A few issues with HOA dues:

1. They always go up. Certainly costs for materials and labor do as well, but you’re also paying for management, so all your money doesn’t get put directly back into the place.

2. You don’t get to choose what’s done with your money. If the roof is leaking in a private home, you can decide to put a bucket under it and wait until you have more money. If the common areas need repair, you WILL get a special assessment.

If you really hate to deal with maintenance and repairs, and you’re prepared to see dues continually go up, a condo might be the way to go.

Second that–HOA always goes up.

However, I don’t think you get a huge break by owning a house, necessarily.

In my experience as a homeowner, that 0.5% was reasonably accurate, with the caveat that it’s based on more of an “average” $500,000-$600,00 home, so I’d expect to spend about $2500/year on maintenance. On a much cheaper house, you’re still not going to spend less than $1000-$1500/year–there’s a floor. Just as if you’re in a $1M place, you’re probably not spending $5,000/year. Of course you don’t spend that every year, you might spend $1000 on miscellaneous things for 5 years and then blow $7500 on a roof (or more on your $1M place since it probably has a bigger roof, but again, it doesn’t scale exactly linearly).

From personal experience, year one of homebuying was furnace repair: $750. Paint&landscaping: $500. Drywall repair: $350 on a $600,000 house. Year two: new water heater: $1000. Additional drywall repair (gradually replacing the plaster): $750. Repair water damage: $1000. Patch roof&Chimney: $650.

You get the picture.

Ugh, I hate the idea of those HOA dues going up and up and up! I especially hate the idea of special assessments! And you can’t deduct HOA dues or assessments from your income tax, can you?

Thanks for the rundown, David, I think I should do something similar and figure out how much I have spent on maintenance in the last seven and a half years since I bought my house. What I really hated was stuff like replacing the roof. Just finding someone to do it is Living Hell because if you mess up, you could end up spending tens of thousands of dollars and the roof still leaks.

This is all convincing me that a condo is a bad idea!

Would anyone buy a condo if the paper was full of ads like:
—————————–
Why OWN when you Can RENT for LESS? THATS HALF the cost for many lucky renters!
YES, Rent NOW and you can:
Have the LANDLORD pay all repairs!
NO Mello-Roos! No surprise HOMEOWNERS ASSESSMENTS! No Property tax! No HUGE DOWN PAYMENT!
NO risk of PROPERTY DEVALUATION! Did you know some buyers have lost HUNDREDS OF THOUSANDS OF DOLLARS?
Be MOBILE! with renting, you can move in just 30 days! without losing 6% of a homes value!
Easy Monthly payments! Rent NOW!
————————————
>>> Once condo prices are going down, the only thing that will stop that is when the cost of owning a condo is about equal to renting one. The last time around, home prices went down or sideways for about 7 years. So if you buy a Condo, 1. Make sure it really is no more expensive than renting. 2. Be sure you want to live there for at least 7 years.

Hahahahaha can’t stop laughing! The fake ad is great, red!

Can you explain a little more about the last part of your post, though? Do you mean the only thing that will stop condo prices from falling further is if it costs the same to rent as to own one? So right now, I would need to figure out how much it would cost to rent a typical condo, and then calculate how much the mortgage, homeowner’s insurance and property taxes would be per month for an owner?

Janis:
Yes, the floor for condo prices is somewhere around the cost of renting; particularly for large complexes. Once prices start falling, it removes all incentive to buy a condo, since most buildings have large numbers of essentially identical units, some of which are for rent. Why take on all the costs and risk of owning if it will cost you more for essentially the same place? This applies to desirable condos only, though – if it isn’t a nice place, no one wants to live there very long and the price can drop far below the rental costs – this is how landlords make money, after all.
So, if you want to buy a condo and be reasonably sure it won’t drag you to bankruptcy, add up the costs of Mortgage, property taxes, Homeowners dues, any special assessments, Insurance, and add another $1000 per year for repairs. IF that is about the same as the rent, then owning might make sense, provided you want to live there for at least 5 years. Remember that there are about 2% costs in buying, then selling the place will cost you about 7%. So, say you have a $500000 condo; just buying and then selling it costs you $45,000. (okay, Redfin will save you some of that, but you will work for it) That condo probably doesn’t rent for more than $3000 a month… So by NOT buying you get a YEARS FREE RENT! oops, sorry, slipped into ad mode.
I’d say for every $1000 rent, the condo value should be about $135,000 or less for reasonable safety in a dropping market. Are there any available for that? Probably not.
Oh, one other thing – when interest rates have been low is the worst possible time to buy. Home prices will be artificially high, but when interest rates go up then home prices are squeezed and you can’t sell at what you paid. Figure your mortgage costs at a 7% rate, not some buy down 4.5% rate that essentially just raises your property tax and loss when you sell. I’m assuming you have outstanding credit scores…

Thanks so much for the explanation, red! I do have good credit scores, but I saw in another Redfin blogger’s post that lenders in many East Bay cities are going to require a 20 percent down payment, so that advantage may evaporate.