What Is A Condo Pros And Cons Tips On Buying Part 2 Of 3
In our last blog, we discussed what is a Condo and the pros of owning one. In part 2 of this three part series, we look at the cons of condo ownership
Downsides of Buying a Condo
1. Homeowners Association Fees
As you might imagine, that pool, fitness center, security system, and maintenance crew all cost money. When you buy a condo, you essentially become a business partner in that community. You pay a monthly homeowners association (HOA) fee each month, on top of your mortgage, which goes toward the upkeep of the property, as well as future investments such as parking lot resurfacing or the addition of a dog park.
HOA fees vary widely depending on the location, size, and quality of your community, and Trulia reports that HOA fees have been on the rise around the country. In 2005, the average HOA fee was $250 per month; by 2015, it had gone up to $331. Of course, where you live plays an important role. For example, the average HOA fee in New York City is $571 per month, while the average in Charlotte, North Carolina is only $218.
The steady rise in fees isn’t surprising when you take inflation into account; costs continue to go up in almost every sector. What is surprising is that when Trulia compared HOA fees to the rise and fall of home values, there was no match; HOA fees continued to rise even during years when median home values fell. Between 2005 and 2015, HOA fees rose 32.4%, compared to a 15.1% rise in home values.
So, not only do you have to pay a hefty monthly fee to live in a condo, but you can count on those costs rising steadily in the years to come. If you don’t budget for the increased fees, you run the risk of being priced out of your condo because you can’t afford to live there.
2. Potentially Mismanaged Funds
You’d think that if you’re paying $300 a month in HOA fees, everything would be taken care of promptly, but that’s not always the case.
Every HOA has two types of accounts: an operating account and a reserve account. The funds in the operating account are used for regular maintenance costs, such as lawn mowing, pool maintenance, and snow shoveling. The reserve account is for major or long-term projects, such as resurfacing the parking lot, replacing the fence around the community, or building a new playground. Think of this as the emergency saving account.
A well-managed HOA will make sure that both accounts are well-funded so there’s enough money to meet regular expenses, as well as enough money for long-term or emergency projects. However, there are plenty of HOAs that are not well-managed. If there isn’t enough money in the reserve fund and an unexpected expense crops up, such as a tree falling on the roof, then the board will vote to levy a special assessment on all homeowners. That means you’ll be legally required to pay an additional fee, which can be hundreds or even thousands of dollars, to make up the difference.
This happened to residents in Sudden Valley in Bellingham, Washington. As The Bellingham Herald reports, the Sudden Valley HOA attempted to raise monthly dues by 48%, from $832 to $1,237, to cover both routine and unexpected repairs. There wasn’t enough money on hand to cover costs because boards in previous years had put off even routine repairs and invested in questionable improvements, such as a school bus stop with solar panels.
This lack of funding is common. According to a study conducted by Association Reserves, a company that helps community associations manage their funds, up to 70% of all HOAs are underfunded. Even healthy HOA funds can be ruined when financially illiterate members are voted onto the board or when the group collectively makes some bad decisions.
3. Lack of Privacy
Another downside to condo living is that structurally, it’s very much like an apartment. And as you probably remember from young adulthood, sometimes apartment living isn’t all it’s cracked up to be.
In a condo, you have neighbors on the other side of your walls, and perhaps above and below you as well. You have neighbors going up and down the hall or crossing the grounds at all hours of the day and night. You get to hear their celebrations, their arguments, and their newborn crying every night at 2am.
If you’re looking for some peace and quiet, a condo may not be the right choice.
In a condo community, you share the financial responsibility of upkeep with everyone else. When people struggle to make ends meet, they might drop out of paying their association dues. This causes dues to go up for everyone else to cover the delinquency, meaning you’re stuck holding the short end of the stick.
5. Difficulty Selling
Condos can be difficult to sell for a number of reasons.
First, not everyone wants to live in a condo. Families with young children often want a yard, families with multiple dogs often need a yard, and some people just don’t want to live on top of someone else. These factors narrow down your pool of potential buyers.
Second, you have to consider your HOA. If your HOA demands high dues, this will price some people out of buying. If your HOA is underfunded and the community looks the worse for wear, other people won’t want to live there. When selling a condo, your HOA plays a big role in how fast it moves.
The financial health of your HOA will also be a factor for buyers taking out a mortgage. Many lenders won’t approve a loan if there’s pending litigation against an HOA or if an HOA doesn’t have sufficient reserves. If the community has a high ratio of renters, some lenders will deny the loan. All of these issues can further limit your pool of potential buyers.
Finally, since most condos in a community look the same, if there are empty units in your building, those will likely sell first. And if there are a lot of empty units, good luck.
6. More Rules
Living in a condo means you have to live by the management’s rules. For instance, say you want to install green energy technology, such as a solar panel on the roof to save energy at home. Instead of just getting started, you have to ask the condo association for permission. If they deny your request, you’re out of luck.
HOAs can have an overwhelming list of rules that owners have to abide by. For example, your HOA might restrict the number of pets you’re allowed to have and even restrict some breeds. They might set limits on the number of visitors you can have or set dedicated “quiet times” to restrict noise. They might also restrict the type of renovations you’re allowed to do or decorations you’re allowed to put up.
Living by someone else’s rules might be fine for some people, but for others, it can be stifling.
Tomorrow we will publish part three, the last of our three-part series on Condos, "Tips on Buying a Condo,
Robert Schmalz - Broker / Founder Los Angeles Real Estate Group
An Independent California Licensed Realty
California Broker Lic #01813025
"Helping Guide Clients Through The Economic Complexities Of Real Estate
By Knowing Their Wants And Needs"
Author: Robert Schmalz - BRE 01813025
February 19th 2019
About Robert: DBA "West Los Angeles Real Estate Group"