First time home buyer, new build condos - Association Fees?

[halfling]

Howdy,

I am a prospective first time home buyer. New builds in my area are finally coming down in sticker price after some truly eye-popping sales this past year. Ginormous luxury condos that were listed and sold at $550K last summer are getting down to the middle $400's, maybe due to contract cancellations, so it's looking like more of a reasonable option for us.

One factor that gives me pause is the HOA fee. I have heard the builders charge as little as possible and that fee increases over time. For example, one new build listing I'm looking at right now has a $250 monthly fee. Meanwhile, a similar unit in a much older (1960s) condo building up the street has an over $600 fee. Is that figure closer to what we should bank on?

I'm on the fence about if I want to get into a brand new build, but I am considering keeping an eye out for re-sale of these units from their first owners (while I hold my breath for a single-family home under $500k in my neighborhood lol).

[Captain FIRE]

Yes, builders want to sell units so they have incentive to price the HOA fees the lowest they can, which likely does not account for full costs of maintaining/replacing communal items (roof to pipes). That said, I don't know that everyone else figures it out right away, so it's possible you might live in a place for 10 years before the condo association realizes it needs to do some special assessments and catch up their escrow amounts/pay for things.  Are you planning to stay 5-10 years? 25+?

On the positive side, a brand new building theoretically shouldn't have deferred maintenance to deal with. Hard to say what an appropriate amount is, but you could look at comparable buildings in size/quality etc. and see what their fees are 10/20/30/40/50 years out to get an idea. If you plan to stay a long time, you might consider getting onto the condo board early on to try to get the fees set to where they really ought to be, if artificially depressed.

My spouse had an issue where there was grandfathering in of condo fee rates. I think it was that when it turned condo, people had the option to buy their unit for a lower figure.  If they didn't it was sold for a higher amount.  Condo fees were then set based on those prices way back when, so there could be two identical units with one paying double the fee of the other. No incentive for the lower rate places to vote to change their sweet deal, so the expensive fee ones started being sold like hot potatoes as the special assessment fees mounted up.

[theoverlook]

They will definitely increase, but the costs going up as the property ages is true of any building. Maintenance on a new building is pretty minimal - as long as it was well built - and always increases with building age. So while $250/mo might cover it now, I imagine in 60 years they'll be the inflation-adjusted equivalent to $600/mo if the building is comparable in quality and construction as the 1960s building. It's always possible they end up lower and also possible they end up higher.

Also double check on what's included; sometimes the more expensive condo fees include all utilities, maybe even basic cable TV and high speed internet. That doesn't make them a "good deal" exactly but it's at least something to keep in mind.

[Dicey]

In my experience, expect 10% per year and plan accordingly, for a new build, construction defects are the boogeyman. For older properties, it's deferred maintenance and insufficient reserves.

Want to keep a lid on dues? Get good inspections, read All The Paperwork before you buy and then get on the damn board. If you're not willing to serve on the board, don't buy a condo, hard stop.

[SilentC]

Sorry for the slight change of subject here but this raises an interesting point, do any condo investors find value in buying older condos with HOAs vs older houses/townhomes?  It seems like the $600 HOAs scare people away because they think in payment terms so maybe you can actually get great value out of a 1970s build with a big HOA?  Or best to buy new and flip after 7-8 years before HOAs go up and the place starts looking a little dated and things start breaking?

Edit, maybe a more personal example but do I buy the ocean view or beach walkable 1960s condo in SoCal with the $600 HOA, or the newer place that is beach bikeable for the same money built in the 2000s with $350 HOA?  Or the little old house 2 miles inland across the highway (all same price)?  Obviously advantages and disadvantages to all but I’m hoping someone will tell me the value play is the old beach walkable one ;)

[Dicey]

Sorry for the slight change of subject here but this raises an interesting point, do any condo investors find value in buying older condos with HOAs vs older houses/townhomes?  It seems like the $600 HOAs scare people away because they think in payment terms so maybe you can actually get great value out of a 1970s build with a big HOA?  Or best to buy new and flip after 7-8 years before HOAs go up and the place starts looking a little dated and things start breaking?

Edit, maybe a more personal example but do I buy the ocean view or beach walkable 1960s condo in SoCal with the $600 HOA, or the newer place that is beach bikeable for the same money built in the 2000s with $350 HOA?  Or the little old house 2 miles inland across the highway (all same price)?  Obviously advantages and disadvantages to all but I’m hoping someone will tell me the value play is the old beach walkable one ;)

I'll raise my hand for option 3. Unless paying a premium not to lift a finger on the exterior is worth a lot to you. Look at the sales history for each property. In my town, there's a huge condo complex where the dues are so high, the units sell at a discount. Not a good investment unless their ultra convenient location makes sense for you.

[iluvzbeach]

Sorry for the slight change of subject here but this raises an interesting point, do any condo investors find value in buying older condos with HOAs vs older houses/townhomes?  It seems like the $600 HOAs scare people away because they think in payment terms so maybe you can actually get great value out of a 1970s build with a big HOA?  Or best to buy new and flip after 7-8 years before HOAs go up and the place starts looking a little dated and things start breaking?

Edit, maybe a more personal example but do I buy the ocean view or beach walkable 1960s condo in SoCal with the $600 HOA, or the newer place that is beach bikeable for the same money built in the 2000s with $350 HOA?  Or the little old house 2 miles inland across the highway (all same price)?  Obviously advantages and disadvantages to all but I’m hoping someone will tell me the value play is the old beach walkable one ;)

Personally, I’d go with the beach walkable one. For me it is all about the location and ease of access to that location. When I lived in Hermosa, it was either the strand or on a walk-street between The Strand & Hermosa Ave. Wouldn’t change a thing.

[SilentC]

Sorry for the slight change of subject here but this raises an interesting point, do any condo investors find value in buying older condos with HOAs vs older houses/townhomes?  It seems like the $600 HOAs scare people away because they think in payment terms so maybe you can actually get great value out of a 1970s build with a big HOA?  Or best to buy new and flip after 7-8 years before HOAs go up and the place starts looking a little dated and things start breaking?

Edit, maybe a more personal example but do I buy the ocean view or beach walkable 1960s condo in SoCal with the $600 HOA, or the newer place that is beach bikeable for the same money built in the 2000s with $350 HOA?  Or the little old house 2 miles inland across the highway (all same price)?  Obviously advantages and disadvantages to all but I’m hoping someone will tell me the value play is the old beach walkable one ;)

I'll raise my hand for option 3. Unless paying a premium not to lift a finger on the exterior is worth a lot to you. Look at the sales history for each property. In my town, there's a huge condo complex where the dues are so high, the units sell at a discount. Not a good investment unless their ultra convenient location makes sense for you.

Thanks Dicey.  I was hoping there was some “arbitrage” opportunity on these older buildings where people spending like normal Americans (nearly paycheck to paycheck) balk at the high HOA even though that might be reflective of the higher exterior/structure maintenance cost of either condo or house of the same vintage, if that makes sense. 

iluvzbeach I’ve lived 1 block off, it was pretty great, agree

[halfling]

In my experience, expect 10% per year and plan accordingly, for a new build, construction defects are the boogeyman. For older properties, it's deferred maintenance and insufficient reserves.

Want to keep a lid on dues? Get good inspections, read All The Paperwork before you buy and then get on the damn board. If you're not willing to serve on the board, don't buy a condo, hard stop.

You know Dicey, this actually made me realize I don't think I will ever be a condo person. I can barely stomach the thought of an HOA for a single family home, and helping run one for a condo complex sounds like being an RA again, but to grown ups.