Confessions of Dallas High Rise Living: Giving Dues Their Due

 

HOA dues are a mixed bag when you consider what they include.

HOA dues are a mixed bag when you consider what they include.

Buying into a multi-tenant dwelling will likely add another wrinkle to your finances: HOA dues. Yes, there are some multi-tenant townhome developments that have no HOA dues at all. While on the surface that sounds marvy, in reality, it’s a bit flying-without-a-net for me. With no cash reserve, any shared issue or expense has to be agreed on and hastily paid for.

As far as I know, except for The Beverly, Dallas high rises base their dues on unit square footage per month. For example, a 1,000-square-foot unit in a building charging 60¢ per-square-foot, per month, would equate to $600 per month. The Beverly has a set rate for every unit, regardless of its size. Some buildings, like Park Towers, increase the rate based on unit location – the higher the floor, the higher the rate (the closer to God?).

The monthly “nut” for a single-family home will include a mortgage (or not), utilities, insurance and property taxes. It may also include gym memberships and maintenance costs for landscaping and swimming pools.

A multi-tenant home will have some of those expenses bundled into their HOA dues. The nut needed for a condo will include a mortgage (or not), HOA dues and property taxes. Condo HOA dues may also include utilities, insurance and maintenance.

Personally, I’m a big fan of life automation. What bills I have are charged to a single credit card that I pay electronically. Similarly, HOA dues rollup my individual bills for water, sewer, gas, electric, cable TV, pool maintenance, insurance, landscaping and even contribute to a reserve savings account for unexpected issues. When I think back on all the checks I used to have to write…

But not everyone thinks as I do (more’s the pity, eh?). I pointed out in a previous post that many high-rise newbies will chafe at the thought of HOA dues. I sure did.

Dues are not all created equal. There’s an old wives’ tale that older buildings cost more than newer ones, which isn’t necessarily true. Newer buildings have more extensive amenities that, if you’re not going to use, why pay for? There’s also no set standard for what HOA dues do and don’t cover. Nearly all will cover things like common area maintenance, landscaping, building insurance, and trash removal. Buildings with private management companies (all high rises) will also cover those fees. Often times you will see “blanket insurance” which means the pillows and sheets are up to you (thank you, thank you, I’m here all week!).

Here are some of the less obvious parts of many HOA dues.

Utilities

As I said in my last column, Dallas’ original high-rises all include utilities in their HOA dues – which makes them higher on paper. Newer buildings have taken a page from Forbidden Planet and house Krell laboratories full of utility meters. Which is better? That depends. If you’re a miser who sets the temp at 60 in the winter and 85 in the summer, inclusive utilities would allow you to be less stingy for a set cost. Alternatively, said miser may want separate utilities so as to only pay for what they alone use. BUT, in buildings that have centralized utilities, they’ve likely struck a deal with the utility provider for a MUCH cheaper rate than a lowly peasant would pay. So in buildings where utilities are paid, whatever you use will likely cost less than anything an individual user would pay.

Also, while not part of the dues per se, learn about 2-pipe and 4-pipe HVAC. Quickly, 2-pipe means either the heat or the AC is on, not both. So twice a year, the system will switch from one to the other and until that season kicks-in full time, any temperature “back-tracking” will be a mite sultry. For example, if the heat is switched on in October and we get a run of 90-degree days, you’re going to be hot. A 4-pipe system has both heat and AC running at the same time, so since they’re both always on, residents can always control their temperature.

Sometimes utilities go beyond electricity and gas by also including cable TV or internet. These are bargains EVERY high rise should take advantage of – because they’re laughably cheap compared to individual plans. A very good Cable TV package (everything but the HBO/Showtime) and very fast internet may each run $25 per unit, per month – including hardware rental, taxes and fees. Show of hands: Who’s paying less than $50/month for individual TV and Internet service? As I thought: Nunya. If you live in a high rise that doesn’t offer these options, march right into the next HOA meeting and demand to know why. It’s a whacking great no-brainer.

