When it comes to buying your first home, the many options can be confusing. Skyrocketing prices and land scarcity increasingly prevent first-time buyers from purchasing single-family dwellings, and consumers find themselves turning to alternatives - condominiums, townhomes, PUDs, and co-ops. What are they, and what’s the difference?
First, all of them are considered Common Interest Subdivisions (CIS), in which individual ownership of a residential unit is combined with the shared ownership of a common area. Let’s look at the differences between these homes.
Owning a condo is similar to owning a house. You have a deed and mortgage and pay property taxes, but what you really own is “airspace.” Walls, floors, and ceilings are owned in common among all residents. You join the homeowners association and pay monthly dues to cover management, hazard insurance, maintenance, garbage collection, hallway lighting, and landscaping. Part of the dues is set aside in an account for long-term maintenance.
Condo owners usually may remodel only within the guidelines provided by covenants, conditions, and restrictions, which may specify everything from how maintenance is handled to what color curtains you can hang on your windows. It’s a smart idea to read them before buying a condo. Also, ask for recent reports outlining future plans for the complex.
Maintenance is shared with neighboring condo owners; it is important to remember that your property value depends on the condition and desirability of the entire development.
Planned Unit Development (PUD)
PUD owners individually own the residential structure and a small parcel of land surrounding it. As with condo ownership, PUDs require membership in the homeowners association, but the land around each unit is maintained by that unit’s owner. If you’re interested in having a bit of a yard, this is the way to go.
This is a housing complex owned by a corporation made up of all the tenants - you become a shareholder in the corporation that owns the property. The number of shares you are issued depends upon the size of the unit you own. Larger unit owners have more power in deciding how the building is run. You also pay fees to cover your portion of the building’s property taxes, mortgage, and the costs of repairs and improvements for the common areas.
Co-op owners depend on each other financially, so expect heavy scrutiny of both your financial history and your personal life if you’re buying.
This is an architectural term and doesn’t actually describe a form of ownership. It’s commonly used to describe an attached row house.
Advantages of Common Interest Ownership
Considering all the options, what are the advantages of buying a condo, PUD, or co-op? First, prices are typically much lower than for single-family homes, and landscaping and maintenance are minimal or nonexistent. Some residents say they feel safer in a “cluster” environment, while others cite the peace of mind from having a common maintenance service. And having a pool, clubhouse, and/or exercise room onsite is convenient.
Homeowners’ dues are not tax-deductible, and the dues are considered an ongoing expense that will lower the amount of mortgage you can qualify for. CIS documents are long and complex, often hard to understand. You may want to hire a real estate attorney to review the documents and explain the significant points.
The most important thing before considering buying any property is to do your homework. Once you’ve decided to take the plunge, you’ll be building equity and get a tax break to boot. Buying into a CIS can be a great way to get your feet wet in the property-ownership game.