Author Topic: Townhouse HOA dues might be killing us, should we move?  (Read 2372 times)

RyanJoy

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Townhouse HOA dues might be killing us, should we move?
« on: November 30, 2019, 12:48:21 PM »
Greetings,

Looking for some living situation advise. Three years ago we bought our townhouse from the people we were renting it from. The best part of the deal at the time was they personally financed it for us. Our mortgage is $950 a month and we pay a little extra ($50) each month. we save about $150 a month for our yearly property taxes. Being that it is a townhouse there are monthly HOA dues in the amount $250. The property is 20 years old and thus is beginning to need things 20 year old properties need. Many of these things are supposed to be covered by HOA dues. This is where the problem starts. The HOA was poorly managed for the first 10 years and much of the money that should be in reserves by now was spent on unnecessary maintenance. Because of this we are getting yearly assessments in the range an extra $250 per month to cover some repairs and maintenance. We anticipate these assessments to continue as the years go one.

Some other necessary info:

We are recently debt free other than the mortgage but do not have another down payment saved yet. Being debt free allows us to save/invest an additional 20-25k a year after we fund our retirements.   

Our financing through the previous owner has some stipulations. If we sell between year 1-5 we have to pay a penalty of 10% of the remaining principle. If we sell between years 6-10 that penalty reduces to 8%. We agreed to this because we had a very small down payment, they gave us a great price, and didn't require mortgage insurance. The current principle balance is $185K.

Our dilemma:

The increasing cost of the HOA dues seem to be not worth it despite them paying for some of the repairs and maintenance of the property (property meaning the whole property, not necessarily our home).

The poor state of the HOA finances and constant assessments, could make the house hard to sell and decrease the value.

The prepayment penalty would significantly eat in to any profit we would make upon selling it (Value is 250-275k and would owe 18.5k)

Options we are considering:
-Sell soon, pay penalty, look for favorable financing on a new place despite not having a 20% down payment
-Stay for a few years, pay down the principle a bit more, save a down payment with excess from being debt free and move then, still paying a penalty, just less.
-Stay for a few years, significantly pay down the principle, refinance, pay the penalty and convert to a rental

Those are just a couple ideas we have kicked around. Let me know if there are any other ideas you might have or if there is more info you might need to make a suggestion.


feelingroovy

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #1 on: November 30, 2019, 01:37:22 PM »
Other than the costs, do you *like* living there?

Dave1442397

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #2 on: November 30, 2019, 02:06:33 PM »
You might want to find a good realtor in your area and see what they think. If the HOA dues are really improving the property to the point where values could go up, then maybe it's not too bad.


mozar

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #3 on: November 30, 2019, 02:16:44 PM »
If you try to buy again without having 20% down you might end up in a financing situation that's even worse. Do you want to stay in the area? Why sell if you are just moving a few streets away?
Is the penalty only for selling or is it for refinancing too?

FatFI2025

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #4 on: November 30, 2019, 02:34:20 PM »
Sounds to me like the HOA assessments are more annoying than a financial burden to you. If two people are maxing 401ks and saving $20K on top, that's $58K per year. So special assessments $3K/yr are not killing you.

I'd stay put but get involved in understanding the HOA financing and closure plan so you know what to expect.

ApacheStache

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #5 on: November 30, 2019, 04:02:30 PM »
If you try to buy again without having 20% down you might end up in a financing situation that's even worse.

The PMI and closing costs on a new home along with the early termination penalty on your current home will easily put you in a worse situation.

If you like the home, the neighborhood, your commute, the improvements that are being made and your home's value is going up, then I don't see a logical reason to leave. Buying and selling a home and moving belongings is a large investment in time, energy, and money and not something I'd want to do on a whim. I'd recommend crunching the numbers to see if it even makes sense to move.

Sounds to me like the HOA assessments are more annoying than a financial burden to you. If two people are maxing 401ks and saving $20K on top, that's $58K per year. So special assessments $3K/yr are not killing you.

I'd stay put but get involved in understanding the HOA financing and closure plan so you know what to expect.

