Thinking about buying a condo? You may not be aware that the rules for condo purchases are different than other types of residences such as single-family homes and townhomes.
If we think about real estate like a dating relationship, condos can be more like an arranged marriage than a love affair. Here’s what you need to know.
Think about buying a condo not like buying an individual asset, but more like buying in to a partnership of a shared asset with many partners. In an arranged marriage, there are a lot of people who have a say in the most intimate details of your daily life… and so it is for a condo purchase.
Like an arranged marriage, there’s more than meets the eye - there are also additional costs not associated with other types of homeownership, such as HOA fees and special assessments for anything from replacing windows to beach renourishment.
Some aspects of buying condos are the same as any other real estate purchase. You still need to find a great location and a price you can afford, however – first and foremost you have to make sure it’s a solid investment. One way to tell if a condo is a good investment is if a loan is Fannie Mae-approved.
Guidelines for Fannie Mae approval include (from interest.com):
- More than half of the units in a new building will be owner-occupied. (NOT majority investor occupied, which can be tricky in Miami and South Florida, where condos are a popular investment).
- No single entity, such as a real estate trust or company, owns more than 10% of the units. The exception to this rule is in buildings with 5-20 units, where a single entity can own two units.
- The building is insured.
- The building’s commercial space, such as retail shops and offices take up less than 25% of the building.
- A minimum of 10% association dues are held in reserve and less than 15% of dues are more than 60 days late at any one time.
- There's no current litigation regarding safety, structural soundness, habitability or functional use.
Arranged marriages – and condos can be complicated, but aren’t always a bad thing, if you know what you’re getting yourself in to and know the rules and conditions before you jump in.
Contact my team today if you’re interested in a condo, or any other kind of real estate sale or purchase.