condos and HOAs

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Submitted by condogrrl on July 22, 2007 - 8:29am

For almost 2 years I have rented in a brand new class A condo building in Hillcrest. I have watched it go from pristine with proud owners to a place with increasing vandalism, loud parties, broken doors, thefts of common area furnishings, etc. The property management company seems unmotivated and the board of directors weak and indecisive. There have been about a half dozen foreclosures which is probably not that unusual.

I was planning to buy a new condo after I sold my last one in 2005, but the more I see the more I think I will just rent. I keep a close eye on uptown and downtown condos and they all make me nervous, except maybe the Bosa buildings.

Financially it's much cheaper to rent than own, but I would like my own home to decorate the way I want. I cannot afford the house that I would want, but HOA boards and property managers seem so irresponsible. I have been an HOA board member and I know what it takes to stay on top of condo issues like protecting the reserves while taking care of maintenance items.

I write this to warn all prospective condo purchasers to see how a new condo complex develops the first 2-3 years before you decide to purchase. And be sure to ask who the property management company is. IMO most of them are worthless and just rip off the homeowners. There's a lot more than the initial price of the condo to consider. And, in this market, once you buy you won't be able to sell for a long time without a loss.

Submitted by FormerOwner on July 22, 2007 - 9:41am.

I agree 100% with everything you said. I think of the same issues. There are risks with buying - like the neighborhood or building going downhill. When you rent, you can just take off if that happens. It's a sad state of affairs but that's the way our country seems to be going.

For the most part, HOA's due appear to be a total rip-off. I rent a house in Temecula that has a HOA and it's a complete waste of $100/month. All they do is mow 3 strips of grass, pull weeds on a couple of slopes, and go around fining people for not mowing their lawns. Meanwhile, all of the investors are bailing and the neigborhood is starting to look like a ghost town. I don't think someone in pre-foreclosure is going to pay their HOA fines anyway.

Submitted by davelj on July 22, 2007 - 10:29am.

I agree with most of what you said, but there's an important point to consider with respect to HOA fees. The only money truly "lost" in your HOA payment is the money paid to the property management company to manage the whole process (the "friction"). The other money goes toward maintenance, insurance, etc. These are all things you will have to cover yourself if you own a detached home.

Some people think "condos are horrible because you have to pay an HOA and if I own a home I won't have to pay it." That's technically correct, but economically incorrect. If you own a home you're going to have to pay for regular maintenance (painting, roof, etc.), insurance, yardwork (unless you do it yourself), etc. There's no free lunch. The only difference between paying condo HOAs and paying for all the "stuff" related to owning a detached home is that in the latter case you pay as you go (and the payments are "lumpy" over time) and you don't have a property management company siphoning off 15% of the payment for compensation.

Personally I prefer the HOA, even with the "friction." It gets directly debited from my checking account each money and I just don't even have to think about any of it. I'm more than happy to pay for the convenience of not having to bother with it. But that's just me.

Submitted by temeculaguy on July 22, 2007 - 10:47am.

dave is right, the only exception is gated communities of SFR's. Former owner is your community gated? I'm looking at some gated communities and noticed you get less bang for the buck and after looking into it I found out that many gated communities have to maintain their own roads, street lights, etc. And they have to insure those things and for liability. The city or county public works doesn't help because the public has no access to it so the hoa has to set aside money to repave the streets every few years and you get the luxury of paying for the ungated tract next door's street in your taxes because you can drive on that street. gated condos don't get hit as bad because there is less street per residence.

Submitted by 4runner on July 22, 2007 - 11:57am.

There is one more factor to consider: the HOA is much more likely to "outsource" basic maintenance that an individual homeowner is. I suspect that HOA expenses are at least 20-30% higher than what an individual homeowner would pay to have done.

If you own your home, you probably think nothing of cleaning your own laundry room, replacing your own light bulbs and batteries in the fire detectors, even raking/blowing your own leaves once a month. An HOA, on the other hand, ends up paying for someone to come and do these things. Since no individual homeowner is responsible for the "commons," care of the commons is outsourced. This gets expensive.

Submitted by PerryChase on July 22, 2007 - 12:34pm.

Personally I prefer the HOA, even with the "friction." It gets directly debited from my checking account each money and I just don't even have to think about any of it. I'm more than happy to pay for the convenience of not having to bother with it. But that's just me.

Did you read the study that easy-pass causes road tolls to get more expensive vs. paying cash each time?  it gives the management companies incentives to increase fees with regularity.

Don't ever let vendors take money from you without bitching everytime.  Complaining is what keeps the prices low.  

Personally, I think that citizens are stupid.  Street maintenance was the cities' responsibilities.  By retreating to HOA communities, citizens are giving themselves tax increases.   Remember tax increases require political consensus.  HOA increases happen all the time with predictable regularity. 

What new development doesn't have HOA these days?

Submitted by condogrrl on July 22, 2007 - 2:16pm.

Yes, HOA fees increase all the time and yet the reserves are still not adequately funded. In the HOA for the condo I sold in 2005, the reserves were only 7% funded after 17 years of poor management. The roof needed to be replaced at an estimated cost of $150K - and this had to be put to a vote of the membership. If they vote not to replace the roof, then the roof leaks cause all kinds of expensive problems, more expensive than just replacing the roof. But note that the new roof would have to be a special assessment because there's no money in the reserves. What a mess!

Submitted by davelj on July 23, 2007 - 2:36pm.

Is it that citizens are stupid or is it that many citizens don't care about this "tax increase"? I agree that maybe 25% of HOA money is spent on administration and other "friction" issues. But many people - like me - just don't care. Is it that we're stupid or is it that we're willing to pay for the convenience of not having to think about these things? I outsource as many things as I possibly can in my life - food preparation, cleaning, the list goes on. And I pay a premium for these services. My time is too valuable to be spent on things like maintenance, mowing yards, cleaning pools, etc. etc. I pay the HOA to do these things. If they waste $100 or $200 a month, I couldn't possibly care less. And apparently there are a lot of people that feel the same as I do. But perhaps we're just stupid...

Regarding HOAs being constantly underfunded and the dues constantly increasing, I have one observation: Buildings - whether homes or condos - are depreciating assets. Whatever costs the average condo owner faces, the average home owner will face over time as well. It's that simple. Walls must be painted, roofs fixed, carpet replaced, etc. But, as pointed out above, the average condo owner is willing to pay a little extra to have someone else deal with the problems. Different strokes for different folks.

Submitted by PerryChase on July 23, 2007 - 4:18pm.

I do believe that citizens are generally not well-educated in terms financial matters and income equity. They have elected to privatize many services which are equivalent to huge tax increases. They don't care because they haven't experienced the results yet.

Think of all the mini-governments (HOAs) out there sucking-up 25% of homeowners' money.

I shouldn't have said that citizens are stupid but they are certainly ignorant.

I'm still young enough to sit back and watch the condo/gated community madness unfold. Let's see when the 1970s complexes hit 50 years old, and 20 years later when the 1990s communities hit 50 years old.

I think there's a huge amount of unfunded reserves that will result in special assessments as the condo complexed get older. After-all, buildings only have a limited useful life.

A $10,000 property tax assessment would normally result in a mini revolution (see Prop 13). The future will bring us a lot of $10,000 - $50,000 special HOA assesments for property, road and private infrastructure repairs. Property owners will just have to take Zantac and pay up.

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