+1. Get involved in the HOA. Chances are you're not the only homeowner inconvenienced and alarmed by an additional $3K in yearly assessments. Find out the long term vision of the HOA and get a better idea of what future assessments they have on the road map. It's possible that these special assessments will only be a temporary thing to stabilize the property and the HOA's finances. If you attend an HOA meeting and find the association to be wildly incompetent, irresponsible and pocketing the money, then you have another set of issues on your hand.

six-car-habit

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #6 on: November 30, 2019, 09:09:03 PM »
 I'm kind of confused as to why they structured your loan this way -- "Our financing through the previous owner has some stipulations. If we sell between year 1-5 we have to pay a penalty of 10% of the remaining principle. If we sell between years 6-10 that penalty reduces to 8%. We agreed to this because we had a very small down payment, they gave us a great price, and didn't require mortgage insurance. The current principle balance is $185K. "

  What is the interest % on the exisiting loan ?

  I suppose they were trying to ensure they had a steady monthly income for many years into the future [???]

  Are you able to refinance now [ should be no PMI on a new loan at 185K owed to 275K home value, ratio ] , and then simply pay them off in full  ?
 If there is no pre-payment penalty in your loan agreement, this removes the $18,000 dollar obligation.
You could then turn around and sell the property and keep all "profit" for yourselves.  It may cost $$ in terms of appraisal + loan origination fees, and closing costs, but probably not much more than $5K. So Still a $13K "win" for you.

Tuskalusa

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #7 on: November 30, 2019, 09:39:10 PM »
Typically, and HOA should hire a firm to audit the state of the property and the state of the reserves. Then the HOA should make a plan to get to a place where maintenance items are covered on an ongoing basis. Id request the audit statements and see where the HOA finances stand over the long term. Hopefully, this is just some catch up for now.

That being said, any house is going to have repairs. So far, the costs seem manageable. Before making a bigger decision, its important to know if the HOA is taking steps to manage maintenance in the future.

the_fixer

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #8 on: November 30, 2019, 10:51:19 PM »
Check the reserves study and compare that to the budget and the percentage the HOA is funded.

Attend a board meeting or two and see how the HOA is managed.

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RyanJoy

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #9 on: December 01, 2019, 11:48:15 AM »
Other than the costs, do you *like* living there?

Yes, for the time being, we like and plan to stay. We both have totally anti-mustachian commutes right now. We have considered major job and location changes to have less commuting, but that's another thing really.

RyanJoy

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #10 on: December 01, 2019, 11:51:33 AM »
You might want to find a good realtor in your area and see what they think. If the HOA dues are really improving the property to the point where values could go up, then maybe it's not too bad.

Not a bad point, the improvements certainly are meant to retain/increase value. Not doing them would send values the other way. Benefits of optimism...

seattlecyclone

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #11 on: December 01, 2019, 11:58:22 AM »
You are right to be upset that past mismanagement in the HOA meant they deferred a bunch of maintenance and left you paying the bill for that decision. How much do you expect you would be paying for home maintenance each year if you purchased a different home with no HOA? How does this difference compare to the very real one-time costs of switching homes (real estate agent fees, closing costs, moving expenses, etc.)? Given the amounts you mention your HOA is charging you, I have a hard time believing that you would break even on this transaction in the first decade.

RyanJoy

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #12 on: December 01, 2019, 11:59:02 AM »
If you try to buy again without having 20% down you might end up in a financing situation that's even worse. Do you want to stay in the area? Why sell if you are just moving a few streets away?
Is the penalty only for selling or is it for refinancing too?

Yes, that is certainly possible. The pessimist in me sees these assessments as sunk cost but they are for retaining and improving value. Just wondering, on a monthly cost basis if maybe our money could be going further in a different home. The penalty would happen in both situations.

