What Is the Difference Between a Condo and an Apartment?

Should you buy a condo? Did you know that detached homes can be condos too? Find out this and more in our article below!

Buying a condominium (condo) and buying a freehold house (e.g. detached), while similar in some ways, are different when it comes to ownership and its responsibilities. Potential condo buyers should be aware of what property types are considered to be condos (yes, there’s more than one!), the difference between a condo and an apartment, what condo owners are responsible for, what condo fees are and how much they’ll cost, as well as the investment potential of a condo. We cover these and more in this article.

Are there any differences between a condo and an apartment?

Many people think of a condominium (condo) as an apartment that you own. This is true but doesn’t really tell the whole truth. A condo is an ownership structure that can apply to several different property types, including an apartment [1].

An apartment is one type of residential property, usually situated in a block of apartments. You can rent an apartment, in which case your landlord is responsible for all maintenance and upgrades both inside the apartment and outside. You can also buy an apartment as a condo, in which case you would own all the living space inside the apartment.

What’s unique about condo ownership is that while you own your condo’s living space outright, you also share ownership of common areas and common property with the rest of the condo owners. Common areas could include a sidewalk and lawn, the elevators, furnaces, and the lobby and hallways. You also share the responsibility for the upkeep and improvement of the common areas and property, for which you’re assessed a monthly condo fee. Owning the condo gives you membership in the condo corporation that collectively owns the condo structure. The owners of the condos elect a Condo Board that oversees the management of the property [2].

What kind of property can be a condo? 

For residential properties, several property types could be organized as condos. Apartments are the most common, but row townhouses, detached townhouses, duplexes, and lofts can all be owned as a condo. The key is that they all have shared spaces and common property that the condo corporation owns and that the condo board oversees [1].

Common spaces, systems, and property are anything that’s not entirely within a condo unit. This includes the plumbing and wiring in apartment condo blocks, the roofs of row townhouses and the swimming pool and the fitness center in a loft complex.

Regular or freehold condo?

With a regular condo, you own and are responsible for the interior of the unit. The condominium corporation owns the building as well as the surrounding land and is responsible for its maintenance and upkeep. Your condo fee is your share of the costs of this maintenance. The condo board decides upon all improvements to the condo complex such as landscaping and planting flowers.

In a freehold condo, the condo owner owns the plot of land the condo sits on. This comes into play more if you are considering buying a condo townhouse or detached house.  You are responsible for the care and maintenance of the entire unit, inside and outside, and the costs associated with that. With a freehold condo, you have more freedom to make the changes you want to the outside of your unit, such as changing your door color or planting a tree. However, the condo board may have rules and guidelines that limit your choices [3,4].

Are condos a good investment?

Evaluating condos as an investment includes both financial and living style considerations. The answer is mixed and depends on what your priorities are.

The immediate appeal of condo living is that you’re not responsible for the maintenance, up-keep, and upgrades of the common areas. This could include sweeping the snow and cutting the lawn. This appeals to both younger people who may be too busy as well as the older generations who may no longer be able to do all those tasks. Plus, you may have access to amenities that you would not otherwise have such as a pool.

On the other hand, you do have to pay condo fees to cover these services. In addition, special assessment fees may pop up occasionally to cover renovations such as replacing the windows or repaving the parking lot. These fees can be quite hefty and can increase as the property becomes older.

Condos are generally less expensive to buy than single-family homes such as detached homes, but they’re also usually smaller. The return on your investment in your condo, in the long run, may be less than if you’d bought a detached house since the main price appreciation in real estate is the land. However, in 2019, condo prices throughout Canada rose on average 3.8% compared to an increase of 1.0% for detached two-story homes [5].

What is a condo reserve fund?

One part of the monthly condo fee goes into an operating account and another part goes into a reserve fund. The Ontario Condo Act states that the reserve fund can only cover any replacements and major repairs. Any ongoing maintenance due to normal wear-and-tear must come out of the operating budget. This mandate is similar in other provinces [8].

The reserve fund should be large enough to cover any future anticipated renovations or repairs. To find out what these will be, the condo corporation can commission an accredited Reserve Fund study by engineers or architects. This is a thorough examination of the entire building that assesses what assets, physical aspects and systems (roofing, electric, plumbing etc.) will need some work done to them in the future. The study also contains a predicted schedule and estimates how much the cost will be at that time. In Ontario such a study is mandated by law but not in Quebec [6].

Your contributions may not end with your monthly condo fee; however, if extensive renovations are needed and there are not enough funds in the reserve fund, you’ll be charged a Special Assessment. This is a bill, which is usually quite large, for your share of the work, and you’re legally bound to pay it.  

What does the condo fee cover?

The monthly condo fee covers the general maintenance and upkeep of the common property and common areas. This usually includes building insurance, water and gas, and sometimes hydro (electricity) costs. The condo fees keep the place running in good shape. As was said earlier, part of the monthly condo fee also goes into a Reserve Fund that covers unexpected maintenance, upgrades and major renovations to the common property.

Condo fees are mandatory by law; you can’t opt out of them when you buy a condo. The condo board can take legal action against you if you default on paying the fee. Condo fees are assessed on the value of your unit compared to the value of the building as a whole. If your unit is one of six in the building, but its value is 20% of the building’s value, then you’ll be assessed at 20% of the common costs [6]. Be aware! The more amenities the condominium complex has – for example, a pool – the more it’ll cost to maintain them and the more you’ll have to pay in condo fees. If you don’t need all the extra amenities, it might be better to look for a property without them. 

Are condo fees worth it?

Condo fees are worth it if you’re getting all the services and amenities that are important to you but don’t be taken in by suspiciously low condo fees. 

If you’re buying a brand new condo, you may be pleasantly surprised at the low condo fee. At the start, someone (usually the developer) estimates how much it will cost to run the building and sets the condo fee. However, sometimes these are set unsustainably low to attract buyers. In the second and third years, when the actual building costs are known, the condo fee is usually adjusted upwards [7]. In general, condo fees are increased every year.

Maybe the condo you’re interested in has a pool, fitness room and movie theatre. Your condo fees are worth it if you use the amenities but if you don’t work out or want to watch movies in the shared facility, you may want to consider buying a condo in a different building or townhouse complex.

The bottom line

The decision to buy a condo is such a personal one that it’s up to you to investigate and evaluate whether a condo suits your lifestyle and your budget. If you decide to go ahead, seek out a real estate agent that specializes in condos in your preferred neighbourhood. They can provide general knowledge about condos and specific information about any you’re interested in.


Sources

  1. What is a Condominium? Condo Law for Albertans.
  2. Condominium Types. HLD Lawyers.
  3. What does Freehold mean? Bruce Witchel.
  4. The Differences between a Freehold and Regular Condominium  streetdirectory.com .
  5. Canadian Real Estate Market Shows Signs of a Sustainable Recovery with Modest Price Gain of 1.1% in Second Quarter. Royal LePage.
  6. Condo fees: 6 things you should know. National Bank of Canada.
  7. Reserve Fund Studies. Condominium Authority of Ontario.
  8. Reserve Fund. Ontario Condo Information Centre.


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