What is a Condominium?

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Definition:

A condominium (aka condo) is a privately-owned residential unit that’s similar to an apartment because it’s typically located within a larger multi-unit complex.

🤔 Understanding condominiums

A condominium (aka condo) is a type of residential property that is almost the same as an apartment, but with a subtle difference: Apartments are owned by the building owner; condos are owned by individual tenants. Condos are typically part of larger, multi-unit buildings, but there are some detached, standalone condos. Condos are popular because they offer flexibility: Owners get many of the benefits of owning real property (potential capital gains, the ability to rent to others, etc.), without having to maintain everything in the building on their own. In some ways, a condo is a midway point between renting an apartment and owning a house.

Example

Imagine a woman, Laura, who is looking for a new home. She likes the idea of owning her property, but she doesn’t want to deal with all the upkeep and maintenance costs that come along with home ownership. Laura decides to purchase a condominium, allowing her to own real property and benefit from the services provided by the condominium association.

Takeaway

A condominium is kind of like an apartment that you own . . .

A condo offers homebuyers a compromise between the freedom of owning a house and the convenience of renting an apartment. While condo owners directly foot the bill for maintenance and upkeep inside their unit, they don’t usually own the entire building. Instead, they share the encompassing structure (usually called ‘common areas’) and own an interest (i.e. the assets and a share of the expenses) in the condominium corporation that owns the property.

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What is a condominium?

A condominium (aka condo) is a piece of real estate that’s typically housed within a larger multi-unit building and shares some amenities and common areas with other unit owners.

The building is owned by the condominium association, the legal entity that represents the unit owners’ collective rights. Condos are often confused with apartments because they’re generally structurally identical, but they’re not the same: Apartments are rented; condos are owned.

Condos can be an accessible option for new homeowners looking to buy their first homes. They’re usually cheaper than single-family homes, which can make condos a good option for first-time homeowners or people who can’t afford houses in the most desirable parts of town.

Because condo units are typically part of larger complexes that are owned by condominium homeowners associations (HOAs), the owner is typically only responsible for interior maintenance, not exterior maintenance.

That means condo owners usually don’t need to worry about personally replacing the roof, mowing the lawn, redoing the driveway, or any of the other maintenance tasks that may come along with owning a home. Instead, a monthly payment is paid to the homeowner’s association to pay these costs.

In this way, they’re something of a midpoint between owning a house and renting an apartment. Condo owners have the benefits of building equity in a property and can rent it out to others for income like a house, but some of the necessary maintenance is carried out by a third-party.

This arrangement often makes condos an appealing option for retirees and empty-nesters who no longer need the space afforded by a house and can enjoy some of the perks of renting an apartment, all while building equity and avoiding rent increases each year.

What are the types of condos?

Condominiums are often grouped according to their physical features. They can broadly be divided into three groups:

  • One-family condos and townhouses are typically multi-floor, semi-detached homes. They may share amenities such as pools, parking lots, and tennis courts. The condo owner may own only the interior of the property or both the interior and the exterior.
  • Small multi-unit buildings (2 to 19 units) are generally low-rise buildings that are built on shared, landscaped grounds, such as gardens. They may include swimming pools, parking lots, fitness centers, laundry rooms, clubhouses, and other shared amenities.
  • Large, high-rise condominium complexes (20+ units) are virtually indistinguishable from high-rise apartment buildings. Condo owners in these complexes share common areas, like hallways and pools, but own the interior of their unit.

What is the difference between an apartment and a condo?

There is often no structural difference between an individual condominium unit and an apartment. The difference lies only in how they are legally treated.

For the most part, the difference is that condos are owned, and apartments are rented. But this is a bit oversimplified — It’s still possible to rent a condo, and in some cases, you can even own an apartment.

The key difference is that condo units are owned by individuals, but apartment units are typically owned by the apartment complex owner. So, even though you can rent a condo, you’re renting from that individual unit’s owner — not the building’s owner. When you rent an apartment, you’re paying rent to the building’s owner. Or, if you’re renting a sublet apartment, you’re making monthly payments to the tenant, who then pays the owner.

When you rent an apartment, you probably won’t deal with the owner. Many apartment building owners hire property management companies, which then manage most aspects of the building’s operation, including maintenance and building rules.

In contrast, when you buy a condo, you enter into a homeowners association (HOA), an association of residents living in the same complex. The HOA board is elected by the residents. It takes care of most maintenance and upkeep and also sets rules, restrictions, and bylaws for the complex. Condo owners need to pay monthly HOA fees.

Now, what’s the difference if you can own an apartment anyway? Well, real estate laws are decided on a local level. In most markets, if you own an “apartment,” you actually own a condominium. But in some markets, like New York City, the law does allow people to buy individual apartment units. In the Big Apple, you can purchase condos, co-op apartments, or individual units in an apartment building.

Co-ops are relatively unique to NYC. When you buy a co-op apartment, you’re not buying a unit at all — You’re buying shares in a corporation that owns the building. Except for the ownership structure, co-ops are similar to condos, but they’re generally a bit more restrictive.

How does condominium ownership work?

Condominium ownership works differently depending on the type of complex the condominium is located in.

In some complexes, you may own only the interior of your individual unit, and the condominium corporation owns the building. This is most common in high-rise condo complexes and takes some of the burdens of upkeep off of the condo owner’s shoulders — although they’ll still have to pay for upkeep in the form of homeowners association fees and fix their own units.

Condo owners can also have freehold ownership over their property. In this case, they own not only the individual unit, but also the building and the land that the condo is built on. The only things they don’t own are shared amenities. This type of ownership is also referred to as fee simple ownership.

How do condominium associations work?

A condominium association is a legal entity made up of all the individual unit owners in a condominium complex. The condominium association typically owns the condominium building and other common areas, and the residents own their units.

To make this clearer, let’s think of a simple scenario. Imagine three friends, Bob, Phil, and Morgan, who want to live together, but also want their own completely separate spaces. They find a small, multi-family building with a tennis court and swimming pool. They decide that if they put their money together, they can afford to purchase the property. However, they need to make sure that if they’re splitting it evenly, they all have a share in ownership.

So, the three friends form a condominium corporation called BPM Condos and purchase the building as an entity — not Bob, Phil, and Morgan. Then, each of the three friends buys their condo unit from BPM Condos. BPM Condos owns the building, land, and shared amenities, and each of the friends has a share in them, but no one owns them outright — They only own their units. If one of them decides they want to move, they can sell both their unit and share in the corporation to a new owner.

Now, most condominium associations aren’t founded by a group of friends that want to live together, but the structure is the same, whether it's a three-unit building or a 100-unit building.

The condominium association owns the land, building, and amenities, and the residents own just their individual units plus an interest in the association. This interest gives them some power over decisions that affect the entire complex, but not absolute power like they’d have if they owned the complex outright.

In some ways, condominium associations are a little like miniature republics: All the residents have a stake in them, and they can collaborate on how the condos are run, but no one has absolute power.

In contrast, apartment complexes are similar to small dictatorships: The landlord owns everything, and the renters have little or no stake in the building, their units, or any of the decisions that are made about either of them.

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