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An Introduction To Condominiums

Questions?This past week, I’ve been working with a client who is interested in purchasing a condominium in Redmond, Kirkland, or Bellevue WA as an investment. Although this client is not new to investment properties, this would be his first condo purchase.  As we looked at various condo complexes, a number of questions surfaced.  After lengthy explanations, I realized that many other folks probably had similar questions, so I’m doing a two-part post on condos.  The first part will explain what a condo really is, and the second part will try and help you understand some of the issues involved in purchasing and owning one.

Condominiums – A Definition

Condominiums can be defined as a building or a complex of buildings containing a number of individually owned apartments or houses.  Furthermore, individual owners have full title to their individual apartment or house and an undivided interest in the shared parts of the property.

Owning a condo or townhome is a bit different than owning a single family residence (house).  Let me state first, that there is no legal difference between a condo and a townhome (at least here in WA).  The terms are used more to define the layouts than anything else.  Generally speaking, townhomes are used to describe units that are more than one story, and the adjacent units are side to side, rather than on top of each other.  Condos on the other hand, are usually stacked and most likely will also have units on either side (think of apartment living).  For purposes of this discussion, I’ll refer to both types simply as a “condo”.

In actuality, when you own a condo, you don’t really own the building.  What you own is the interior air space, that is, the area within the interior walls of the unit.  In most instances, your individual ownership ends at the drywall.  The actual structure (building) is jointly owned by everyone. The plumbing and roofing for your unit is usually considered common ownership.

Individual Interest (ownership) vs. Undivided Interest

What you do within your own unit is your business, and at your own expense.  This is no different than owning a house.  If you want to remodel the inside, you can do so with permission from the HOA as long as your remodel doesn’t hurt the structural integrity of the building. Everything outside your unit is considered common area, and expenses for changes or improvements to this common area are shared among all of the owners.

Undivided interest is just another fancy term for “shared” interest. However, it does not necessarily mean “equal” interest.  Most complexes allocate expenses on a percentage basis, based on the square footage of the individual unit. For example:

OwnershipLet’s pretend that there is a condo complex with 4 units in the building, with each unit identical in size.  In this scenario, each owner would have 25% ownership in the building as denoted on the left.  However, this is rarely the case.  A more typical situation would have many units, each with varying square footages as seen below. In the larger complex, you see that unit H has the largest ownership percentage with 14%, and units E,I are second with 13%.  This percentage is how expenses are usually calculated. If the complex incurred an expense of $100, unit H would pay $14, units E,I would pay $13 each, and so on…

Ownership2But, just because unit H is larger and has to pay a greater percentage of the shared expenses, it doesn’t mean that unit H gets more benefit than other owners.  All common amenities (swimming pool, parks, clubhouse, etc) are shared equally by every owner.

It’s Not My Problem So Why Should I Have To Pay For It?

Many buyers have a hard time understanding the “shared” expense concept in condo ownership. In my definition above, I mentioned that condo owners usually own JUST the airspace within their units. Plumbing within the walls is considered “common”. So, if unit A has a pipe leak inside a common wall, the cost to repair it is shared by ALL owners.  That’s the beauty (or downside) of condo ownership.  I always advise my clients to take a good look at the entire condo project, not just the one unit they are buying, because repairs to other parts of the complex (exterior siding, roofing, windows, walkways, etc) will be shared among ALL owners.

I Think I’m A PUD

A PUD (Planned Unit Development) is usually a neighborhood of homes on very small lots.  So small, that they are generally called “Zero Lot Line” lots.  This type of project is slightly different than condos, and we are starting to see more of then being built.  In a typical PUD, you find single detached homes, with many of the same amenities found in condo projects.  The difference here is that each homeowner is completely responsible for all expenses to maintain or repair their own structure. The common expenses are usually limited to exterior areas such as community parks, walkways, lighting, and landscaping.  In a PUD, the fees for each home are generally split equally amongst all homeowners, regardless of their individual home size.

My next post will discuss some of the issues commonly found in condo projects.  In the meantime, if I’ve piqued your interest in condos, you can search for one on this site. Just click on the HOME SEARCH at the top of the page to get started.  When REALiTY BiTES, bite back!

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