Many would-be purchasers of a condominium have an idea of what they’re looking for. They know what location they want, what kind of amenities they prefer and probably even how they’ll decorate their home when they find the perfect one. But what many people don’t understand is how many moving parts exist in a condominium. The amenities and the quality of the building as a whole depend upon HOA (Homeowners Association) dues, and unlike most single family homes, condominiums require HOA dues to stay in top shape.
This is why it is so important to factor in the cost of HOA dues as well as your mortgage. In some cases buyers can afford the mortgage, but when you factor in HOA dues, it becomes a stretch. HOA dues also fluctuate. Unlike most mortgages, they are not fixed and in some cases, HOA dues can increase to more than the mortgage payment itself.
Don’t worry though. As scary as this sounds, it’s pretty rare to have a mortgage payment be eclipsed by HOA dues, and like most problems, there are solutions. In almost every case of this happening, there were ample warning signs and the problem could’ve been avoided if the homeowner had been more educated about the topic or had the guidance of an industry professional who was.
Let’s use a fictional example. Candace is a resident at the ABC condominium community. Her mortgage is $800 a month and her HOA dues are $100 per month. Her community was built 28 years ago and has five buildings total. What Candace doesn’t know is that all five buildings are due for roof replacements in two years. The estimate is $100,000 but the HOA will not be able to raise the money at the current HOA due rate. The roof cannot be put off, so they have to raise the HOA dues to match the need. This results in the dues being raised to $400 a month.
Shortly after the dues are raised, there is a change in the board of directors which results in many urgent issues being brought to light. There are rotted eaves, windows due for replacement and faulty wiring which has not been addressed due to lack of attention from the previous board of directors. The financial state of the association is in disarray, and the current board of directors resolves to “right the ship.” Unfortunately for Candace, this means her new HOA dues are $834.
One of the major ways Candace could’ve avoided this situation is to have been more involved in her HOA. If she had simply attended meetings there is a good chance she would’ve picked up on the nature of the previous board of directors. Being a part of the board is the best option because she could’ve had a say on preventing these issues. A red flag that Candace did not notice was very low HOA dues. If the building is not new and HOA dues are remarkably low, that can be a bad sign. All buildings require maintenance and low dues on a 28 year old building can mean the association doesn’t have sufficient money saved in their reserve fund to account for repairs.
Remember that condominiums aren’t for everybody. If the idea of being involved on a board of directors or paying HOA dues sounds like something you aren’t interested in, a single family home without an HOA may be a better fit. If you prefer the lower maintenance nature of a condo or want/need to live in an urban area, then a condo could be the perfect fit for you. Just make sure that you know what you are getting into before you are in a situation like Candace.
Consulting an industry professional is a great place to start. Our brokers know condos, and if you have any questions, we are happy to have a conversation with you and point you in the right direction.