to you because it was a condo conversion, it will feel the way to other buyers and the values might always be less than other nearby condominium communities.
Pros to Buying Condos vs Houses
- Condos are often less expensive than houses. To qualify for a condo, the lender will add the HOA to your payment, plus taxes and private mortgage insurance, if any. Still, often a condo will most likely be more affordable than a house.
- Newer condos tend to have more upgrades than older homes. If you have your heart set on granite counters, stainless appliances and an open floor plan, a newer condo will fit those requirements.
- The HOA usually offers luxurious amenities and the grounds are often resort-like. Swimming pools, spas, clubhouses, BBQ areas, volleyball courts, tennis courts, basketball courts, jogging trails, laundry facilities and more.
- Lock-and-go lifestyle. People feel more secure because others reside in close proximity. In gated complexes, it's more difficult for those who don't belong there to come and go without scrutiny.
- Community mailboxes. In a large condo complex, a guard might be available to accept deliveries for you during the day.
- Less maintenance and upkeep. No mowing lawns, raking leaves, replacing broken windows. You are generally responsible for only your interior.
Drawbacks to Buying Condos vs Houses
- You are often too close to your neighbors and sound can travel through adjoining walls. This means you can't watch Star Wars at maximum volume without causing neighbors to angrily pound on your door.
- The condo complex might not qualify for an FHA loan. Which means you would need to pay cash or obtain a conventional loan to buy. This restriction could affect the number of available buyers who can buy the condo when it comes time for you to sell. Many projects are not approved for FHA because the occupancy percentage of owners vs tenants exceeds 50 percent.
- Your HOA fee can increase, and they generally continue to rise. If the building is older, it could require more reserves to pay for roofing, plumbing, exterior maintenance, which tends to mean higher HOA dues.
- I would be remiss if I did not point out that the Board of Directors in an HOA can be on power trips. Not every HOA is like this but enough are that I have to bring it up. There can be a Big Brother aspect to living within an HOA and conforming to rules you did not create.
- No matter the layout, a condo is not a house. The square footage might be smaller than a house. A condo usually won't give you a garden to tend to or a place to wash your car.
- Pet restrictions. If you've always wanted a Great Dane, your HOA might not allow it. The rules might restrict the number and types of pets you can adopt as well.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.