I'm looking at some apartments Ans these HOA fees are crazy. How much will a monthly fee make your property a sure fire net loss when you sell?
I'm looking at some apartments Ans these HOA fees are crazy. How much will a monthly fee make your property a sure fire net loss when you sell?
Hmmmmm, I'd guess exactly $453.
Or, you could refer to my user name.
So taking that example: $453 x 12 months x (say) 5 years = $27,180
So, that $300k property would need to be sold for ~$330k just to break even. That means you're 10% behind the eightball from the start (not including taxes and selling costs).
Note: I didn't discount the payments because of the zero rate environment that we'll be in for the next 5 years+.
How does this make sense for the buyer?
Annual payment divided by local cap rate for the location and asset type should give you a good idea of how the expense will be capitalized.
What do the HOA fees cover? Do they buy you a new roof if you need it? Do they pay for snow removal that you would otherwise pay for? Lawn cutting?
Surprise! wrote:
What do the HOA fees cover? Do they buy you a new roof if you need it? Do they pay for snow removal that you would otherwise pay for? Lawn cutting?
Maybe, yes and yes.
If the roof needs to be replaced by hail or wind then the condo master insurance policy will pay for that. The deductible would be assessed equally between tenants. If the roof needs to be replaced because it's worn out then the entire cost of the roof is divided by the unitowners.
The HOA usually pays for water bills, sometimes AC, all the maintainence around the building. It pays for the upkeep of the common areas, swimming pool, parking lots and having a safe, secure place to come home to is worth something.
A condo for an investment is usually not a good idea because you have pretty much zero control. If one day the board decides they want to put in tennis courts to bring in potential buyers then you are responsible for the assessment and you're paying a portion of putting in those courts. The nicer the condo the higher the COA dues which where I'm from range from .25 to .50 per sf of your unit. I personally don't want to live in a condo but they have their place. If you travel a lot you can own your home but not have to worry like it was a house.
concerned office worker wrote:
So taking that example: $453 x 12 months x (say) 5 years = $27,180
So, that $300k property would need to be sold for ~$330k just to break even. That means you're 10% behind the eightball from the start (not including taxes and selling costs).
Note: I didn't discount the payments because of the zero rate environment that we'll be in for the next 5 years+.
How does this make sense for the buyer?
Uh, you do realize that you get to live in an apartment or rent it out, right? You're only 10% behind the eight-ball if you buy the place, then lock the door and leave it empty.
The only way to look at whether it's a good investment is to compare it to renting. For example, to rent a place comparable to the one that I own, I would be paying about $400 more per month, accounting for taxes, tax credits, HOA, and upkeep. But I'm also putting about $800 towards principal each month, so I'm $1200 ahead, even before accounting for any increases in the value of my property. Additionally, my mortgage payments are locked for 30 years. Taxes, tax credits, HOA, etc. will all be more expensive over time, but they won't outpace the growth in rental prices, so owning will become a better and better deal as time goes on, not to mention that more and more of my monthly payments will be going towards principal.
On all sales you are going to be cancelling out any gains with condo/hoa dues. I would just look at the ways that can't be measured. The convenience of lawncare, roof replacement, security and any other benefits they provide that give you peace of mind.
DOn't fall behind on your dues those people are even more vicous than the mortgage servicers.
should have said "most" not "all"
concerned office worker wrote:
I'm looking at some apartments Ans these HOA fees are crazy. How much will a monthly fee make your property a sure fire net loss when you sell?
It's cheaper than renting and your get a capital game on your investment. Duh!
Plus you don't have to do your own maintenance, as you would with a house, which can average out at a lot more than your HOA payment.
Randy Oldman wrote:
It's cheaper than renting and your get a capital game on your investment. Duh!
1. Are you using voice-recognition software? (please say yes)
2. If not, can you please explain what a capital game is and why you think they use that term?
First things first. People need to stop believing the myth that home ownership somehow crates wealth. Your home is an expense. Period. Even if you sell it at a profit, you have paid taxes, interest, fees, closing costs, maintenance, utilities, etc.
