High Condo Assessments? When they actually save you money.
(or Don’t Be Fooled By Low Assessments).
I have had opportunities to work with a variety of clients who are looking for a place to call home for themselves and/or for their family. The subject of high assessments comes up most often when families are looking to buy a larger property (3br+), but even those looking at 1br or 2br properties are wary. Although the purchase of a condo may not for everybody, the notion that high assessments is money wasted or will mess with your budget may be wrong.
As I work in the city, the subject of assessments usually relates to condos, sometime townhouse complexes, but rarely full subdivisions. In the West Rogers Park (WRP) neighborhood in Chicago, most condo properties are smaller 6-unit buildings or converted courtyard buildings. There are only a few 200+ unit buildings.
It is common that, in a smaller building, the association will self-manage the property. As each owner has a relatively high percentage of ownership, they pay a larger share of each expense. To keep their dues low they may not have a routine maintenance plan, they may defer maintenance until it is absolutely necessary, and/or they may overlook building up reserves to weather high-priced repair or replacement of critical facets of the property. This leads to a higher propensity of levying special assessments or borrowing money to quickly address emergency situations. READ: not good.
Larger properties, usually hire professional and experienced management companies or, at a minimum, have a full time property manager if they are self-managed. While this leads to additional expenses, the burden is minimal when shared with so many unit owners. Additionally, the dues take into account the need to build and maintain reserves. In other words, it is akin to having an insurance policy. Dues include payments that are therefore budgeted to prevent a sudden unexpected and therefor un-budgeted expense. READ: good.
Please indulge me as I explain further in the following Case Studies.
Case Study #1: One Bedroom condo.
7306 N Ridge Blvd Unit 1B vs 7141 N Kedzie Ave Unit 114.
7306 N Ridge - HOA: $225/mo, which includes heat. The property tax for the unit is $3161 a year (or $263 a month). 7141 N Kedzie - HOA: $382/mo, which includes heat and air conditioning. The property tax is $771 (or $64 a month).
While these are two extremes, the savings is clear. While the assessments at 7141 N Kedzie are almost $160 more than 7306 N Ridge, the owner saves over $200 a month when you include the lower taxes and having the air conditioning included with the assessments. Additionally, as 7141 N Kedzie is a large, professionally-managed building with a maintenance plan and healthy reserves, the risk of a special assessment in the near future is greatly minimized.
Case Study #2: Three Bedroom, two full bathroom condo.
2224 W Touhy Ave Unit 3W vs 7141 N Kedzie Ave Unit 1016.
7141 N Kedzie. HOA: $722/mo, which includes heat and air conditioning. The property tax is $1849 (or $154 a month). 2224 W Touhy Ave. HOA: $397/mo, which does not include heat or air conditioning. The property tax is $7019 (or $585 a month).
While the assessments at 7141 N Kedzie are $325 more than 2224 W Touhy, the owner saves all that and more when you include the lower taxes and having the heat and air conditioning included with the assessments. Here again, as 7141 N Kedzie is a large, professionally-managed building with a maintenance plan and healthy reserves, the risk of a special assessment in the near future is greatly minimized.
New buyers may make every effort to stretch their budget in order to buy a single family home. In WRP many 3 bedroom Single Family Homes that are priced under $350,000 are fairly maintained but in need of some upgrades. Even more rare is to find a house at this price point with a master bathroom. While there are no assessments, the property taxes, utility costs, property insurance, and, of course, the mortgage payments are all higher than a condo. Also, when buying a house, the Buyer will usually need to come up with a higher down payment. For many home buyers, the dream of buying a house is worth ignoring condos. Nevertheless, if the Buyer can save money by buying a condo, it should not be ruled out either.
Please feel free to reach for me if I can answer any of your questions and/or I can be of any assistance with your real estate needs. And, of course, if you know someone in need of a great broker, I would greatly appreciate the referral.
Sr. Real Estate Broker