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The joys of becoming a first-time homeowner can quickly fade if proper financial planning isn’t done before getting the keys to your new residence—especially if you’re moving into a condo or townhouse.
Whether your place is along a bay in a sunny locale or a unit tucked away in the snowy mountains, owning a condominium comes with extra monetary responsibilities to prepare for that owning a traditional home doesn’t.
The finances of living under an HOA
The final price of what you’re paying for your condominium isn’t necessarily what to anticipate when it comes to calculating monthly costs. For starters, home insurance, property taxes, and homeowners association fees will be added to your mortgage.
Darin Tansey, a real estate agent with Douglas Elliman in Miami Beach, tells Realtor.com® that it’s a good idea to set aside a little extra for unexpected repairs or assessments.
“With a condo, you usually don’t have to worry about exterior maintenance, like landscaping or roof repairs that’s handled by the HOA,” says Tansey. “But you still need a reserve for unexpected assessments or upgrades.”
Special assessments are one-time fees to cover unexpected expenses or major projects such as emergency repairs, building projects, or mandated code upgrades or improvements.
“If the building needs a brand new roof or maybe the parking lot structure needs to be redone, they don’t always have enough money in the HOA budget to do those things,” Majid Ghavami, a real estate agent at ReeceNichols Real Estate in Kansas City, MO, explains. “So they will do what’s called a special assessment where they come and say, ‘OK, we need every condo owner to contribute.’ It could be anywhere from $1,500 to as high as $30,000 because they need to do something to keep the integrity of the building.”
Ghavami says that many times a condo board will work with unit owners to spread out the fees over a period of time, such as a certain number of years, so that the financial burden isn’t too much on a homeowner.
Special assessments aside, watch out for surprise costs that can throw your budget into disarray.
“Planning ahead for that makes life a lot less stressful,” says Tansey.
By the numbers
When doing your planning, Eric Croak, president at Croak Capital, tells Realtor.com, “so here’s the thing: The mortgage is the low-hanging fruit when it comes to monthly housing expenses.”
The financial planner suggests budgeting about $150 to $200 per month for insurance; $300 to $400 for HOA fees; and $50 more a month to cover the various surprise fees or assessments. “Factor in utilities, internet, and parking, if necessary. Realistically, you are adding $500 to $700 per month to your mortgage bill right out of the gate,” explains Croak.
If you’re wondering why HOA dues can be so high, Croak puts it like this: “HOA dues keep the lights on in the common areas so anything and everything you use that is not in your unit. Think elevators, landscaping, snow removal, the HOA office itself.”
He says some condos may have maintenance fees, instead of HOA fees, which are a similar concept and the purpose is usually limited to major repairs or infusions to the reserve fund.
“Some HOAs itemize them together, some separate them out,” says Croak. “Doesn’t matter either way because the answer is yes, you pay both. For a 1,200-square-foot condo, that could be $350 a month in HOA fees plus another $200 to $400 every year or two for maintenance reserves.”
He also warns fees can and will increase. “In some cases, it just takes a new roof or a lawsuit for the HOA board to call an emergency meeting and approve a special assessment.
“The reality is many owners get blindsided when their HOA falls below the reserve trigger level. Then the HOA levies an emergency fee of $1,000 or more per unit to cover it. Always budget for ‘Murphy’s Law.'”
Condo perks
If you budget correctly, you’ll be able to enjoy all that condo living has to offer.
“I think you could budget a little bit less for a condo, because with a home, you’re taking care of the exterior. If the roof goes bad, you might be right on the hook for $10K or $15K for a brand new roof, versus with a condo, if something does go wrong, you’re going to have that special assessment, but it’s going to be paid out over time,” says Ghavami.
Plus, condos have conveniences all in one place.
“You get amenities like pools, gyms, or security without having to maintain them yourself,” says Tansey. “They also often come with a built-in community, which can be nice if you like that social aspect.”
Notes Ghavami, “I think they’re great for people who travel a lot. You can come and go with ease. You don’t have to worry about yard work or security and things like that.”