I Don't Understand the Real Math Behind Owning a Condo. What Am I Missing Before I Buy?

Speaker A00:00:00

I don't really understand the math behind owning a condo. That's what we're going to talk about today. Because you can afford the mortgage. That really wasn't the question.The question is, is the fee you pay every single month on top of it? That repair bill they can hand you with almost no warning and a savings account you don't control but you're legally on the hook for?That's the real math behind a condo. And almost nobody runs it before they make the offer. That's what I'm going to talk about on today's show.And stick with me to the end because I've got a very special announcement. Hey, friend. Ralph Estep Jr. Here.And this is Financially Confident Christian, where we work every day to break that cycle of financial shame and live with confidence. And today's a question. I look back, I hadn't ever answered this one. And that's the real monthly math behind owning a condo.That beyond the mortgage payment. And if nobody's ever explained this to you, you're not behind. Most buyers find out after closing and that is not a good time to find out.If you've got a question for this show, I would love to answer your question. That's what this show is all about. Go to financiallyconfidentchristian.com/question We'll put a link in the show notes.But again, that's financiallyconfidentchristian.com/question Let's get right to today's question. This is what the listener wrote says, I'm seriously consider buying a condo.And the mortgage payment itself looks like totally doable on my income. But then I started reading about HOA fees, special assessments and reserve funds.And I'm not sure I actually understand what owning a condo really costs each month. What's the real math I should be doing before I make an offer? Great question. And so many people don't understand this. The mortgage is one piece.The real cost is the mortgage plus the hoa, plus the hidden risk sitting in the reserve fund and special assessments. So before you go and buy a condo, you gotta listen to me today. You gotta run the full math before you ever make an offer. Well, how do you do that?Let's get right to it. That HOA fee we talked about, you gotta add that to the real monthly number. That HOA fee isn't optional or occasional. It's mandatory.It's gonna hit you every single month for as long as you own the unit. So, yes, you've got that mortgage payment. The mortgage companies told you this is what it's going to be.You've got to add that HOA directly on top of the mortgage to get the true payment. Not the advertised one, not the one they told you it might be, the actual one.That fee covers water, it covers trash, it covers the insurance of the exterior of the building, it covers landscaping. So if you're going to compare that to buying a house, you got to compare apples and apples by looking at that total cost.And you also got to think about how often it's increased in recent years. This isn't some set it and forget it. HOA fees tend to rise in cost over time.So that doable mortgage can become a stretch once the fee is sitting next to it. The mortgage number is the number they advertise that the HOA fee is the number you actually have to live with. So that's where you got to start.Add that HOA fee to the beginning of that. But then the second part, and this is one a lot of people don't think about.Investigate what's called the reserve fund before you fall in love with the condo. The reserve fund is the association savings account. It's basically where they keep the extra money.They keep that for the big stuff when the roof fails and they've got to get it repaired.If the elevators have issues, if the siding starts to come off, if the parking or the parking structures have issues, that's how the condo association pays for it. And they do that by keeping a reserve fund. A healthy, well funded reserve protects you from surprise bills if you've got a thin one.And you can just look at the recent news, Some of these condo fees have gotten ridiculous and they've had to make these special assessments because you didn't have enough reserves.So one of the things you can do as you're in this negotiation process, ask for the most recent reserve study and ask for the percent of the reserve that's funded, not just if they say to you, hey, our HOA is fine, run the other direction. Ask whether the association is carrying any loans because they can actually borrow money.A condos reserve fund tells you more about the future cost than the listing ever will. So understand their reserve fund.Understand if they're in a good place, understand if they're in a bad place, understand if there's any loans, how often it goes up, that sort of thing. Here's the third thing. Ask about special assessments, both in the past and those that are pending these special assessments.You hear about these all the time. It's a one time charge to Owners where the reserve can't cover a major repair. Let's say, for example, there's a structural issue.They have to replace windows, they have to replace the roof. And that can run into thousands of dollars for every single owner.So as you're doing your what we'll call due diligence, ask what's been charged in the past several years and whether there's anything currently being discussed. Here's a little trade secret. If you notice there's a lot of condos for sale in the building, red alert. Something's going on.There could be an issue with the assessment. There could be an issue with the structure. If you've already got one pending, ask in writing who pays for it.Because you need to know whether you are going to pay for it or if the seller is going to be responsible for that. And make sure your closing attorney understand that.If you've seen repeated assessments or a big one on the horizon, listen to me, that's a real financial risk. And the thing about condos, it's not a rare event. It's a normal part of condo ownership that you need to price in A special assessment isn't rare.Ask what's already been charged and what's coming. Now. Here's something a lot of people don't do and even a lot of realtors don't talk about this.And I think they should, and that is read the HOA financials and the meeting minutes. If I was buying a condo, I would request a current budget.I would request the current financial statements and the last year or so of board meeting minutes. These condo associations have to have board meetings. They have to have minutes. Minutes are basically notes of what happened.Those minutes, when you read them, are going to reveal what the owners actually argue about. You will find this is where there's going to be a lot of juicy stuff in there. It's kind of like reading a gossip column.You're going to hear about deferred repairs. You're going to hear about budget shortfalls, those looming