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More on monthly payments

December 23, 2011

In yesterday’s post I shared about how the mortgage for a condominium was substantially less than the monthly HOA fees. My point was that we need to be careful when taking on monthly payments. So today I want to provide you with the math on this comparison. I went online to see records of the most recent sale for a condo in the same complex I was looking at. A couple of months ago a condo with the same floor plan as the one I was referencing yesterday sold for $38,000. The HOA fees in this complex are $323 per month.

If I had bought this condo and owned it as an investment for the rest of my life (giving myself the benefit of the doubt and simplifying my math, I will use 30 years), the cost of the HOA fees compared to what the mortgage would be are as follows:

Finance entire purchase price $38,000
30 year conventional loan @ 3.5% $170 per month payment
X 12 months $2,040 per year
X 30 years $61,200 total costs including interest over the life of a 30 mortgage
Monthly HOA fees $323
X 12 $ 3,876 per year
X 30 years $116,280 paid in HOA fees for the next 30 years if they were frozen at current rates 

Essentially if I invested in this condo and financed it with a conventional 30 year mortgage the HOA fees would be nearly double the total mortgage payment over the life of of the mortgage. Think about this: HOA fees are nearly twice the purchase of my investment property IF HOA fees do not increase for the next 30 years. When home buyers were paying half a million dollars for their new home, the least of their concern was what their HOA fees were going to be. High rise condos in Florida are notorious for HOA fees exceeding $800 per month. Do you think that becomes a load on your personal finances? Even worse, it becomes a load on trying to dump a condo worth one-third what it was six years ago. One of the quickest ways to financial ruin is to not pay attention to what you are adding to your monthly recurring expenses.

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