So on the 4th of July we were hanging out with friends who own a condo in the city. They have a 2 bd/1ba condo about 700 sq ft. This place has a premium location, and was EXPENSIVE. They are 33 and this was their first real estate purchase. Thus they only considered the location when purchasing.
Well turns out they pay $500/month in Homeowner’s Association Fees. Pretty steep but it includes the heat in their month dues. Sounds like a great deal right?
Wrong. Problem? Well their condo is so small and within a large building, I can guess their heating bills would be $100/month in the winter. Plus by allowing everyone to share the expense people are probably (like my friends) cranking up the heat to 80 degrees in the winter because they can. They don’t care about conserving or being careful about the temperature. Why should they? They never see the bill.
Well this has financial repercussions. The Association is going to raise the monthly dues another $200/month to $700/month because they can’t afford the heating increases. Since we live in the same area and I got a notice of a 40% increase I assume their building has the same. And what else can the Association do but raise the monthly fees?
So what’s the frugal tip? When you are purchasing a condo be aware of what the monthly dues cover and how much it really is. If buying a condo, buy one with a low monthly fee because it will continually go up. In our friend’s case if it’s $700/month, I can guarantee many people will avoid purchasing the condo even with the fantastic location, because that $700/month = $100k more in mortgage they could afford and it’s not TAX DEDUCTIBLE. Thus can be about the same as buying the single family home you were eyeing but thought was TOO expensive.
When we purchased our first condo this was explained to us by our real estate agent. She took the time to explain to us the pros and cons of condos. She also explained how HOA fees affect resale values and what to look for. So the lesson we learned at 22 and 24 has helped up all these years later.
When we discussed this with our friends, they were complaining about the rate increase, I asked them if they had considered resale. They hadn’t. Nor had they considered buying something more expensive rather than paying the already outrageous $500/month HOA fee. But after living there a year, they had realized they could have potentially afforded a more expensive place, a single family they had been dreaming about.
So turns out the high HOA fee they though was just considered part of the expensive of living in a desirable neighborhood. But instead they could have afforded a house $100k more expensive. So before you buy, understand all expenses involved
9 responses so far ↓
1 Kit // Jul 7, 2008 at 9:11 am
I have to slightly disagree, since condos can be so much more frugal than buying a house given the maintenance and exterior upkeep costs. We bought a 700 sqft condo in the city and have only had to pay (a once every 20 years sort of expense) about $10k as a special assessment to completely fix up the outside and common areas of the 100 year old building, which is peanuts considering what a coat of paint on a house typically costs. Our condo fees are probably going up this year, too, but they’ve always been reasonable and I love having somebody else deal with the landscaping, trash, recycling, and snow shoveling. Other than that, our outlay for housing upkeep has been near $0.
When we bought it a few years ago there were a lot of people who were boasting about how much space they got out in the ‘burbs and how they must be saving more money than us. Of course, now all we hear from them is “Gas gas whine foreclosures gas oil falling home values car gas where is my government subsidy?” It’s also easy to see that their larger houses encouraged them to accumulate more junk and that the additional size hasn’t made their hour-long commutes any happier.
It all comes down to generally being happy here. I would gladly move the damn sports teams out to the suburbs, though.
2 Jim ~ mydebtblog.com // Jul 7, 2008 at 10:28 am
There is good and bad with condos and HOA fees. I personally hate paying the HOA fee every month because it’s like rent. Positive is that it takes care of the outside of the house and keeping the neighborhood looking nice. In the winter it takes time for them to clear my driveway and the roads, so I end up shoveling the drive myself even though I pay to have it done. It’s better to have a single family house and save the extra money doing things yourself.
The real question here is why did they buy a condo if they really wanted a single family house? At 33 and being first time home buyers, I think a single family house makes more sense than a condo. My wife and I bought our townhouse (condo) at 23 and would like to move up to a single family home by the time we’re 30. We’ll need the space too when we decide to have a family. It would also be nice to have a yard I can call my own too.
3 LivingAlmostLarge // Jul 7, 2008 at 10:43 am
Kit are you paying $500+/month in HOA? That is $6k/year. It’s a very large amout to be outlaying. Soon it will be $700/month or $8400/year that you never see again.
