I purchased my Portland condo end of 2015 for $140,000 in cash. I like to believe that I own my condo but the ongoing expenses add up to near rent prices. The HOA dues, utilities, repairs, maintenance, insurance, and property taxes.
Owning your property has the added benefit of not paying rent to someone else. Your property might even appreciate enough that you’ll turn a profit from its sale. Regardless of what your home will do for you, it’s an expensive liability to hold. I’ve calculated my holding costs at somewhere around $400/month.
A condo isn’t too different from a single family home. The monthly HOA dues and the occasional special assessments are what separate these two. A SFH also requires more upkeep but often appreciates faster than a condo.
I’ve always wanted a single family home so that I could have a garage and backyard. But every time I go and view such homes, I only see all the work involved. I would love to restore a classic Porsche in my garage or grow a lush garden in the backyard. Alas, I’m more in love with the end result and less with the process.
Unexpected Home Expenses
Growing up in an older home in Los Angeles, there was always something that needed to be repaired, replaced, or remodeled. We had a huge backyard, a massive garage, and a swimming pool.
My parents spend a lot of money on bathroom retiling, roof repair, pool maintenance, pool repair, and the gardening. Even if their home value outpaced inflation, it’s unlikely that they would have pocketed a whole lot compared to investing their money in the stock market.
Water & Time
Water and time are the worst enemies of a house. A single family home will probably suffer far worse than a condo.
At some point one of the hallways got major water damage from one a roof leak. We didn’t have the money to repair it and couldn’t even afford a temporary patch job. That little leak destroyed the bathroom and the adjacent bedroom. By then the pool needed to be resurfaced again and the lawn needed to be redone.
My folks had their own businesses so the income was sporadic. It’s hard to predict when the next big paycheck will come. And inevitably, come tax season, you’d be broke for a few months after. Home ownership can be a backbreaking expense for certain individuals.
My 360 sqft studio is not going to have any problems with the lawn or the lap pool. But I could spring a plumbing leak, always a costly repair. But because the studio is tiny, it’s a manageable repair for me to tackle. At the very least I can tear all the way down to the pipes and call a licensed plumber for the pipe work and do all the finishing work myself.
Still, I’d rather know that I can afford a major repair instead of having to rely on myself. That’s why I prefer a small studio. No contractor is gonna quote me $30,000 for a bathroom remodel in that tiny thing. But when they see you in a big ass house, in a nice neighborhood, they’re comfortable quoting you $60,000 for a $15,000 job.
HOA Special Assessments
As a condo owner I still have some expenses. I already mentioned the monthly HOA dues. In 2017 I wrote a post about my first special assessment in my condo. It was $1,600.
It’s May 2019 and our HOA has come up with a new assessment. This is after the new HOA company raised my monthly HOA dues from $175 to $292 – a rather sizable jump.
The new HOA company anticipates that our building will have a shortfall of $200,000. They will be dividing this among the 72 units based on square footage. This is a major budgeting shortfall on their part. Maybe they need to purchase a better budgeting software such as YNAB.
My special assessment portion for 2019 will come out to $1,827.
I can pay this monthly in 6 payments or pay it all at once. This time I’ll pay it monthly through automatic debit. I’ll be charged a one-time $75 fee, which is a convenience tax that I’m willing to pay.
Rising HOA Dues
I suspect that very soon the HOA dues will go up as well. If this company isn’t able to properly predict future budgeting needs, they likely won’t be able to get by on the current HOA fees.
HOA’s will always go up because the cost of goods and services also goes up. Condo complexes also get older and need more repair. Don’t be fooled by “low inflation years”. Just because the Feds kept inflation low, it doesn’t mean that the cost of goods have stayed low.
It’s easy to spend more to fix a spending problem. It’s far trickier to improve your budgeting skills to actually spend less.
I don’t want to give the impression that I’m upset by this $1827 bill or that I think it’s unfair in any way. Special assessments are necessary to cover unexpected budgeting shortfalls and this sum isn’t backbreaking for me.
But if I was retired, living on fixed income such as a pension, $1,827 would come out to an extra $317 per month for 6 months. Ouch. This is a big downside to having an HOA. But really, it’s a downside to owning a home, period.
Association’s Budget Shortfall
The HOA decided to include the upcoming budget from July-December in order to demonstrate to the homeowners why there will be a special assessment. It’s a single page with tiny writing, with all sorts of budget items which don’t make a lot of sense.
So what has gone up in price from the previous year?
- plumbing – from $250 before, now at $7,500
- janitorial – up 100%
- carpet cleaning – up 300%
- management fees – up 150%
- property insurance – up 100% (from $10,000 to $22,000)
- legal – up 100%
- reserve study – from $300 up to $5,400
- water/sewer – up 150%
- trash – up 120%
- telephone – up 300% (….telephone!?)
In my eyes this new property management company failed their budgeting promise to us as homeowners. They are hired so that they can accurately predict what future expenses will be and plan for that accordingly.
It’s not different in the personal finance realm. If you can’t get good at budgeting then you’ll always end up having to pay out for unexpected expenses. This will hinder your savings goals and delay your time to financial independence.
I’ve written a lot of posts on inflation and personal cost control. I’m rather obsessed with the topic because it isn’t fairly represented by inflation indexes. They aren’t an accurate representation of how much a person pays for services and goods.
Sure, maybe your Netflix subscription hasn’t gone up but because of the popularity of streaming you’re paying twice as much for your home internet.
Maybe the price of gas hasn’t gone up but when Uber rolls out its unregulated services into a new city, the gridlock doubles, which means that you’ll have to spend more money on fuel, parking, fines, and car repair.
How can minimum wage go up by 25% and inflation get reported at 2%? Who eats the extra cost of labor? Maybe we don’t notice it when the price of a cup of joe goes from $2.35 to $2.50. But that’s a 6% increase.
Curbing Personal Rate of Inflation
One of the best ways of staying ahead of inflation is to earn a salary. Not income from your own business, but a salary.
The larger your medical group, the more likely that your salary will keep up with inflation. You’ll get regular raises and your health insurance benefits will go up accordingly.
Once you’re retired or if you have your own business, it’s on you to control your personal rate of inflation. Some economists believe that this isn’t possible. They view you as intertwined with the flow of the economy; a dependent consumer who is the victim of marketing.
Even if your HOA dues are going through the roof, even if you are bombarded with special assessments, you have a lot more control over your spending than you are led to believe.