projects.Ask about pending litigation and how many units are owner occupied versus rented. Both of those can affect whether a lender will finance the unit in the first place.Those documents show the real health of the building in a way a showing never will. The realtor is going to show you this place. Oh, it's so beautiful. The paint is fresh, the views are great.And if an association won't share them, that reluctance is the answer. Self run away. These HOA documents are boring, but they're going to tell you everything. The listing won't tell you.And then I want to encourage you to build the full monthly number. We talked about it, the components you got, your mortgage company, your mortgage payment and your hoa. Build that number and then stress test it.Add to it all the mortgage, the HOA fee, property taxes. You got to have your own owner's policy and cushion for rising fees. The association's master policy covers the building.A lot of people don't think about this. It doesn't cover the stuff inside of the unit. So you're going to have your own homeowner's insurance.In addition to the assessment, ask what the master policy deductible is and whether the owners can be billed for it. That's another thing people don't talk about. There could be a deductible.Ask whether the full number still fits comfortably, not just barely on your income. Leave room for the fee to climb. HOA fees go up because stuff costs more. And also have money sitting aside for that special assessment.The real math you're doing isn't the mortgage in isolation. It's the whole picture, stress tested for the years ahead. So add up every number first, then ask if it still fits. That's the real math.But I want to go a little deeper. There's a real excitement in picturing yourself in a place of your own. I get that.And there's this quiet temptation that comes with it to rush past those boring numbers. You're like, Ralph, I'm not going to read all these notes. Because that vision, you see yourself hanging out and chilling in that condo.It feels so good. And that pool is honest. And slowing down to do the unglamorous math doesn't feel like faith, does it? But it is faith.It means being a careful steward of a big decision. Our faith doesn't promise us that the perfect looking condo isn't automatically the wise choice.It doesn't promise that the numbers are going to cooperate with the dream. Proverbs 24, 27 says, Prepare your fields first, then build your house.Doing that HOA math, reading the documents, checking the reserve, that's preparing the field before building. It's you making a decision with clear numbers. And that's honoring God. More than one made on excitement alone. But here's what faith does promise us.It promises us that God honors the patient. He honors the diligent work of counting the cost before committing to it. Preparation isn't the opposite of trust. It's part of it.There is no shame in slowing down to count the cost. That's not doubt. That's wisdom doing its job. And that's why I love your question.Doing the boring math now is exactly what protects this exciting decision. Later you might do the math like Ralph, this works great. That's not overthinking it.You're asking the questions most buyers wish they had once they already own that. And a condo you can truly afford, one that doesn't stress you beats a condo that looked affordable on the outside. So here's your win for today.If you're considering buying a condo before making any offer, request the HOA's current budget, get its reserve study and read the last year of board meeting minutes and and then add that full HOA fee on top of the mortgage estimate to seal the real monthly number. Knowing the truth, knowing the all in cost turns a nervous guess into a confident decision. Let's get right to our Bible verse.We've already mentioned it. It's Proverbs 24:27. It says put your outdoor work in order and get your fields ready. After that, build your house.So if you're buying anything, including a condo, it goes better when the unglamorous math gets done before the excitement of ownership does. And that's why I said before you even get so excited about the condo, understand the true cost and what you're getting into.How about we pray right now? Heavenly Father, I just want to thank you for this listener and the opportunity in front of him to own a home of his own. What a beautiful time.Lord, I just ask that you would give him patience to do the careful math before making a decision. Provide clarity as he reads the HOA documents and ways to true monthly costs.And Lord, protect him from a purchase that looks affordable but quietly stretches him too thin in the stresses that could come from that. Lord, give him peace and give him confidence whether the answer here is yes, not yet, or maybe even no.And Lord, guide his steps toward a home that genuinely fits what he has and what you've provided for him. Lord. And we ask this in Jesus name. Amen friend. The mortgage is only the beginning.The real cost is the mortgage and the HOA fees plus that risk of the reserve.So read the documents, check the reserve and ask about those assessments and you can turn that guess into real math and build that full monthly number and stress test it and then you'll live in confidence. And if you've got a question for this show, I would love to hear your voice.You can go to me and see me at financiallyconfidentchristian.com/voicemail Again, that's financiallyconfidentchristian.com/voicemail. Now, before you go, like I said, I've got something new to tell you about. This show starting on Monday, August 31, is going to have a brand new name.It's going to be called Becoming Financially Confident. We took a lot of time to decide on that name and we feel like that is the best for where we're going.It's going to be a live show every week at 11:30am Eastern time. And here's the best part. It's going to be a whole hour, me and a co host. No more just Ralph talking. We're going to be talking about real bills.We're talking about real numbers, no jargon. And of course, what you've come to know, no shame. And live chat is part of the show. You can get your questions answered right on the air.The podcast isn't going anywhere. The live show is where we're going to go deeper in real time. And if 11:30am doesn't work for you, don't worry about it.We're going to go live at 11:30 Eastern and then the whole show is going to get released as a podcast episode later that same day. So you can catch us live or you can catch us on your drive home. And it all starts on Monday, August 31st at 11:30am Eastern.So come join us at becomingfinanciallyconfident.com again. That's becomingfinanciallyconfident.com because I would love to see you there. Thank you so much for joining me today.I want to encourage you to stay financially savvy. May God bless you and you have a great day today.