Condos, PUDs, Co-ops: What's the Difference?
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 the 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 units’ 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 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.
Should You Rent Your Home?
If you, like 68 percent of Americans, own your own home, the thought has probably crossed your mind: if you were to be offered your dream job out of state, should you sell or rent your home? Naturally there are many factors to weigh before making such an important decision.
First, you'll want to think about your reasons for keeping ownership of the home. Do you like the home so much that you want to hold on to it in case you ever move back? Are you looking for an extra tax break through property depreciation? Do you want to use the home as a basis for retirement investment?
These are all fine reasons for retaining ownership, but there are other factors to consider that may outweigh the perceived benefits. For instance, are you prepared to be a long-distance landlord, hiring someone to maintain and manage the property for you? There are other costs involved as well, such as advertising costs, turning costs (cleaning and painting between tenants), property taxes and insurance, utilities paid out of your pocket when your property is between tenants, and accounting costs. In order to assess these costs, you should research the numbers in your market. Expenses often run 30 to 40 percent of income before the monthly mortgage cost.
Set the proper rent price. While cleanliness, attractiveness, and amenities are important, location still rules when setting prices. Contact me to find out prices in your area, and I will look for similar houses on the rent market. If you set your price too high, it’s unlikely that you’ll find a tenant. If you ask too low a rent, prospective tenants may wonder what’s wrong with the place.
Should You Hire a Property Management Company?
This is especially important if you’re moving far away from the house and won’t be able to keep an eye on things. It’s not absolutely essential to hire a property manager, but it can make your life a little easier. Ask for referrals, and interview at least three different companies.
Should you get involved in the “fix and flip” market?
Fix and flips can be a gold mine. In fact, If you’re thinking about getting into this lucrative market, it’s a good idea to have a reliable remodeling company at your disposal. Although the typical fix and flip repairs/spruce-ups are minor, i.e., ones you can perform yourself, you could run into snags. One way to avoid potential “money pits” is to be sure that three areas of the house are solid: electrical, plumbing and heating/cooling systems. These systems are typically expensive to repair in relation to the value they return to you upon resale.
Other areas to pay close attention to: roofing, foundation and structural integrity. Unless you have a large corporation backing you with an open checkbook, you want to stay away from foreclosures that have problems in these areas, because your return on investment won’t be substantial enough to make it worth your while. Try to find foreclosures with simple “cosmetic” problems.
Order a dumpster for the next ten days and get your demolition man to throw out everything including the kitchen sink. In other words, clear the decks.
After the house is cleared of debris, it’s time to patch and paint. Let your painters blast the place with their airless paint-spraying arsenal inside and out. Within three days, you’ll have added a huge improvement to your investment. This is the biggest dollar-for-dollar return you can make. Make sure that quality paint is used.
After the painters leave, the flooring guys can lay tile and carpet, which will take two to three days.
Next bring in the cabinet installers and handyman plumber.
Last comes light fixtures, vanities, toilets, sinks, doors, switch plates and outlet covers.
Get To Know Your New Neighborhood
So you’re moving. You’ve got a lot to think about: packing up, arranging for movers, turning on utilities. But one thing you may not have thought about is getting to know your new neighborhood. This is especially important if you have children. Moving into an unfamiliar area can be frightening for kids and add to their anxiety that’s already high at the thought of this transition. To make it easier, below are some tips on how to get to know your new neighborhood, making the transition easier and happier for everyone.
If you’re moving to a new city or state:
Study the area on the map. Figure out your commute times between work, schools, and stores.
Research the home values as well as the job market. Consider the cost of living and weigh your options according to budget plan.
l Call your children’s schools to request a tour of the facilities before the kids have to start school. Be sure to locate your children’s classrooms, the cafeteria, library, gym and bathrooms. Have your child sketch out his/her own map of the school. The more information they have, the more comfortable they will be.
After moving in:
As a family, drive around the area and find parks, the post office, the closest grocery store, a favorite chain restaurant, mall, bank, hospital, swimming pool, etc.
Don’t wait for the neighbors to come introduce themselves. People are more busy than ever and may not pay attention. Introduce yourself. Be sure to ask your neighbors about the area and the features they like.
Support the community. Find the list of neighborhood events, five to local businesses and other tidbits you’ll find very useful.
Go to the local recreation center. Again, you can sign your kids up for classes in everything from drama to art to rock climbing and more. They’ll make fast friends and have fun learning a new skill or polishing an existing one.
Be sure to locate local museums and zoos. If moving has left you strapped for cash, most museums have free days regularly.
Participate in your new community. Join your homeowners association and attend the meetings. Join the PTA. Volunteer at the local food bank. Your new neighborhood will feel like home in no time.
Build Home Equity Faster
Equity is the part of your property that you actually own. It's the current value of a property less the amount of the liens secured against it. If you own property that’s worth $250,000, and you have a mortgage with a remaining loan balance of $100,000, your equity in the property is $150,000. Repeat home buyers usually rely to some extent on the equity in their current home to help buy their next home. The more equity you have, the larger the possible down payment for the trade-up home.
Home equity also equals security. The more you have, the better off you are, the more financial leverage you have, the more stable you feel. So how do you build home equity faster? Especially at the beginning of a mortgage loan, so little of your payment goes to principal that equity builds maddeningly slowly.
The first option in home equity building is to make additional principal payments. One way to do this is to sign up for a bi-weekly mortgage, in which you make two payments per month (which added together equal one monthly payment). You will make the equivalent of 13 monthly payments per year instead of 12, which may seem insignificant. But a 30-year loan with a bi-weekly payment plan is usually paid off in about 20 years.
The other way to build home equity faster is to refinance. Recently, the reason most people have refinanced is to lock in a lower interest rate and/or lower their monthly payment. But you can also refinance to shorten the term of your mortgage, which builds equity. The down side to this is that a 15-year mortgage is harder to qualify for than a 30-year.
If you had a $200,000 30-year ARM at 8.13 percent and replaced it with a 15-year fixed rate loan at 6.75 percent, your monthly payment would go from $1485.69 to $1769.82. But the total interest on the 15-year loan will come to $118,567.29 as opposed to the $334.855.28 on the remaining life of the ARM, assuming your adjustable rate holds steady at its current 8.13 percent. So in addition to saving more than $200,000(!), you build the same amount of equity in half the time.
But what if you can’t afford a higher house payment? Your next best means of building equity is to refinance for less than 30 years. To do so, ask your mortgage company to customize your new loan's term to match the years that are left on your old loan -- if you are five years into a 30-year mortgage, for example, ask for a 25-year loan.
You probably won't receive the entire amount of your equity as cash when you sell your home. Most sellers use part of their equity to pay selling costs, such as brokerage commissions and transfer taxes. Also, if you are delinquent on your property taxes, or have other liens secured against the property, such as an IRS tax lien, these would have to be paid at closing.
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Licensed Real Estate Broker | Coldwell Banker Residential Brokerage - Hyde Park
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