Money Rehab with Nicole Lapin - To Condo or Not to Condo...

Episode Date: August 18, 2021

… that is the question from today’s Money Rehabber. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. One of my hottest takes is that buying a house is not for everyone.

We don't want our clothes to be one size fits all. Why would we want any different from our financial advice? There are so many ways to choose your own adventure when it comes to finding a home. You could buy a house, maybe against my best wishes, or you could rent a house, or you could rent an apartment, or you could find a co-op, or you could pitch a tent, build a yurt, live in a tree house. You get it. Today, we're talking about one option in particular, condos. Money Rehabber Morgan called in with this question. Hey, Nicole. My name is Morgan, and I'm a grad student in computer engineering.

I'm from the Midwest, but I'm hoping to move to Seattle after I graduate. I know that rent for an apartment can be a lot more expensive in cities like Seattle. I was wondering what I should consider when deciding between renting an apartment or buying a condo. Yes, we have another Morgan in the house. This one is a casual computer engineering student, and I am so impressed. And I will tell you, Morgan, that if you can figure out computational mumbo jumbo, you can definitely figure out the housing market. First, let's talk about what makes buying a condo different from buying a house or renting an apartment, aka what makes it special. A condo, short for condominium, is a unit, either an apartment or a house, that is part of a whole collection of similar units. When you buy a condo,

you're likely buying access to a common area shared by your fellow condo-owning neighbors. That common area might be a lounge or a pool or a gym or even a tricked-out bowling alley. Condos usually have a group of people known as the board who oversee the maintenance and operations of the building. Condos kind of have the vibe of a WeWork office but for homes. And I do say that with the full understanding of the WeWork drama, because there's also drama here. But the good news is condos address some of the disadvantages of other types of living setups. Those things you don't like about buying houses, condos skip those. And the things you don't like about renting apartments,

condos threw those out the window too. Here's what I mean. The biggest challenge of buying a house is the price tag. But a single family condo is typically cheaper than a single family house. The cost difference comes from the fact that those common areas, remember the tricked out bowling alley, are shared. So you also share the cost with your neighbors. And because the sticker price on a condo is lower, the corresponding closing costs and insurance costs are lower too. Plus, when you buy a house, you're typically on the hook to pay for and manage all of the maintenance. With condos, that's often taken care of by the homeowners association. And then in the renting world, the biggest disadvantage is you have no ownership. You likely can't make major changes to the space, and it's not an asset

that you can count in your net worth. With condos, you have a little more wiggle room on making changes to the space, and you're an owner. And who doesn't want to include homeowner on their Bumble profile? So should I sign up for a condo right now, you're thinking? Well, not so fast. I know, surprising, right? So far, I've painted condos as the best friend in a romantic comedy type. You know, the fan favorite who should end up with the girl, but the girl is with some sort of football player douchebag instead. And the boys who are rolling their eyes at this reference right now, I know in my bones that you have been one of

those best friends before. So relax with the eye roll. You know what I'm talking about. The condos are not the boy next door. For starters, while you have more decision power than if you were renting, there are rules. And depending on where you are, there may be a lot of rules. The condo may have regulations restricting things like how you decorate, whether you can sit in the grass, and what times you can use those amenities that you were so attracted to in the first place. Every once in a while, you'll hear a nightmare story about a condo who takes the rules too far, like a man in Florida who was fined by his condo board for using a shopping cart as a walker because of some obscure rule about how shopping carts are storage containers and you can't have storage containers blocking walkways.

Anyway, so if you're touring condos, you need to make sure that you know who you're dealing with. You should block off 30 extra minutes on your calendar after your tour to see if you can find a resident hanging out in one of those shared areas. Then, I would say, ask them for the real scoop. Hold on to your wallets, boys and girls. Money Rehab will be right back. Now for some more Money Rehab will be right back. Now for some more Money Rehab. If you do like what you see on your tour and you decide to apply, you should know the application process is a heavier lift than applying for an apartment. I will say it's not the trickiest application process you'll see on the housing market. That gold medal belongs to co-ops, which are notoriously

super hard to get into, especially in Manhattan. With condos, you won't have this lengthy interview process, but there will be paperwork galore. Let's get one thing straight, though. Condos are cheaper than houses. But are they cheap? No, it's still a huge financial investment. To get those sweet amenities, you pay a monthly fee on top of your mortgage, and the prices for a mortgage on a house versus a mortgage on a condo are not as different as you may think. According to the National Association of Realtors, in December 2020, the average price for single-family homes was around $314,000, while the average price for a single-family condo was about $272,000. I don't know about you, but from where I'm standing, both those numbers are big.

