Types of Properties

Depending on where you live, there are different types of properties you can buy:

• Single Family Home
• Multi-unit Property
  • Condo, Townhouse, or Home Within a Housing Development
  • Co-op
  • Tenancy in Common (TIC)
• Land Lot
• Distressed Home
  • Short Sale
  • Housing and Urban Development (HUD) Home
  • Real Estate Owned (REO)

Single Family Home

A single family home is a straightforward purchase. Once you buy, you’re responsible for maintaining the entire property, inside and out. That means following all laws regarding shoveling snow, raking leaves, paying taxes, water, heat, gas, wastewater and garbage bills, and addressing any issues as they arise.

Multi-unit Properties

These can refer to any number of properties where multiple units are contained in one structure or housing community. They can range from duplexes to full apartment complexes. Multi-unit dwellings:

• Condo, Townhouse, or Home Within a Housing Development
• Co-op
• Tenancy in Common

Condo, Townhouse, or Home Within a Housing Development

Condos are units contained within a larger building that also contains some sort of common area (even as small as the mailbox lobby). Townhomes are not units within another building, but are detached or semi-detached structures in their own right. And single family homes within larger housing developments, while completely detached, nevertheless can also be part of homeowner associations (HOAs) and subject to many of the same principles governing condos and townhomes.

Whether a condo, townhome, or single family residence within a housing development, you will have to pay HOA fees. Generally the fees will cover the cost of the association management, common area maintenance (lighting, gardening, pool area), any security (cameras, gates) and (in the case of condos and some townhomes) general exterior repairs and upkeep. HOA fees may also cover certain joint utilities (water, gas, heat), any property personnel (superintendent, doorperson, cleaning person, gardener), cable and internet service, laundry, gym facilities, and a portion will generally go into a separate reserve fund for any unforeseen expenses. These fees periodically get recalculated as building maintenance costs change.

You own the unit itself, but the extent of your ability to renovate it can depend on a number of factors. In most condos, you own “from the paint in.” That means that you can change anything within the walls, floor, and ceiling of the unit. If you want to start punching serious holes in the walls, you’ll probably need HOA approval. And you can’t do anything outside your unit at all. For example, if you want satellite TV, you’ll have to ask the board for permission.

In a townhome or single family residence in a housing development, you may have more control over the exterior of your home, such as the ability to decorate a lawn or a porch. However, these rights will still often be restricted. You might not be allowed to paint your home a non-matching color. Oftentimes, housing developments will have architectural committees to approve or disapprove these sorts of visual modifications.

All of these rules and restrictions will be contained in the HOA’s governing documents: the articles of incorporation, the bylaws, and most importantly, the Covenants, Conditions, and Restrictions (CC&R). It is extremely important to review the CC&R in deciding whether you want to pursue a particular property. The CC&R can restrict a vast number of things. They may prevent you from owning pets, or having more than a certain number or type of pets. They can prohibit you from renting out the property at all, or set a limit on the percentage of total units in the development that can be rented out at one time. They may regulate noise in the development by prohibiting electronic or acoustic music or setting time limits on noisy activity. They may say that you can’t have satellite TV, regardless of whether the board would give you permission.

The CC&R can be long, confusingly worded, and arcane, but it’s important to go through them carefully so that you know what you are getting into. Your agent, and any real estate lawyer, are there to help.

Co-op

Co-ops are similar to condos—they are also single units within a larger building or complex, but legally, they are very different. Whereas in a condo, you own the unit and a percentage of the common areas in the building outright, a co-op (or cooperative) is more like a cooperative investment. Each unit owner is a shareholder in the building while the building itself is owned by a co-op association, usually a corporation. “Buying” a co-op unit is akin to buying stock in a company. You own a portion of the company, but all major decisions are still controlled by the majority stakeholders (in this case, the co-op association).

Like with HOAs, in a co-op, there are rules and regulations all owners must follow. It is just as important to review the governing documents of a co-op as it is with an HOA, and the documents will contain many of the same restrictions. Commonly, new buyers and tenants (in many cases the association won’t even let owners rent) must be approved, all major renovations must be approved and done by board-approved contractors, and your tenancy has the potential to be terminated if you continuously break the rules.

Tenancy in Common (TIC)

A tenancy in common is a less common arrangement. It is when a property is owned at the same time by two or more people. It’s like a co-op, but on a much smaller scale.

In a TIC, each owner owns a share of the property. Often, a TIC will contain two separate units in one townhouse or structure, but the structure itself is co-owned by all of the owners. Even if owners own unequal shares, all owners may have the right to occupy and use all of the property.

Most TICs, however, are governed by TIC agreements—the equivalent of the HOA governing documents. These TIC agreements will often assign specific units and specific rights of possession to specific owners. They also will regulate many of the same concepts as CC&R, such as whether and how owners may renovate their assigned units or sell their respective interests.

Many lenders will not finance loans for the purchase of TIC properties because all owners have rights in the entire property and lenders only can transact with the specific party that has cleared underwriting. However, some lenders will offer “fractional financing” whereby the lender only transacts as to the specific portion of the property that is assigned by the TIC agreement. But since there is less financing available, and therefore fewer potential buyers, TICs will often be cheaper than comparable units owned outright as condominiums.

Land Lot

A land lot is a bare parcel of land. You can purchase a land lot and build a home on it. You must make sure you hire a qualified contractor and understand any restrictions on the area (height limits, environmental conditions, fees for connecting the water and septic systems) before you build on it.

Distressed Homes

Like the name suggests, distressed properties are homes that are in disrepair or under threat of foreclosure (or have already begun foreclosure proceedings). Most distressed properties are sold as is, so you either have to do a thorough inspection to ensure there aren’t too many serious issues or plan to gut renovate it.

There are three types of distressed home sales:

• Short Sale
• Housing and Urban Development (HUD) Home
• Real Estate Owned (REO)

Short Sale

In some distressed properties, the owner will try to alleviate their losses and avoid getting a full foreclosure stain on their credit by selling the property for less than what they owe the bank on it. This is a short sale.

Housing and Urban Development (HUD) Home

An HUD home is a 1- to 4-unit foreclosed FHA-insured home. When it forecloses, the ownership transfers to the US Department of Housing and Urban Development who puts it on the market, often for a lower price, to recoup the losses on the foreclosure. Anyone can qualify for an HUD home, but priority goes to primary occupants, then to investors.

Learn more about HUDs >>

It’s possible to get HUD homes for below market, but it comes with a few caveats. You’ll need to work with a HUD registered real estate agent to put in an offer. HUD homes don’t have any warranties, so you’ll need to make sure to get the proper inspections to ensure it doesn’t have any major issues.

Real Estate Owned (REO)

If a home forecloses, the bank will repossess it and it becomes an REO, or bank owned property. They will either hold an auction or list it for sale to try to recoup as much of the loan balance as possible.

If you’re planning to buy a distressed property, be sure to find an agent who specializes in them. While you can get great deals on distressed properties, they are more complicated to sell, so the process will take longer. It’s important to know just how much renovations will have to go into them and the additional steps you’ll need to take to close.