My condo’s HOA dues recently went up from $172 to $292 per month. As you can imagine, this jump sparked a lot of heated debate and angry emails were exchanged between the condo owners and the HOA management company.
Raising HOA Dues
HOA dues have to go up because of inflation and because of the increased cost of services and materials. Sometimes these 2 items are related but other times the cost of materials and services goes up because of supply/demand.
Other factors which affect HOA dues are the age of the building and changes in the law. Our building was built in the early 1900’s which means old pipes, foundation issues, and problems with door and windows.
As for changes in the law, seismic issues are among the most expensive and the city of Portland constantly changes these laws to make sure that buildings remain up to code.
I’ve owned multiple condos and every time the HOA fee is raised I witness the same uproar from the owners.
It’s even worse when special assessments are imposed. But at least that’s a one-time fee. When the HOA fee goes up, it will do so on an ongoing basis.
Usually it’s the same story, upset owners who send angry emails to board members and the HOA company. They believe that they are being ripped off or that the fee jump is not justified.
Passing on the Cost
Prices don’t fluctuate in a vacuum. If my HOA dues go up, I will charge a higher rent to my tenant. Same is true if property taxes go up or the price of my handyman goes up.
The renter is fortunate because I wouldn’t pass the entire cost to them right away. There is always a delay and they get to take advantage of that if they are clever with their finances.
Scamming Home Owners
Let’s assume that the condo owner thought that the price jump was a property management company scam. How could they find out if that’s the case before sending angry, accusatory emails to the property management company?
They could get together with a few other owners and have a lawyer/CPA review the finances of the HOA. This isn’t terribly expensive and there are ways to handle this professionally.
The next step is to look at nearby, similar condo complexes and see what their HOA dues are. If the prices are in range – as is the case here – then there probably isn’t a reason to worry.
My HOA dues went from $172 to $292 which is a 70% increase ((292-172/172)). That’s a lot, no doubt. But, as homeowners, we are getting something in return for this money such as needed repairs and ongoing maintenance and stronger cash reserve.
My HOA started out at $146/mo when I bought the condo in late 2015. Now, 3 years later, the HOA has doubled.
I purchased the condo for $141,000 and now it has a value of around $180,000 which is a 27% increase in value. Rents have also increased which adds its own value to a condominium.
In this same time my property taxes went up from $1,400 to $2,100, a 50% increase.
Factors Affecting Cost
The building has aged 3 years since I bought it. Many more owners have decided to rent their units as opposed to living there which adds to the wear and tear of the building.
Portland’s homeless population has blown up and been out of control. We have had homeless camps adjacent to the property. There have been break-ins and damage to the property and other related expenses.
The city of Portland, as I mentioned, has passed laws which require the buildings to spend more money in order to remain up to code. Some of these rules may be silly but many are meant to protect the public.
Comparable HOA Dues
We’ve gone through 2 different HOA management companies and now are on the 3rd. The other companies essentially refused to work with our board because the finances were such a mess. Nothing serious but they knew that the reserves were too low and rates needed to be raised.
This HOA management company has taken the bold step of raising the HOA dues and that’s no easy task.
Looking at other condominiums, HOA dues are far higher. Studios and 1-bedrooms in the Portland area have monthly HOA dues in the $350 range. And that’s for buildings with no amenities such as my building.
Living Within Your Means
Primary residences are considered by many to be investments. This HOA jump and similar property tax hikes make an argument against this theory.
I don’t consider my primary residence an investment. It doesn’t mean that I won’t try to make money off of it. Or that I won’t take into account the money tied up in the equity of the home.
I purchased this condo well within my means; $141,000 was a tiny sum to pay for a physician who was earning north of $300,000 a year. And my ongoing expenses which included property taxes and HOA dues were less than $500/month – also quite affordable.
It helps to have some extra wiggle room for various expenses should you decide to purchase your primary residence. If you are earning $250,000 a year as a medical professional and buy a home for $800,000 and pay $10,000 a year in property taxes, there is very wiggle room there.
Writing off HOA Dues
I have been asked this question before. You cannot write off your HOA dues if you are the primary resident of that property.
If you rent the condo out then you can write off property taxes and HOA dues and any other relevant expenses.
My condo would rent for around $1,200/month. From this I would deduct $175 for property taxes and $292 for HOA dues. That would leave me with $733.
$733 would be my overall monthly profit. But it’s not quite that simple. You have to account for property maintenance and other expenses such as your property sitting empty for a couple of months – if you want to get granular.
You also get to deduct depreciation of your residence which adds back a little more money into your pockets when you do your taxes. In fact, real estate investors like to take 50% of your gross monthly rent income as profits which would put me at $600/month – not too far off.
I mention rent income because it’s a great way to see if the costs of the property area realistic. If your paid off residence couldn’t fetch enough rent to pay off its expenses and leave some money in your pocket then something is wrong.
This applies to most homes falling under the bell-curve. On the fringes, say, if you own a 12-bedroom mansion on the beach, rent may not cover your expenses but the property is likely going up in value rapidly during healthy markets.
The HOA Budget
What’s included in your HOA dues? It might be different for most condo buildings but here is a list of everything that my HOA covers:
- janitorial services
- building maintenance (elevator, roof, plumbing)
- fire alarm
- security system
- tax preparation
- legal fees
- independent auditing of reserve money
- utilities (water, electricity, gas)
Every year this comes out to $100,000-$200,000.
We have 72 units in total and the average HOA dues is about $290 which comes out to an income of $250,000 a year.
Any extra money goes into the reserve and the rest of the money is used for major unexpected repairs.
The Movie Ticket Analogy
I just saw this great example on YouTube but don’t recall where, so I can’t give any credit. Remember how movie tickets were $4 when you were young? I remember going to Regal and paying $4.25 a movie in the 90’s.
By early 2000’s movies cost $7.50.
Now, in 2018, movies cost around $12.50 near me. Everyone I’ve spoken to has expressed that this price is way too high.
By comparison, in 2006 I got paid $80/hour moonlighting in the urgent care. Now I would make closer to $130. My income has outpaced inflation.
Using a simple online US inflation calculator, movie tickets should cost around $11.00. There are still movie theaters that sell tickets for that price, so it’s not too far off of the current price.
We aren’t even taking into account that movies are now much more advanced in technology. The visuals and sounds are better. Many theaters serve higher quality food and even have service inside the theater. That premium has to be built into the cost as well.