Special Assessments Are Rare But Are Additional Expenses To Monthly Condo HOA Dues

I’ve only owned condos in my home-owning experience, never a single-family home. With condos there is the dreaded HOA dues. This is touted as one of the major downsides to owning a condo (I disagree). Even worse, many condo owners will at some point face special assessments, a term used for extra HOA dues on top of what you already owe.

Home owner associations are regulated by most states, they are responsible for everything beyond the walls you can touch in your condo. You can find the regulatory laws surrounding HOA’s for your state online.

HOA Dues

These are monthly dues that a condo owner has to pay in order to be a legitimate owner of a unit in a complex or building. There are townhomes and even freestanding houses that have HOA dues. As long as something is shared then HOA dues are assessed.

Monthly dues can vary quite a bit and are generally proportional to the size of your unit and sometimes to the value of your unit. A penthouse unit in a building may have much higher HOA dues than a first floor unit.

Dues can be as low as <$100 and as high as $2,000+ a month. I remember when I lived on Wilshire boulevard, in the Westwood neighborhood of Los Angeles, I found units for sale that were going for $800k and had $1,500/month of HOA dues – yikes.

These costs increase every few years to keep up with inflation and sometimes to keep up with an aging building. My first condo in San Diego started out with $175 of monthly dues and ended with $260 after 4.5 years.

As you can imagine, if you have a lot of shared amenities then the cost to maintain these can be higher. It’s quite common for a building to have:

lawns
pools
gyms
tennis courts
common areas
internet for the building
security
parking

What Does An HOA Fee Cover

An HOA is usually a business entity that is managed by a property management group who manages everything outside of the walls of your condo. If you own a single family home then you can sympathize with these expenses because you have to maintain your:

roof
your foundation
property trees
the driveway
garage
pipes
central air
garden
pool
and your fence

As a condo owner I don’t have to worry about any of that. I am paying someone to take on that risk on my behalf. In return I am able to purchase a place to live for less money up front. But inevitably, I am paying for those maintenance costs through the HOA.

Common costs that an HOA is responsible for are as follows; get ready, it’s a long list:

hiring humans who can actually manage the property
paying for a dedicated building engineer (handyman)
keeping a cash reserve to pay for emergencies
pay for utilities to power the building
paying for insurance to insure the building
paying for landscaping
dealing with lawsuits (buildings & HOA’s get sued all the time)
maintaining and repairing central air
sewage and plumbing
trash removal
maintaining elevators
repairing and maintaining pools/tennis courts/gyms
pest control
handling sudden repairs (leaks, fires, theft)
leaf, snow control
security/front desk staffing
security camera monitoring
central fire alarm upkeep
cleaning of common areas
paying and supervising inspection
securing entrance to the building/common areas

What Are Special Assessments

Condo owners get little heart attacks when they hear about these assessments which cracks me up, so let’s talk about them to understand why they happen and what they are.

A special assessment is a one-time payment that you will owe on top of your monthly HOA dues. My HOA payments right now are $173/month. I was asked to pay an extra $1,600 payment for certain repairs of the building.

Every few years a new part of the building needs to be repaired, maintained or upgraded in order to prevent more expensive costs down the road. This is what property managers are good at, determining how much preventative maintenance is needed to decrease the chance of something more costly down the road.

In my case the building needs to be sealed on the exterior. It’s a $200k job in total. The building has to be pressure washed, permits obtained for trucks to block traffic, certain parts repaired, then sealant is applied to all cracks, and finally the exterior is painted in order to prevent damage to the building.

It’s a job that only needs to be done every 20-30 years. We have about 100 units in my building so I got a letter for a special assessment of $1,623. That’s it – a $200k exterior job on the building will only set me back <$2k.

You can read the details of the letter by clicking on the image below.

My buddy Tim will need to repaint and seal his house in the next year, I am certain that he will spend around $3-4k in parts alone to do this. The labor will come from him and myself sweating our asses off on ladders and inhaling some lead infested dust from paint strippers and power washers.

HOA Dues And Special Assessments Can Make Sense

I am not trying to say that a condo is a better investment than a house. But if you own a single-family detached home, then you know that even if you are a DIY-er, those trips to the hardware store aren’t cheap.

Hiring someone to repair, maintain and upgrade your home can be costly. Even worse, having to shop around for contractors and making sure that they can do the job right can be a daunting task.

By having an HOA I have taken the pressure of homeownership off of my shoulders and paid to have it on someone else’s.

I pay 1.4% of my home’s purchase price to maintain it. This is more than the 1% that’s often quoted for single family homes. Add in this recent special assessment and I will have paid 2.5% of my condo’s value to maintaining it for 2017, assuming no other assessments will be levied and that I won’t have any other things to fix on my condo.

Making Sense Of The Math Of HOA Dues

An $800k condo with an HOA of $1,500/month is a 2.25% annual overhead. Depending on your market it might be something that a potential buyer is willing to spend for the amenities that come with your place.

I like to calculate 1-1.5% of the price of the condo I am considering to buy. That is a very realistic HOA overhead to have – it’s how much you would have to spend to maintain a single family home.

So a $500k condo should have an HOA of not much more than $625/month. This might seem like a lot but consider the paragraph above.

For a condo where the HOA dues are much higher consider the price of an equivalent a single-family home. A very luxurious condo selling for $800k might have an equivalent home selling for $1.5mill. That extra $700k would be easily an extra $2-3k/month. So… that $800k condo could have an HOA of $3.5k and it still might be a great deal.

Paying The Special Assessment Dues

I’m a budgeter, so I have provisions in my budget for what I call unexpected expenses. I had no idea I would be having this special assessment popping up, but thankfully I have enough money just lying around, collecting dust in my checking account.

The HOA gives me the option of breaking the payments up over the next 1.5 years, adding only $90/month to my HOA dues. For this “convenience” they will charge me 5%.

Alternatively, you could say that I got a 5% discount by having some wiggle room in my budget, by having a buffer category.