RyanJoy

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #13 on: December 01, 2019, 12:40:47 PM »
Thanks for the responses. This definitely helps. We are on the board and attend meetings and have an understanding of the finances of the board. Our financing situation does function as a monthly stream of income for them and the penalty is there to protect the stream for them in a sense. The assessments are for the improvement of the community which helps retain value. That being said they are annoying because of previous mismanagement but don't cause a severe financial burden to us personally. Moving would be a burden as it always is, but we just wanted some confirmation that we were in a decent situation despite some the the annoying things. Cheers everyone   

the_fixer

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #14 on: December 01, 2019, 11:36:31 PM »
So do I understand correctly that you do not have a reserve account (or any reserves) for the community? They just use the monthly dues to pay for things and if they are short they charge an additional amount?

I have never heard of an HOA setup this way. Reserves are there to protect you against special assessments and to make sure you have money in place to deal with keeping things in good working order.

For example what happens when the buildings need repainted? A roof needs replaced? When a natural disaster hits the community? Someone slips and falls?

How many units are we talking about?

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« Last Edit: December 01, 2019, 11:40:39 PM by the_fixer »

Fuzz

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #15 on: December 02, 2019, 06:51:41 PM »
That loan stipulation is super weird. Did you owner finance? If so, can you just re-finance a bank and pay off the seller? It would be bizarre if that stipulation survives the note.

Plus one to the idea of getting involved in the HOA.

And if you're saving $58K/year and generally like your living situation, then it seems like selling a condo and finding another place to live to avoid a $3000/year HOA assessment is not worth the squeeze.

Steeze

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #16 on: December 05, 2019, 05:52:48 AM »
So do I understand correctly that you do not have a reserve account (or any reserves) for the community? They just use the monthly dues to pay for things and if they are short they charge an additional amount?

I have never heard of an HOA setup this way. Reserves are there to protect you against special assessments and to make sure you have money in place to deal with keeping things in good working order.

For example what happens when the buildings need repainted? A roof needs replaced? When a natural disaster hits the community? Someone slips and falls?

How many units are we talking about?

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My hoa is this way. Payments cover annual expenses and a small maintenance budget. There is no reserve account. Any roll over money seems to get spent within a year or so. Lots of deferred maintenance. Hopefully we move before the roof needs replacing.

Villanelle

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #17 on: December 05, 2019, 10:10:15 AM »
I think you need to run the numbers.  Don't mentally separate the HOA money out.  Look at total costs to own this place, vs total costs for something else you are likely to buy.  And include the $18,000!!! in penalties you'd pay to end your loan, realtor fees, etc.

Another option would be to see if they are open to keeping the loan but applying it (via a lien) to the next property you purchase. If they are wanting to keep the monthly income, they might be open to that.  I did something very similar (though the loan was from family).  There was a lien on property A.  We sold A and bought B, and all the equity from A went to B, but much of that "equity" was just the loan.  It looked to the bank like we put down $150k, when in reality $100k of that was this loan.  We filed a lien attached to B.

I have no idea if they'd be open to this.  It partly depends on their motivation for including that clause.  If it was because they wanted something akin to a personal annuity--guaranteed monthly income--then they may be open to it.  If it was, as I suspect, a very savvy gotcha clause they pu t in, know people rarely stay in homes for 10+ years, they they will laugh at the request and gleefully hope you sell. 

That loan stipulation is super weird. Did you owner finance? If so, can you just re-finance a bank and pay off the seller? It would be bizarre if that stipulation survives the note.

Plus one to the idea of getting involved in the HOA.

And if you're saving $58K/year and generally like your living situation, then it seems like selling a condo and finding another place to live to avoid a $3000/year HOA assessment is not worth the squeeze.

Refinancing would involve using the loan from the bank to pay off the private lender, so I can't see how that wouldn't trigger this clause. 

TheAnonOne

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Re: Townhouse HOA dues might be killing us, should we move?
« Reply #18 on: December 06, 2019, 12:30:37 PM »
I actually just left a place with a $255/mo fee for that reason (Not 100% but still). I ended up moving into a single family and moving UP and it has cost me a lot more than $255 a month but in the end I feel like I am getting a better value for my money.

My main concern was the rate it was increasing. In 8 years it went from 130-255. I could see it being mid 300s in the 2020s. I would rather just buy my own lawn equipment and mow my own lawn I guess -_-