Occasionally, I receive an email from someone with a comment about a recent blog post or a question on a topic I've not discussed. For example, I received this email today from a fellow about condo fees. I thought I'd post his question, my response, and then ask whether this blog's readers had corrections for my response, further elucidation, or other information that would help.
The email I received [edited]:
How should I, as a buyer, be thinking about condo fees in the context of condo buying v. house buying? That is, what do these condo fees generally incorporate that I would otherwise be paying for if I owned a house? Power? Water? Insurance? Trash?
A house would have maintenance expenses that I wouldn't have in a condo - I might have to pay someone to mow the lawn, but then again I'd have the lawn to use, unlike in a condo.
Bottom line is I am just trying to figure out the best way to do an apples to apples, condo to house, price comparison.
My response [edited]:
It's definitely a factor to consider. First, they're not tax deductible and, worse, they can increase. I've heard of one building - new construction - where the condo fees doubled in a year from $400 to $800/month.
Generally, the fee covers common expenses like building maintenance, insurance, staff salaries, trash collection, management company fees, etc. It could include cable TV, too. My experience has been they're set based on the size of your unit.
I would expect you'll have to pay your own power bill, unsure about water. You'd also have to buy insurance to cover your personal belongings, much like renter's insurance. The condo board should also be placing a portion of the fees towards a reserve to cover unexpected or planned, future expenses; having inadequate reserves could result in your receiving an assessment to cover the gap.
I look at condo fees as cash I'd rather put towards something else, especially when I see units that have $1000/month condo fees. If you're doing a financial analysis, include the condo fee in your analysis and model a range of percentage increases to see where they become unsustainable. You might find that applying that extra cash to a mortgage, where a portion of it would be tax deductible, makes it easier for you to buy a home instead of a condo.