Now, can you get lucky and inherit a house or get on the right side of a bubble? Sure. Rarely.
The only way to make $$ from property is to be a landlord and even then much of your gain is tax write off related.
Signed,
Owner of several properties.
Maybe you shouldn't treat your home as an investment, but rather as a place to live.
Exactly.
HOA fees should essentially be a net zero for you, with 2 exceptions:
1) They include costs for things that you wouldn't otherwise buy...for example you move into a place that has a pool but you're not interested in a pool, in that case part of your HOA dues goes towards the pool expenses.
2) The HOA on the Board level or on the Association as a whole level decides to add a service that you wouldn't otherwise buy. Some of those decisions may be made by a Board but other times you will need a vote of the entire Association.
Otherwise HOA fees cover things you'd need to buy for yourself anyway. The Association I live in runs pretty lean, but we cover weekly trash/recycling pickup, grass cutting, snow plowing, insurance for the areas outside our homes as well as insurance on the buildings, plus minor repairs/maintenance for the outside of the Units. In my case the Association is also responsible for certain building elements and to pay for those we set aside Reserves each month. In my 24 years living here (29 year old Association) we've never had a special assessment which is nice. We've had our decks rebuilt, new garage doors installed, new roofs about 5 years ago, a couple driveways have been rebuilt - and last year we upgraded all the windows. If I owned a house that was built the way this property was those are all things I'd have had to pay out of pocket for at the time of the project. So I didn't save any money or lose any money.
Unless the Association you're looking at has a bunch of features you don't really want, look at the HOA fees as just a different way to pay for things you'd need to pay for anyway.
I'm curious because I'm looking at two comparable apartments (3-units, similar age, same area, same amenities (or lack there of) and one place has $200 HOA fees and the other $400.
What's with the discrepancy? I'd imagine both are doing the same basics. Is the higher one preparing for some upgrades? Better insurance?
These are 3-unit houses - what expectations should I have regarding the financial tracking of expenses?
Go do your homework on these two HOAs and then come back with your questions. No one can explain it until you come back with information on the specifics of the HOAs.
concerned office worker wrote:
I'm curious because I'm looking at two comparable apartments (3-units, similar age, same area, same amenities (or lack there of) and one place has $200 HOA fees and the other $400.
What's with the discrepancy? I'd imagine both are doing the same basics. Is the higher one preparing for some upgrades? Better insurance?
These are 3-unit houses - what expectations should I have regarding the financial tracking of expenses?
well..... wrote:
First things first. People need to stop believing the myth that home ownership somehow crates wealth. Your home is an expense. Period. Even if you sell it at a profit, you have paid taxes, interest, fees, closing costs, maintenance, utilities, etc.
You are wrong! Exclamation point!
You still build equity over time.
And at a point that equity will exceed the expenses you speak of. Certainly the closing costs.
If you take a comparable property and rent there for 30 years you will have less wealth than if you would have bought that same property, whether it was mortgaged or not.
The taxes, interest and maintenance are costs at least equal to rent that you would have otherwise paid because the owner of that property uses your rent to cover those costs.
And you pay utilities when you rent.
If your suggest is to rent a smaller or cheaper place and invest the difference, then it is just not a comparable situation and not the same standard of living.
The advantage of renting is portability. You can move more often.
Move to a new town. Move to a nicer place. Downgrade if you are strapped for cash.
When buying you need to make a long term commitment. The longer the better.
That is a drawback.
But it is not an expense over the right period of time.
As far as HOA fees, you just need to figure that into your monthly budget and ask yourself if that place is worth the overall monthly cost you are paying.
That's another expense built into your rent the owner has to cover through rental income.
It all depends on what the HOA fees cover. Add up the value of everything they cover, heat, water, etc. You can look at the cost of replacing the roof of a house over 20-25 years and divide by the length of time you plan to live there. Are you paying for a doorman or extra security?
From a strict cost perspective, your HOA fees should only be what the value of the services they cover plus convenience, for maybe lawn care. Anything else and you are throwing money away.