What determines HOA Fees for condos

10 Replies

I'm from a city that has very little to no condos. I was looking at a few condos in Atlanta, and noticed that some I was looking at, their HOA fees were way more than others. What determines the price of an HOA fee for condos?

HOAs are usually "represented" by a small group of owners that are elected or volunteer. They set the budget, which is then split up among the units depending on ownership interest. Ownership interest is determined by the HOA governing documents. (Not all ownership are split equally).

Your concern when purchasing a condo is not just "How much is the fee?" but you must consider, is this fee enough to cover the expenses and budget for future expenses? Many condo associations do not budget enough for future expenses, then when something happens, they must levy special assessments on all the owners. I read a story about a condo in CA which nearly fell apart and levied a$50,000 special assessment on all owners to repair the building.

It's based on a lot of factors, such as amenities offered (i.e. fitness center, clubhouse, swimming pool, etc); costs to operate/maintain common areas (i.e. landscaping, electricity for common light fixtures, gates, repairs to roadways, parking lots, etc); cost of any insurance that's required; size and age of the property and infrastructure; planning for future capex projects for the property; etc.  

Those are just some of the factors that are taken into consideration, but ultimately the fees are usually set by the HOA board of directors.

Originally posted by @Andrew B. :

HOAs are usually "represented" by a small group of owners that are elected or volunteer. They set the budget, which is then split up among the units depending on ownership interest. Ownership interest is determined by the HOA governing documents. (Not all ownership are split equally).

Your concern when purchasing a condo is not just "How much is the fee?" but you must consider, is this fee enough to cover the expenses and budget for future expenses? Many condo associations do not budget enough for future expenses, then when something happens, they must levy special assessments on all the owners. I read a story about a condo in CA which nearly fell apart and levied a$50,000 special assessment on all owners to repair the building.

 This is a good answer. 

I'm not an insurance guy and so do not know all the details (maybe one can chime in), but I've seen insurance policies that purport to cover up to $10k or $20k (or w/e) in "surprise" special assessments. One very recent example, the investor was considering two policies. One was for $50k more in dwelling coverage, the other included $10k in special assessment coverage. Basically the same annual premium (within $20/yr). 

Originally posted by @Chris Mason :
Originally posted by @Andrew B.:

HOAs are usually "represented" by a small group of owners that are elected or volunteer. They set the budget, which is then split up among the units depending on ownership interest. Ownership interest is determined by the HOA governing documents. (Not all ownership are split equally).

Your concern when purchasing a condo is not just "How much is the fee?" but you must consider, is this fee enough to cover the expenses and budget for future expenses? Many condo associations do not budget enough for future expenses, then when something happens, they must levy special assessments on all the owners. I read a story about a condo in CA which nearly fell apart and levied a$50,000 special assessment on all owners to repair the building.

 This is a good answer. 

I'm not an insurance guy and so do not know all the details (maybe one can chime in), but I've seen insurance policies that purport to cover up to $10k or $20k (or w/e) in "surprise" special assessments. One very recent example, the investor was considering two policies. One was for $50k more in dwelling coverage, the other included $10k in special assessment coverage. Basically the same annual premium (within $20/yr). 

 Insurance that covers special assessments is something I've never heard of. I'll have to call my insurance company and ask about that...thanks.

I saw some of the condo in downtown ATL has HOA above $500 which includes internet etc. still way too high consider how much you can pass-through to your tenants. Ask specifically what the HOA includes. Maybe that will help you determine how much you can pass-through. Typical HOA in condo might include water and some utility. Always ask the HOA manager to identify their responsibilities.

Originally posted by @Andrew B. :

HOAs are usually "represented" by a small group of owners that are elected or volunteer. They set the budget, which is then split up among the units depending on ownership interest. Ownership interest is determined by the HOA governing documents. (Not all ownership are split equally).

Your concern when purchasing a condo is not just "How much is the fee?" but you must consider, is this fee enough to cover the expenses and budget for future expenses? Many condo associations do not budget enough for future expenses, then when something happens, they must levy special assessments on all the owners. I read a story about a condo in CA which nearly fell apart and levied a$50,000 special assessment on all owners to repair the building.

This is right on the money here. One of the trickier things about condos and townhomes is figuring out the effective governance of the HOA board. Some boards exist solely to keep maintenance fees as low as possible, with virtually no attention paid to long-term maintenance and repair costs; then the owners sell out, leaving the new owners with hefty special assessments to replace roofs, siding, sidewalks, etc. Other boards want to create huge war chests to have the best of everything, and further use a hefty HOA fee as a way of keeping 'undesirables' out of their complexes.

You should be able to get a feel for the maintenance & repair of the property from your inspector. You also should be able to get some kind of accounting from the HOA board such as: cash on hand; known deferred maintenance; upcoming assessments; etc.

 

I personally feel like HOA fees are very random and don't really have too much rhyme or reason behind the actual numbers. 

Keeping in mind that most HOAs are managed by a group of random people that aren't necessarily extremely keen on running a community budget. 

I've personally seen HOA fees that seem peculiarly low ($40) to others that are just bonkers ($1,000+). *shrugs*

@Evan Parker Attend a board meeting. Ask to review the financials. I tell every single one of my clients to know as much about an association before they make a decision. A low HOA isn't necessarily a good thing. What are their cash reserves? What work have they done recently? Do they have a history of special assessments? These are all things you need to know before you can make an informed decision about a property.

There's a reason that financing can be tough for condos, and the same reason that FHA condos are scarce (at least in Chicago). Lenders need to know that the HOA is in good financial standing in order to reasonably loan to a buyer. A $50k special assessment is not an expense that your average home owner could absorb.

HOA are trouble. As others mentioned the fees are determined by the expenses. Most HOA are grossly mismanaged. They are not business people and therefore they waste money, overpay for things and in extreme cases there is even theft. If I owned units in a building, I would want to sit on the board to keep an eye on the money. Of course that takes time and you are stuck dealing with people who can't comprehend or have different interests as owner occupied versus rental. HOA boards often dislike or prohibit rental units because they see it as hurting their value, so you are fighting that too.

Do yourself a favor and stay away from condos. They are the first properties to take a price hit during a recession and the last to recover. You own a piece of a building and are at the mercy of your co-owners. Not enough control in my opinion.

I know people say, "but they take care of all the outside maintenance". That is true, but if you are paying huge sums of money, so if you banked that money instead, you could better spend the money yourself on exterior maintenance.

Now is a GREAT time to sell condos!!

Chris and Andrew mention coverage for Assessments.  The coverage (called Loss Assessment in most companies) is available on most owner occupied Condo Unit Owners policies.  It is less commonly available on Dwelling/Fire policies that cover rented units.  It responds to assessments that were a result of a covered Claim.  An assessment for maintenance issues or other non-covered purposes would not be paid by the coverage.  

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here