Thinking about Condo or HOA Fees
/I work with many people who want to buy a condominium or townhome, often because they don’t want the trouble of caring for and maintaining a yard, and all that entails (mowing, snow removal, etc.). Usually if you buy into a place with a management company (typically a condo or townhome), you will pay a fairly large condo or HOA fee. It is rare that I see these fees under $300 a month. These fees are not tax deductible, unlike your mortgage interest. When thinking about buying a condo or townhome, you need to factor the monthly fee into your monthly payment, when trying to decide what you can afford. So, high condo fees can sometimes depress what you might be able to buy. They can also depress what you might be able to sell the condo for, when the time comes. It is something to think about.
When you look at condo fees, it’s important to understand what they include. A $300 dollar fee that only includes snow and trash removal, can be a worse deal than an $800 dollar fee that includes all utilities and your real estate taxes, in addition to the general services you would expect. So, I wouldn’t necessarily advocate for a policy of only looking at homes with fees below a certain amount. Look at each place you’re interested in separately, so that you can see what the fee includes.
Some examples of what the fee could include are a pool (indoor or outdoor), a fitness center, a party room, a rooftop deck, a 24-hour concierge, utilities, your real estate taxes, covered parking, etc. Almost all fees include snow removal, trash removal, exterior building maintenance, and a master insurance policy for the building. Many include water. But think about what you want and what you will use. If you buy a single-family home but are going to pay for a gym, a pool, and a lawn service, maybe what you'd pay would equal or exceed the condo fees of a place you’d like that has all of those things on-site or taken care of.
The other issue to think about is that condo fees rarely decrease. They usually only go up. They might go up very slowly over many years, or they might quickly increase. When you put a contract on a condo or townhome, the sellers are legally required to order you a resale package (also known as condo docs) from the management company of the community. These documents will tell you about the financial health of the community, how it is managed, the by-laws, etc.. They will detail what is covered by your monthly fee and what is your responsibility. You have a certain number of days (it varies by state), to examine these documents and decide if you still want to follow through with buying the property. It’s important to look carefully at these documents and ask the management company any questions that you have, before this time period ends.
This article in the Washington Post does a good job of detailing how condo fees can get out of control with buildings that are old and need a lot of maintenance. https://www.washingtonpost.com/local/md-politics/condominiums-in-crisis-financial-troubles-put-many-communities-at-risk/2016/09/17/07ba32ac-6972-11e6-ba32-5a4bf5aad4fa_story.html?utm_term=.3539c8333cdf
In the end, a condo might be the right fit for you. But make sure you do your homework before you buy.