Especially when you take into consideration the fact that the average annualized rent in the United States is a little under $15,000. How many games in your private bowling alley do you really need to play before $272,000 feels worth it? Plus, if you're planning on taking out a loan to pay for the condo, you should buckle in for a bumpy ride. Some lenders are skeptical of condos and therefore may have steep requirements like your condo company needs to have a majority of the units already sold before they'll consider offering you any money. It's a big investment, and so I need you to be certain it is right for you before you make the leap. Here are the things you need to say hell yes to before even

considering buying a condo. One, you're going to live in it for a while. Life happens unexpectedly. I mean, hello, this pandemic is pretty clear evidence of that. If you feel you know or have a strong hunch you're going to need to move soon or you'll need that cash soon, you shouldn't buy. A condo is an asset, yes, but it's an illiquid asset, meaning it's hard to melt into cash when you need it. And don't let me catch you saying you're going to look at this as a starter home. Spending six figures on a starter anything just isn't wise. But a starter home? That drives me nuts. There should be no such thing as a starter wife or a starter home, period, end of story. You shouldn't buy a condo if you're already thinking what your next home is going to be,

and you shouldn't get married if you're already thinking about who your next wife is going to be. That is all. Two, you can afford it. I mean, can you really afford it? You can't look at home buying in a vacuum. If you have a bunch of credit card debt, don't even think about asking me how you're going to buy a condo. You wouldn't be the first one, but I don't want to hear it from you. You're better than that. There are more important things to think about on your financial priority list. Debt? Gonzo. Emergency fund? In check. Then let's talk condos. Three. You have a steady job you love. Job uncertainty makes for terrible timing to make an investment this enormous. Whether you're unhappy in your job or these crazy times have put your job in jeopardy,

no matter what it is, the bottom line, if you're in the market for a new job, you shouldn't be in the market for a new house. If that sounds like you, you should be leaving the door open, pun intended, for any opportunity that might come up, which, should you take the job, might demand moving. So how'd we do? Did we check off all three golden rules? If so, congrats. It may be time to get your condo on. Now, if you didn't check all these things off, you should not buy a condo right now. And that's okay. Just because you're not positioned to buy a condo right now doesn't mean you won't be able to buy a condo in the future or that you'll never be able to afford a house in the future. It also doesn't mean you won't be able to buy a condo in the future or that you'll never be able to

afford a house in the future. It also doesn't mean that you're financially insecure. Keep listening to Money Rehab and we'll get you in home buying, condo buying shape. In the meantime, there are benefits of renting. You can enjoy not being your own landlord until you're ready to take that step. For today's tip, you can take straight to the bank. In many cities right now, the housing market is a seller's market and properties are getting scooped up super fast. Most landlords require proof of employment, one or two bank statements, and a photocopy of your driver's license or passport as part of the application process. Make several copies of these documents ahead of time and bring them with you while you look at rentals. If you see a place you love, you'll be a baby step ahead of anyone else

vying for it because yes, it is that competitive, but you're a winner, winner, Money Rehabber. but you're a winner, winner, Money Rehabber. Money Rehab is a production of iHeartMedia. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Catherine Law. Money Rehab is edited and engineered by Brandon Dickert with help from Josh Fisher. Executive producers are Mangesh Hatikader and Will Pearson. Huge thanks to the OG Money Rehab supervising producer, Michelle Lanz, for her pre-production

and development work. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all. You spend my money, money, money. You spend my money, money. You spend my money, money, money. You spend my money, money, money.