When you buy a condo, it’s common to get an amenity-packed home at a lower price than a house in the same area. However, condos can also come with costs beyond the standard monthly fee. It is important to understand how the need for significant renovations or insufficient cash reserves could impact your budget.
To ensure you’re fully prepared for your purchase, we’ll explain the financial aspects of condo ownership, including the costs beyond your down payment, closing costs and monthly condo fee.
What Is a Condo Fee?
A condo fee, or homeowners association (HOA) fee, is an expense paid by every owner within a building, complex or development to cover the ongoing costs of maintaining the community.
“Owning without having to deal with all the maintenance is one of the biggest reasons my clients buy condos,” says John Innes, a real estate agent with Samson Properties in Richmond, Virginia. “Between maintenance and security, the amenities typically outweigh the HOA fees.”
These fees are usually paid monthly and are an additional cost separate from your mortgage payment. It’s common for condo fees to vary based on the size of the unit purchased, the amenities included and the estimated expenses that the community will need to take on each year.
The money you put toward your condo fee helps fund the cost of estimated expenses and the amenities provided. Condo fees typically cover common areas, building maintenance and landscaping, and the upkeep of amenities such as a pool, gym or clubhouse. In some cases, a condo fee might also cover the cost of some utilities, such as water and trash removal.
Beyond the Condo Fee: 7 Hidden Costs of Ownership
Your monthly mortgage payment and condo fee will typically make up most of your out-of-pocket costs, but you may need to plan for additional expenses. Here are seven of the most common hidden costs that come with owning a condo.
1. Special Assessments
A special assessment is an unexpected cost that condo owners may be required to pay in addition to their monthly fees. It is used when a condo association has a financial need that is not adequately covered by the monthly dues. Owners may be required to pay these additional fees if the condo building requires unexpected repairs, or in situations where the association’s reserve fund requires extra money to cover expenses.
2. Condo Fee Increases
As you shop for condos for sale, you’ll notice that each listing includes the monthly HOA fee that the owner must pay. However, it’s important to note that you can expect this monthly expense to increase over time. That’s because a condo association sets fees based on its upcoming costs for the year, which often increase due to inflation and the need to budget for more significant repairs.
3. Parking Fees
Many condos include off-street parking, but in urban areas, the need for parking might result in additional costs. As you look at condo listings, check each to see if parking is included with the unit.
4. Maintenance and Repairs
While your condo fee will cover shared amenities and common spaces, you’ll still need to anticipate the cost of maintenance and repairs inside your unit. As a general guideline, you can follow the “1% rule,” which suggests setting an annual budget of 1% of your condo’s value for required maintenance and repairs. For example, if your Home Valuation Report indicates a value of $350,000, you should set aside $3,500 each year for unanticipated fixes and home maintenance.
5. Utilities
The cost of some utilities, such as water and trash collection, are often included in your condo fee. Still, you’ll likely need to budget for electricity, gas and internet services. The community details in each condo listing on Homes.com will show you which utilities are included with your condo fee.
6. Insurance
All condo associations carry an insurance policy to cover the structure of the building and its shared spaces. As an owner, you’ll still need a homeowners insurance policy – typically required by your lender, the condo association, or both – to cover your belongings and the individual unit. The mortgage payment calculator on every Homes.com listing provides a property-specific estimate of your homeowners insurance costs.
7. Property Taxes
Property taxes are based on a percentage of your home’s assessed value. The property tax you pay is determined by your local government and school board. The mortgage payment calculator on each listing will estimate your property tax to help you understand your potential costs.
How to Find Hidden Costs Before You Buy
While a listing provides some initial details about a condo’s upfront and recurring costs, the most significant insights will come from the condo resale package or “condo docs,” which outline the community’s finances, rules and operations. Your real estate agent will work with the seller and their agent to obtain a copy of the resale package before closing, and it’s important to review it thoroughly before you finalize the deal.
As you go through the resale package, look for the following documents to gain further insights into the community’s financial standing.
Review the Board Meeting Minutes
The most recent meeting minutes can provide insight into the initiatives going on within the community, including any proposed repairs or improvements that could impact your ownership costs.
Check the Financial Statements
The community’s financial statements should include a balance sheet detailing income and expenditures to provide a high-level view of its standing. You should also be able to view the reserve fund for major repairs and improvements and the condo’s history of special assessments.
As a general guideline, a condo association should have at least 10% to 40% of its yearly operating budget in reserve to cover the cost of future repairs and renovations. However, many experts recommend 70% for financial stability. If the community struggles to fund its reserves or has a history of frequent special assessments, ask additional questions to ensure the community is adequately funded.
Analyze the Reserve Study
A reserve study is an evaluation performed by an outside firm to anticipate any significant updates or improvements required in the next 20 to 30 years. Its purpose is to ensure the association is budgeting accordingly for significant improvements and adjusting condo fees as needed.
The Bottom Line: Preparing for Hidden Costs
Purchasing a condo can be a smart move for buyers who want desirable amenities in a well-maintained community. Still, it’s important to be aware of the potential for hidden costs. Unanticipated fee increases or special assessments could significantly impact your budget.
As you weigh the pros and cons of purchasing in a condo community, review the resale package before you get to the closing table. That way, you’ll have the clearest insight into the complex’s financial health and its rules and regulations.
Micaela Green is an experienced writer who has researched and written about hundreds of neighborhoods across the United States. She is a former freelance content writer with over four years of experience building web content. She holds an M.F.A in Writing from Vermont College of Fine Arts and a B.A. in Art History from Virginia Commonwealth University.
