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Myth – HOA Fee is Money-Down-The-Drain

Myth – HOA Fee is Money-Down-The-Drain

There is a myth about HOA fees among new home buyers, who regard HOA fees as a deal-killer to buy a condo or a townhouse. I’d like to take this time to demystify.

First of all, HOA fee is not unique to condos and townhouses. Almost all new single family development have HOA and the owners of the single family homes need to pay a monthly due.

Secondly, HOA fee is not money-down-the-drain. It actually includes many expenses one has to pay as single family homeowner. Common included expense are: cold and hot water bill, trash bill, landscaping. A single family homeowner easily pay $180 a month for these expenses. On top of that, HOA fee also includes reserve to replace the roof, paint the exterior walls, common area, replace fence. On contrary, a single family home’s roof easily cost $10k to $15k. Assuming the life expectancy is 30 years, each month, single family homeowner needs to set aside $28-$42 for the roof. Roof is only one of the many items the HOA fees included.

Third, HOA fee includes the insurance of the common structure of the community, such as roof, walls, clubhouse, elevator etc. Although it doesn’t eliminate a condo owner’s need to purchase separate insurance to cover the in-unit properties, it does lowers the insurance bill from a typical $1000/yr for single family owner to typically $500/yr for condo or townhouse owner. That’s $40 per month saving.

Once you take all these into account, a single family homeowner’s monthly expense easily exceeds the $300-$400 HOA fees of a condo or townhouse. In other words, you get a better deal paying HOA fees than paying expenses separately as a single family homeowner.

HOA fee does include some expenses that a single family homeowner doesn’t need, such as management fees which are paid to management company to collect the HOA fees, do proper accounting, police the HOA rules, host HOA meeting etc. It also includes cost to do annual reserve study, to make sure there is sufficient funding to cover future big-ticket expense such as roofing and painting. Because of the large number of units in an HOA, these common expense should be negligibly small portion of the overall HOA fee.

Last but not the least, if the community includes amenities that you will not use, such as a gym, a pool or tennis court, you will still need to pay the HOA fee as owner. Communities as such tend to have much higher HOA fees due the increased maintenance expense for the amenities. $500 to $700 a month is not uncommon. If you don’t use these amenities, paying the HOA fee certainly doesn’t make sense. You probably do not want to not buy a unit in such community at the first place.

Give me a call today at 408-219-1728 if you would like to discuss about purchasing a single family home vs condo/ townhouse!

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Nikki Lui

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