House versus Condo…how to think about the numbers

[debshultz]

Can anyone suggest to me different ways to think about the purchase of SFR versus condos in terms of affordability.

For example, residence one is SF dwelling with no mello roos etc.
Residence two is a condo with HOA dues of $500/mo. I could spend more for the house that didn’t have HOA. I guess what I’m really asking is how much more house could I buy for the $500 I would be spending every month for the condo.
Thanks!

[Bugs]

It depends. What utilities and amenities come with the HOA fee? Property insurance rates are different. Would you be using the onsite gym or pool? Owning the house means maintaining a yard – that has a cost even if it’s in terms of your time. Lots of factors to consider.

[SD Realtor]

It is also a matter of personal taste. Many people want a yard, and having fee simple ownership gives them a sense of ownership that is not present when you own a inium. 500 a month is not cheap. That is 6000 a year. Also note that while your HOA dues do provide a homeowners insurance policy, many condo owners purchase a supplemental policy as the HOA provided policy may not be satisfy your personal insurance requirements.

If you take personal taste out of the equation then it “appears” that single family detached homes are holding up better then condos but that is only a speculative statement by me with no hard stats.

Finally is your condo a townhome or is it detached in any way? Having people above/below/sharing walls is also a major detraction but that is again, my opinion.

SD Realtor

[Anonymous]

Math isn’t my strongest point – I was a stockbroker – but I believe the $500 per month spent on HOA fees would translate into approximately $80,000 more house.

[davelj]

On average there’s no discernable difference between the amount you’ll spend on HOA fees (in the case of a condo) and the amount you’ll spend on a house’s (1) incremental homeowner’s insurance, and (2) maintenance and upkeep (remember, someone’s gotta pay to re-paint, re-roof, maintain the yard, etc. for that house). Also, as mentioned previously, you get some – albeit varying – benefit from HOA fees in the form of amenities, such as a gym, pool, etc. At the end of the day, net/net, on average, it’s a wash unless the HOAs are just eggregious and you’ll never use any of the amenities.

In other words, there’s no free lunch.

[temeculaguy]

Find out what is included, for the most part HOA’s have open books and as a co-op of sorts they spend the money on the neighborhood, whether it’s condos or houses. Sometimes it’s close to a wash (500 is higher than I’ve owned in but I don’t know what that gives you). Condo associations tend to buy fire insurance, trash and outside water and landscaping with your dues and put away reserves for painting, roofing, termites, etc. It would be fruitless tho have the individuals do their own if they are attached. If you add the $500 back into your budget for what you could afford in a non association house it is not an accurate measure of affordabilty. If you figure what the fire insurance, trash, water, landscaping and maintenance with the sfr (lets say $250 for example), then you could afford $250 more in the sfr payment, since that was your question. Most of the veterans of this site can attest to the fact that there are many costs other than the mortgage associated with home ownership of an sfr. My experience is that it is almost a wash, but then again I’ve never paid for such an expensive hoa, find out what you get and like the others have said, it comes down to preference. Having owned in an no mello roos, no hoa neigborhood, I’ll never do that again. My perference is for the low hoa’s that charge $30-$50 and maintain some rules, especially as the neighborhood ages. Otherwise you come home to your stucco, spanish roof neigborhood and find a neighbor painted his house blue, another rips out his lawn and puts in white rocks, while a third plants corn in his front yard (all true stories from my old neighborhood). I would gladly pay $30 a month to keep the christmas lights confined to six months a year. I visited freinds in my old neighborhood and ran into my old next door neighbor in his yard. After some pleasantries I couldn’t help it and said “dude those christmas lights were up when I moved out eight years ago, do they even work?” Enjoy the no hoa, I’m sure there are stories about it going the other and renegade hoa’s. Of course every time a friend tells me a story about his pain in the butt hoa hassling him about his oakland raider sheets in lieu of blinds in the windows or his collection of rv’s and boats in the yard, I nod in agreement but secretly I am happy I don’t have to live next to him.

[debshultz]

debs

Thanks everyone for your thoughtful comments…..

Our decision will be to first, find the right property SFR or perhaps Townhome (i.e. no one above us)

I think “reasonable” HOA fees do help retain the integrity of the neighborhood, and to some degree help support property values

[no_such_reality]

On average there’s no discernable difference between the amount you’ll spend on HOA fees

LOL, is that a study commissioned by the Property Management Asosciation?

In an extremely well run HOA where the individuals on the board are versed in what they are doing and bargaining for and not running an personal agenda, maybe. However, my personal experience is HOA’s squander and in general get gouged extensively.

[RottedOak]

HOA vs. no HOA is partly a lifestyle preference. Some people just don’t like the idea of a community board telling them when to take down their holiday lights, etc., while others want to live in a community that has those types of restrictions. That preference isn’t really a financial decision.

Regarding what you get for your money in terms of amenities, I would look at this very closely. For example, a high-rise building will have expenses for things like elevator maintenance and window washing. If you are on a high floor getting the benefits of the great view, then you might be OK with those costs. If you are going to be on the lower floors, you are still paying but not getting much return on those parts of the HOA fee. Similarly, think about whether you will use the pool, gym, etc. — really use them, not just think, “I’d love to start working out again.” On the other hand, if the condo with the expensive HOA is a five-minute walk from your work, while the SFR will be in a suburb with a long commute, you should factor that in as well.

Bottom line is that if you are going to buy at all — and I would counsel caution on buying in general right now — your choice of housing involves so many factors that it is hard for strangers to give especially good advice.

[Bugs]

All other factors being similar, the condos lose value first, and stay down longer than conventional houses do. There’s just more demand for the house.

[Anonymous]

You also need to consider that the condo HOA will be undergoing added financial pressures as homeowners get behind on their dues and their units go into foreclosure. That means deferred maintenance, less money spent on landscaping, possible special assessments or increased dues to offset the shortages, etc. I’d study the reserve report very carefully and take note of how much money they’ve got stashed away.

The beautiful condo building you look at today could be an absolute dump in a couple of years and there won’t be a thing you can do about it.

[forsale_2007]

Assuming this is for a primary home, and not a rental.

1. Take your original loan terms you were planning to take for the condo, then add $500/month extra (minus other costs associated with owning a SFH versus a condo- such as insurance)…. That your tell you how much more you can borrow subject to the same loan terms. This would be a rough estimate of how much more of a home without HOA you could buy…

2) Property Tax: If you pay more for a home, you’ll pay more property tax. Calculate your property tax on the SFH you can buy, versus your condo. You can then refactor how much you can really afford, by sutracting your extra monthly property tax amount from $500, and then recompute how much you can borrow.

3. Primary Home Tax Deduction: Buy a copy of a tax software, and run the numbers of your new loan payment for the SFH and property tax versus the condo.

The $500 extra in a loan, depending on your loan terms, is partially deductible…HOA payments are not. Also, your property tax is also tax deductible (provided you aren’t limited by AMT).

$500/month HOA is pretty steep, imho.
Assuming a 30year fixed loan at say 6.00% with 20% down, every $500/month toward your mortgage corresponds to about roughtly $80k extra you can borrow.

[AK]

I saw a reference to “inium” in a previous post.

Is the “George Carlin” filter really recognizing the unabbreviated form of “condo” as the name of a male birth control device?

Let’s try it …

condominium

Guess not.

[Author]

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