Condo rules a deal-breaker for some

If you're thinking about buying a condominium, investigate carefully before you purchase. Failure to do so can cost you plenty.

Condo living can be a great lifestyle choice. For some first-time buyers it's the only choice. Condos also make great second homes or retirement properties. They are also great for those who don't want to cope with exterior maintenance. Before you purchase a condo it's important to know the benefits as well as the potential pitfalls. 

1. What type of ownership are you purchasing?
The term "condominium" normally refers to the style of ownership. For example, when you purchase a single-family residence, you normally take title to both the land and the improvements. In contrast, condo ownership normally involves more than just the unit you will occupy.

The most common style of ownership grants you an undivided interest in the entire property, a right to occupy a specific portion of that property, and shared use of the common areas. "Common area" refers to the shared public areas in the condo project. This can include a pool, recreation room, gym, dock area, or other amenities. Thus, if you purchase a condo in a 10-unit building, you will have the right to occupy one of the 10 units. You will also have a 10 percent ownership in the entire property and the right to use the common areas.

Another style of condo ownership grants you the land on which your unit is built. Depending on how the homeowners association (HOA) is set up, you may be responsible for the exterior maintenance of the property or the HOA may handle it for you. When this style of ownership includes single-family residences plus the ownership of the streets, this is called a "planned unit development" (PUD). In a PUD, the owners are often responsible for maintaining the streets.

A third type of ownership is called a "co-op." In this case, the property is owned by a stock cooperative. When you purchase, you buy stock in the building. Instead of receiving a deed, you will receive a stock certificate.

Consequently, one of the most important questions to ask is: How will you take ownership? The answer to this question will determine the type of insurance you will need to purchase, the type of improvements you can make to the property, plus the availability of financing.

For example, a PUD will be fairly easy to finance because it is similar to a single-family residence. There can be challenges obtaining lender financing if the number of owners actually occupying the property drops below a certain level. Co-op financing can be quite difficult to locate. ...CONTINUED

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