Also do not forget that we live in the burbs 6 miles outside of town. My DH and I do not complain about gas because we’re in a great spot. #1 school system, $200/month HOA, and sure we have maintenance like a regular home but it’s well worth the minimum HOA.
By the way our friends own no parking and so they have to fight for street parking. And one of them has to drive to their job outside the city. So they cannot live without car, besides being a doctor they are on call.
So it can be a struggle. I think they like city living, which is fine. But a SFH in the city might have been a better option.
Plus don’t forget that how many people want to pay $700/month in HOA fees? Kit do you or would you? What do you pay? Now remember that they have no yard, no pool, nothing. This is just a plain building.
Also as heating prices rise, their HOA will exponentially go up to afford it because everyone is using up heat at 80+ degrees in winter. There is no conservation when you don’t see the bill. But the building HOA sees the bill and says, the only way to keep up is raise HOA by $X.
4 Anonymous // Jul 7, 2008 at 10:50 am
Since my husband and I are about to pay $17,000 this summer for a new roof on our single family house, you have to think about HOAs as forced savings for these kind of periodic maintenace/repair things that you’d have to save up for anyway.
Barb1954
5 LivingAlmostLarge // Jul 7, 2008 at 10:57 am
$17k over 20 years is less than $1k/year. $500/month is $6000/year. In 20 years that is
$120k for repairs.
Do you think you’ve spent $120k on just the exterior of your house Barb1954? In condos you are responsible for the interior like bathrooms, kitchens, bedrooms. I think that people spend less on maintenance than in Condos. You forget a portion of every month goes to reserves.
Also when we bought a condo had a special assessment on our condo for $20k. That was paid by our seller, but our neighbors had to pay it for a retaining wall issue.
Second in CA when we left they were about to assess a $10k window repair in our Association. These are fees above and beyond the normal fees.
Plus since it’s going up to $700/month it should soon be $8400/year. What is that mortgage-wise?
Ouch, $700/month is what some people pay in a mortgage.
6 Anonymous // Jul 7, 2008 at 12:11 pm
Yes, we pay at least $6,000+ in repairs/maintenance each year. But you’re right that it is a combination of interior and exterior work.
Barb1954
7 LivingAlmostLarge // Jul 7, 2008 at 3:09 pm
Right we own a condo and we have to paint and fix the interior this summer. Example we might have to do our shower, that is not covered by the HOA.
Condo owners have responsibilities exactly the same for the interior. It’s only the shared exterior that is cheaper. But it’s not cheaper if someone else damages the building and you have to pay for it.
Our retaining wall issue is for our neighbor’s parking pad, but we are responsible for 40% of it.
Also Barb1954, in a house you can expand. That isn’t possible in a condo, even though you do have to replace cabinets, tile in shower, etc when it gets old.
I believe you do spend $6k on your house, but $6k in exterior only? That’s the problem. Our friends spent $20k on remodeling their kitchen interior, but that would have to be done either way so homes/condos are expensive.
But the extra $6k in fees for what?
You don’t replace the roof every year. And when roofs are replaced typically there is a special assessment. Also hot water heaters are your own responsibility. So is the furnance in the condo. You also are responsible for the pipes behind your walls. So it’s owning the house but not the siding, roof, yard, etc.
8 Meg // Jul 8, 2008 at 12:26 am
I live in a condo with above-market HOA dues. If I could have afforded it in this area I TOTALLY would have bought a townhome instead; they have much lower HOA dues, but are of course more expensive because you can’t buy an 800 SF townhome (ones in my area are 3 bdrms at minimum and cost about twice what my condo cost).
But like you said, if you’re saving $300-$700 a month in HOA dues, that goes a long way towards a higher mortgage payment. In addition, like you said, you can control your own utilities costs. Sure, you have to pay for your own hazard insurance, but I’d rather be independent and in control of my expenses than sharing them all with a building full of statistically less frugal Americans.
9 LivingAlmostLarge // Jul 9, 2008 at 5:08 pm
HOA fees are something people rarely consider when purchasing I’ve found.
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