Are condos worth it?
Is it worth it, even with ripoff HOA fees?
It seems like everyone I talk to about real estate believes that condos are the biggest, baddest, most egregious ripoff in real estate. In my experience, it’s exactly the opposite. Why the disparity? And, more importantly, why do I think that investing in condos and buying condos to rent makes so much sense? Are condos worth it, after all?
Why people think condos are a ripoff
I’ll admit it. Condos, as real property, do have some significant differences from single family homes. Some of these are positive differences, some are negative… and some you could argue either way. It’s that third category where things get interesting.
Negative: They usually, but not always, have shared walls between units. I’ll give this one to the anti-condo crowd, it’s annoying.
Neutral to Negative: They (generally) don’t have a yard or outside space dedicated to the property.
Positive: They have common spaces that all of the residents may use. This may include laundry areas, parking, outdoor areas, pools, gyms, etc.
Positive: The common spaces and exterior are often maintained and updated by an outside management group
Neutral: The residents pay a monthly fee for the maintenance, upkeep and renewal of the common spaces and exterior of the building(s). Yes, this is neutral. I'll explain later!
Positive: Often, utilities are paid for through the HOA
If you look through those differences, there are two that people hate on principle. The first is the concept of an HOA fee. People absolutely despise fees, especially if they can’t see much that’s tangible in return for their money. The second is the lack of outside spaces. There’s no space for rover to run around or for the kids to play in.
Personally, I believe that both of those problems are actually positives… and I’ll tell you why.
Are condo HOA fees worth it? You bet.
I love paying my HOA fee every month. I’m not crazy, I like keeping my dollars as much as anyone. But, I do understand the VALUE I get from my HOA fee, and it’s quite significant. As a condo owner, here are some things that my HOA fee goes towards:
Why HOA fees are worth it, #1: No outside/common area maintenance cost
This is huge. I know numerous people who have purchased single family homes recently, and many of them are facing significant maintenance costs for roofing, siding, and the like. These are five figure expenses. Let’s say a house re-siding costs $10,000 (being incredibly conservative). It will take YEARS of HOA fees in a comparable condo to match that sum, and HOA fees pay for way more than just replacing siding or roofing.
In the two years I have owned my condo, the roof, elevator, and parking lot have all been replaced or significantly improved, and I haven’t had to pay a single cent beyond my monthly HOA fee. As you can see, it isn't that bad of a place to live in, either.
Why HOA fees are worth it, #2: No outside/common area maintenance effort
Many people will say “I’ll just do the exterior work myself to make it cheaper.” Well, that takes an enormous amount of time and opens you up to expensive re-do’s down the road if you don’t perform the maintenance perfectly.
Why HOA fees are worth it, #3: You get common areas!
My condo doesn’t have a pool or a gym, but in condos that do these are huge benefits that can be worth the expense. In my condo, it’s awesome to be able to use the common laundry areas when I need to run extra loads, or when the washing machine breaks (as it did recently).
Why HOA fees are worth it, #4: No need to pay water and garbage utilities
I don’t have to manage or worry about this. The cost is pass through, so it’s relatively neutral to me from that perspective.
The value that I see from my HOA fee is significant, but for some reason people get stuck on the concept. Because of that, I am proposing a rebranding for HOA fees: from now on I will refer to them as “Maintenance and Management Payments”. I pay something, and in return I get a properly maintained building that’s managed without any effort by me. Most homeowners should have a similar line item in their monthly house accounting… if they are smart.
If you rent out the condo, like I do, then having exterior maintenance taken care of is an enormous relief.
The real question is: why do single family home owners like paying so much for the privilege of managing and maintaining their home themselves? I honestly don’t get it.
Are condo HOA fees worth it? You bet.
A deeper look into the spurious outside spaces argument
It might seem that having outside space is an unmitigated positive that single family homes have over condos but that’s absolutely not true.
Outside spaces aren’t all fun and games. Lawns need mowing. Gardens need weeding and planting. Decks need varnishing. You get the idea. Just as buildings require exterior maintenance, outside spaces require upkeep… and it can be a pain, as well as a significant expense.
But more importantly, many condos do actually have outside spaces. Outdoor common areas with barbeques, dog walking zones, pools, and lounge chairs are frequent perks of living in a condo. Best of all, they don’t require any maintenance from you.
Some condo caveats I should acknowledge
Ok, ok. I don’t want to lead anyone astray, so I do feel compelled to note where I think condos don’t make sense, and where my arguments above don’t hold up. See, I can be objective….
When the condo is in a poorly managed building. If you are paying for management through your “Maintenance and Management Payments/HOA”, it should be professional, reliable, and affordable.
When the condo is in a poorly maintained building. You don’t want to buy a poorly maintained single family home, and you definitely don’t want to buy a poorly maintained condo. If there are large maintenance items that the association doesn’t have the money for, you could see a special assessment (additional HOA fee to cover outstanding items). This is not common… but it does happen. Make sure the condo you buy has a fully funded HOA and reserve study completed.
Big families, or families with large animals. This is just common sense… and would be the same advice I’d give regarding small houses.
Is a condo worth it?
On balance, what you get with condos is pretty awesome. In a way, it’s like living at an all-inclusive resort, except instead of free margaritas and meals you are getting free maintenance and management. I am a huge fan of condos as investments, and as homes, having seen over 30% appreciation in just two years on my investment in my own condo. It’s also cash flow positive as a rental, so don’t listen to people who say that isn’t possible. I am not going to lie, it hasn’t been unpleasant watching the z-estimate tick up in Personal Capital, either!
The real question is, what do you think? Are you considering a condo? Am I stupid for liking them so much?