Condo Can Be Prelude to Owning First House

In summertime, many an unhappy apartment dweller starts looking to buy a home. But even with real estate prices falling in some areas, some will find that they can’t afford the detached house they had in mind. Still, they may be able to afford a condominium, townhouse or co-op.

For many, condominium ownership is the fastest and easiest way to get into the housing market. Nationwide, condominiums and co-ops cost about $15,000 less than the median-price home. And in high-price areas, such as California, the disparity is far wider.

The median-price condominium now costs about $60,000 less than the median-price California home. That means a person with a $45,480 annual income can afford the condo, but would need to earn almost $64,000 to buy the home. The bottom line is about 36% of the California households can afford the condo, while only 21% can afford a detached house.

And buying a condo--like buying a home--can also be a good investment.

If you have been renting, buying a house or condo saves you from throwing money away in monthly rental payments. And because most of these purchases are largely financed, even small increases in home value can net you a high return on your investment, said John Tuccillo, chief economist at the National Assn. of Realtors in Washington.

Generally, condos do not appreciate as quickly, and they are a bit harder to sell than detached homes. But, on the positive side, they tend to do better than detached homes during bad real estate markets, Tuccillo added. The benefit of this, of course, is that you may be able to sell your condo at a profit during a real estate downturn and use the proceeds to buy a detached home at a bargain price.

Yet, while all investments leave individuals open to some potential risks--such as investment losses--there are some unique risks involved in buying a condo or a co-op. These risks center on the common ownership and common management of the building.

It is important to note here, however, that the terms condominium and co-op refer to a type of ownership, not a type of building. With a condominium, buyers own the inside walls and fixtures in their unit. They share ownership responsibilities and costs of the common walls, roofs and garden areas, among other things. With a co-op, owners get the exclusive right to occupy a particular unit, but everyone shares ownership in the entire structure. (Townhouses can be considered condominiums or detached homes--even though these houses usually share one wall with a neighbor--depending upon whether there are common grounds and facilities.)

Because condominium and co-op owners share responsibility for much of the project, most complexes set up governing bodies--often called homeowners associations--and detailed sets of rules that may or may not correspond to the sorts of rules you are used to in an apartment complex.

In addition, they generally collect monthly fees from all unit owners to help maintain the common areas. A board, elected by members of the homeowners association, determines how much everyone must pay, and helps set up and enforce the complex’s rule book, which is usually called the “CC&Rs;” for covenants, conditions and restrictions.

If you are considering buying a condo, you need to know as much as possible about the rules in the complex, the monthly dues, the management of the board and the possibility of one-time special assessments being levied against all unit owners.

Why is this important? Shared housing projects are like miniature cities, with governments, rules, regulations, taxes and enforcement powers. If the complex government is not to your liking, you’ll be miserable in your new home, no matter how much you like the inside walls. A bad homeowners association can also cost you.

Some condo owners tell horror stories about buying into a complex that normally assessed $100 in monthly dues. Two months later, the board levied a $1,000 special assessment to boost the association’s reserves.

Others say they found condo rules impossible to live with. For example, one complex fined an owner $100 for working on his antique car in the driveway of his townhouse. This man, who likes to tinker with classic cars, found out too late that the CC&Rs; decreed that all auto work had to be done inside the owner’s garage.

Another association levies $25 fines on anyone not voting in the association’s annual meeting. And still another association had an owner’s car towed when she parked it in the visitor’s parking area.

So how do you find out about a condominium’s government and ensure that it is to your liking before you buy?

The best thing to do is to make any condo or co-op purchase offer contingent on receiving (and approving) a copy of the complex CC&Rs.; Also, ask for a written letter from the association’s board that would reveal what the current dues are and whether there are changes in the offing. You can probably also get minutes--a written record--of the association’s most recent board meetings to get an idea of what the complex government is up to. It is also advisable to work with a seasoned real estate agent who can advise you about any other items you might want to look at before you close escrow.

If you are already in a condo and you don’t like how the homeowners association is running things, you may need to get involved. Attend all the association’s meetings and, possibly, run for a spot on the board. Many people don’t want to spend the time, but that can prove costly with a condo.

“You have to be your own best friend, an advocate for your own investment,” said Steven A. Sokol, general counsel at the California Assn. of Realtors.