Pasadena is a great area for condo and townhouse buyers! As you explore the city you will find a good mix of beautifully upgraded and remodeled units to some that potentially need a bit of work offering homebuyers opportunities. We are also seeing many new complexes being built especially near the downtown area (Old Pasadena). If you are considering purchasing a condo or a townhouse there are some important things to take into account when making a decision. In this article we go through the ins- and outs- of the condo and townhouse buying process.
What is the definition of a townhouse vs. a condo?
We hear that question often and sometimes also see that the distinction is used interchangeably when looking at property listing descriptions. However, in the broad sense, a condo usually means that you have neighbors both to the left and right as well as above and below your unit (depending on unit location). Condo parking is usually in a garage shared with other owners while in a townhouse the individual garage is attached to your unit. In a townhouse you share walls to the left and right,unless you own a corner unit, however you usually do not have anyone above or below you. Most townhouses are also multi-level. And, a lot of townhomes offer a small patio vs. a balcony in a condominium. Despite the differences in definition one thing they do have in common is that the communal area is managed by a Homeowners Association (HOA) and sometimes in cooperation with a property management company.
The role of the HOA is to enforce community rules and provide building maintenance. They are also responsible for funding repairs and paying for common area utilities. As a home owner you pay a monthly HOA fee and it is with these funds that the HOA maintains the building. A portion of your monthly funds is set aside for future maintenance of the complex. That portion is called the “reserves”. It is very important that the complex that you are buying is in good financial health and has plenty of reserve funds. If not, you stand a chance of incurring large special assessments during the ownership of your property.
To find out exactly what the rules and regulations are, as well as what your HOA fee includes, you are given access to the CC&Rs (Covenants, Conditions and Restrictions), Rules and Regulations as well as the operating budget within the contractual obligations that are stated in an offer that you placed on the property. Usually, the escrow company will request these documents and the seller pays for the document fees. Make sure to read through the HOA documents thoroughly, go through the budget to understand if the complex is financially healthy or not and make sure to find out if there are any specific assessments e.g. larger repair work that is being done and who will pay for them.
The great thing about buying a townhome or a condominium is that the HOA fees also cover amenities. Many complexes in Pasadena have pools and spas. Some have recreation rooms and gyms and some like Prado in South Lake District even have their own private cinemas!
If you are funding your condo or townhouse purchase with a loan
Depending on what type of loan you are pre-approved for, your lender might have certain restrictions. For example, many lenders want to understand how many units in the complex that are currently being rented out. If there are too many renters, the lender may not want to lend on the property. If you have an FHA loan the property need to be FHA approved and you can ask your lender to help you pull up the information on a specific building to make sure that it qualifies under FHA restrictions. If your lender has to request additional HOA documents this might be an extra cost that the buyer has to pay. Make sure that you discuss with your lender and real estate agent what to consider before making an offer on a property.
Thinking of using the unit as an investment property
If you are thinking of buying the unit as an investment property or first live in it and rent it out a couple of years down the line there are a few things to consider. If you’re taking a loan you want to inform your lender what your plans are in terms of using the property as an investment. The reason for this is that loan rates vary depending on owner occupancy. In addition you may want to speak to the HOA President or property management company to find out if there are any restrictions when it comes to renting the unit out and also if there is a maximum number of units that can be rented out at one time.
Insurance, what’s covered and what’s not?
When you purchase a property managed by an HOA, your fees will usually cover fire insurance. Some complexes include earthquake insurance in their monthly HOA fees. The general rule is that the structure (outside) is covered should the there be a fire, for example. However, anything on the inside of your unit would have to be covered with your own personal homeowners insurance, also known as in-walls insurance. Again, make sure to find out what the HOA covers and speak to several insurance companies to compare prices and policies.