Building (Blanket) Insurance

The easiest way to describe this is insurance for everything that’s not inside your unit – hallways, elevators, lobby, parking structure, pool, etc. This includes a pipe bursting inside a wall because all the policies I’ve seen basically cover from the drywall inwards. Now I’m not an insurance whiz and every policy will be slightly different, so it’s something a buyer needs to read and understand. Owners need a second policy to cover everything from the drywall out into their unit (your stuff).

Reserves

This is a building savings account for those things that need replacing in the natural course of life or that blow-up and need immediate repair/replacement. Painting, water lines, HVAC (if the building supplies it), water pumps, pool equipment, carpeting, etc. etc.

Water/Sewer

As they say, what comes in, must go out – that’s water and sewer. Both new and older buildings tend to have centralized meters/bills (I can’t think of any that don’t, but who knows?). NOTE: Those in older building should speak up and look for ways to save water because they’re likely wasting (and paying for) tons of it with “flush me a river” toilets and top-loading washing machines.

Management Fees

Someone has to deal with the loony tunes HOA board, and no one is dumb enough do it for free, so these fees pay the knight to slay the dragon. Money well spent. These fees also cover all other building personnel – maintenance, porters, guards, etc. That’s right, all those folks are typically employees of the management company, not the building. The HOA is involved in the sizing, hiring and firing of personnel, but their W-2 probably comes from the management company.

Facilities

Part of a building’s appeal will be the amenities offered outside your door. Does the building have a pool, tennis court, room service, spa, concierge, party room, media room, wine storage, fur vault, guest suites, etc.? Buyers must ask themselves (and answer honestly) whether they’ll use the gym beyond New Year’s Resolution season or whether a hoard of vintage Two-Buck Chuck warrants temperature-controlled wine storage.

The Tax Man

Penthouses aside, units in older buildings are always significantly less expensive to purchase than a similar sized unit in a newer property. Property taxes will also be correspondingly less. So ask yourself, isn’t it smarter to pay property tax on a less expensive, older condo than a newer unit valued at double or triple the amount?

A quick calculation says that every $100,000 in assessed value equals about $2,800/year or $230/month in (no-exemptions) property tax. In a gross example, the property tax savings alone from living in an older building versus One Arts Plaza or the Ritz Residences would be more than the HOA dues in an older building. (To say nothing of the hundreds of thousands of dollars more in the bank or a smaller mortgage.) Even factoring in an enormous renovation, you’d still come out ahead.

In reality, there’s usually a budget (and an image). So the question becomes is a half-sized unit in a new, trendy building more “you” than a jumbo unit in an older, less-showy building? Personally I place more value on the “wow” inside my home. I mean I’d rather see an athlete in rags than a 98-pound weakling in Gucci.

I also think there’s more investment upside in some older buildings.

Older buildings present a value with utilities often included in HOA dues, and often lower taxes.

Older buildings present a value with utilities often included in HOA dues, and often lower taxes.

 Totting up the Costs versus the Value

Do HOA fees make sense to you? Is there enough value? Only you can decide. I find that when looking at multiple buildings, it pays to understand the dues cost per square foot and what the HOA dues cover and the building’s amenities – create a list for each building so you can compare side-by-side. When you get serious, interview the building manager to find out what you can about the building politics, upcoming major expenses, the history of special assessments (try to get a feel going back at least a decade) and what shape the accounts are in.

All of this should be factored into your research on dues. After all, you don’t want the dues to sound OK and then find out the building is bankrupt and falling apart.

Finally, for those not convinced on older properties, take careful note of the HOA dues in new buildings during the initial selling phase where the developer may be keeping fees artificially low to entice buyers. Once the developer pulls out, BAM-O, dues may get jacked up. Case in point, the Drexel Highlander was advertising 40¢ per square foot during their 2012 close-out “sale.” Today the building charges 60¢ per square foot – a 50% increase! As they say, if it’s too good to be true, don’t pull out your checkbook. However, if you’re OK with paying the going rate of other similar buildings (who’ve transitioned away from the developer) and view any current reduced rate as a temporary bonus, go for it.

At the end of the day, HOA dues roll up several monthly bills and includes some amenities you won’t have in a single-family home. Do the math and then go with your gut.

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