For those considering a move to a condominium or planned community, part of that decision process should be the costs of the home owners association (HOA). The HOA monthly fees can make a dent in retirement income and need to be part of the financial calculation.
How much of a ‘dent’ can one expect? It depends on many factors, such as the state you live in; the age of the building/community; and the amenities provided. Each amenity must be supported by the monthly fees of the HOA.
There is also the matter of building a “reserve”, which is the amount set aside for unforeseen expenses – for example – in Florida during hurricane season, the damage (not covered by insurance) to a condo building must be borne by the homeowners of the condo units and covered through the reserves.
The states with the most number of HOA’s are: Florida, CA, TX and IL. According to some statistics there are over 351,000 HOA’s in the U.S. and approximately 53% of owner - occupied households are in an HOA.
One of the highest HOA fees in the U.S. is in Chicago, a monthly fee of $13,244 for a penthouse unit. On Lakeshore Drive, Chicago the monthly fee is reported as $12,884 (data from chicagocurbed.com)
New developments/communities come with different issues. According to www.newhomeowner.com in the article titled: HOA 101: What You Need to Know When Choosing a New Home Community by Judy Marchman. (newhomesource.com)
Ms. Marchman writes: “An HOA is typically governed by a board of directors consisting of volunteer residents, though new communities may initially be governed by developer or builder representatives with governance transitioning to residents as the community matures.” (my emphasis)
There is also no long history of HOA fees to rely upon when deciding what future shared costs will be. The above article is an excellent source for a better understanding of how HOAs operate particularly in a newly built/developed community.
You can anticipate a consistent rise in HOA fees and the more complex the amenities, the more costly the monthly fees.
Some data indicates that HOA fees in general have outpaced the inflation rate by a significant factor.
According to the article: Attack of the Killer HOA fees by Mark Uh (March 15, 2017) at trulia.com/research/hoa-fees/ : older buildings tend to have higher HOA fees.
What exactly does one get from the monthly HOA fee?
Fees of larger planned communities can include such things as: the maintenance of common areas including utilities; insurance and liability insurance of covering common areas; security such as a gated community with 24 hour staffing; security patrols; concierge services; amenities like pool, park/green belt areas, golf courses; clubs; restaurants; maintenance of waterways/lakes and beachfront; play areas; social events; scheduled classes; tennis courts; salaries/benefits of support staff; and to name a few.
Some ‘coop’ buildings include taxes in the monthly fees.
If the HOA fees do not cover the costs of the community, you can expect a special assessment. This can happen when the HOA Board of Directors decides (and the HOA budget determines) that the reserves are not adequate to cover an exceptional cost e.g. replacement of all air conditioning units of the condo building; or damage (not covered by insurance) to a beachfront area under HOA management.
HOA’s have plenty of financial clout also. In some states, if you have unpaid HOA fees or assessments, the HOA can place a lien on your property.
Another factor is that according to some CCRs (the rules governing units/properties within the HOA) the property cannot be leased (or can be leased but only for a specific length of time.) Therefore, the possibility of rental income is decreased.
The bottom line: In HOAs – “you get what you pay for” and “you pay for what you get”.
The more complex the amenities that are provided, the higher the fees likely will be in a planned community.
When deciding on purchasing a property within an HOA/planned community/condominium, make sure that you receive a copy of the latest financial data; the CC&R (the regulations governing properties/units) and have all documents reviewed by trusted professionals.
For estate planning purposes, if a property with an HOA is to be inherited, not only the taxes, but also the monthly HOA fees must be calculated i.e. the heirs must pay those monthly fees and assessments as they come due (until the property is disposed of).
If the CCRs state that the property cannot be leased/rented, then the beneficiaries must pay HOA fees without benefit of rental income, along with the taxes and insurance and any mortgage on the property.
It can happen also that a property has decreased in value over time and the remaining mortgage is higher than the potential selling price of the property.
A history of special assessments can also make a property less desirable to any future buyer.
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