Are Condos the New Timeshares?
So here’s an interesting question for the real estate industry, especially in Florida: Are condos the new timeshares? Meaning that for a long time, timeshares were a desirable way of getting a property that you could use for a certain purpose, for less money than a typical single-family home or typical vacation property, and it allowed the use of that property as needed. But then it started to become apparent that the downsides financially for a timeshare really were overwhelming, meaning that after some period of time.
The Downside of Timeshares
When a new timeshare building had run its course of usable life, the value almost went to zero. The maintenance fees, the upkeep fees, the monthly association fees had become so expensive that it would be cheaper just to stay in a five-star hotel for that week. People wanted to get rid of their timeshares, but there were no buyers. And if you were the registered owner, you still had to pay those maintenance fees as long as you were the owner, and they could come after you personally if you didn’t pay.
Similarities Between Condominiums and Timeshares
Is this happening with condominiums? Condominiums are typically in a multifamily building structure, a high-rise, a townhouse; they’re not single-structure homes for the most part. And if it’s in a larger building, as the owner of that condominium, you simply own from the paint on the walls inward. You don’t own the walls, the boards, the roof—anything. Which at the beginning seems like a good thing because you’re not responsible for maintenance, but just because you’re not responsible directly for maintenance.
Costs of Condo Maintenance
Doesn’t mean that the cost of it doesn’t eventually show up on your doorstep. For example, if you live in a 10-story condo building with a bunch of apartments in it and you own one of the units, every 30 or 40 years or so, or 20 years, the roof has to be replaced. If the roof on that building, let’s say, costs $8,000 to replace and there are, let’s say, 20 units, that means every unit owner has to pay $4,000 for the roof. Now, presumably, the condo association will every month in their dues reserve a little bit out, knowing that that roof.
Condo Associations and Budgeting Issues
Repair is going to come up in 10 or 15 or 20 years. But what if that condo association is not properly allocating or budgeting for these future expenses? The reason they don’t is because many times, when it comes time to vote to raise the condo fees to cover these costs, it’s voted down, it’s voted against. People figure out when it comes up, we’ll deal with it. Well, then you have to deal with it, and everybody gets what’s called a special assessment for a condominium, and every unit owner has to.
Special Assessments in Condos
Pay. And it’s not just the roof—it could be the pool needs to be redone, it could be the electrical system has to be redone, it could be the garage needs to be repaved. And what’s happening now in Florida is a lot of these buildings—it’s not just the roof or the pool or the paving, it’s the entire structure that now needs to be redone. Many of these buildings, when they’re built, were not built to the same standard as a commercial structure, because, in a commercial building, the owner of the building is a single unit owner that’s really going to.
Construction Standards in Condo Buildings
Make sure that that building structure is high quality. When a condominium building is built, the contractor, the builder, the developer figures, well, these are unit owners. They figure it’s new, and they may not be as sophisticated about wanting the structure 100%. So, a lot of these buildings are starting to fall apart. Literally. Lally Surfside condominium in Florida fell apart—it tipped over. Now that this reality has become conspicuous, Florida passed a law saying that every building has to be inspected to make sure it’s not going to tip over and kill people.
The Rising Cost of Condo Repairs
Because of that, these buildings are getting estimates of repairs of a million dollars, $2 million, $5 million. Well, if you divide a million dollars even over 100 unit owners, that’s $110,000 per owner. If it’s $2 million, it’s $20,000. Some of these unit owners are getting special assessments for $100,000, $200,000, and it’s more than what the condo is worth. So many people want to get out of these condominiums the same way that people were trying to bail out of timeshares. At this point, it’s not quite to the same level as timeshare owners, but the condominium market is in trouble.
The Rising Cost of Condo Insurance
In Florida, for this reason, the other expense that’s starting to add up is insurance. Now, as a condominium owner, you say, well, I don’t have to get insurance because that’s handled by the association. Well, just because it’s handled by the association doesn’t mean the cost is not passed down. The association only gets their money from unit owners, so if the association gets a bill for $200,000 for insurance for their building, they have to divide that up by the number of unit owners, and everybody pays their fair share.
Misconceptions About Condo Fees
So a lot of condo buyers figure that they’re off the hook for these expenses because they don’t have to pay them. They just pay their condo fee, and at first, the condo fee may seem reasonable, may seem like a small amount, but there’s no guarantee it has to stay at that level. The condo fee, the association fee, is calculated by taking all the expenses and dividing it up by the number of unit owners.
Lack of Control Over Expenses in Condos
The other disadvantage to that is if you have your own single-family home and you decide, well, I don’t want to cut the grass this much, or you want to shop around for a good landscaper, or you want to shop around for a good roofer, it’s in your best interest to do so because you’re paying every dime of that. If it’s a condo association, that person or that board making the decision may be unit owners, but they’re not directly responsible for the whole bill. So, shopping around for a great deal on a roofer—yeah, they want to get a pretty good deal, but what if one of the roofers is their buddy or one of the.
The Deteriorating Appeal of Condos
Roofers is in the Lions Club with them? You’re going to find that the shopping around may not be as robust as it would be if you’re directly responsible. So condominiums are starting to lose some of their luster. It was a great option for a long time, but now you’re starting to see, especially in places like Florida, California, even New Jersey, New York, some of these condominium associations are starting to have financial problems that are filtering down to the unit owners. If you have experienced some of these vast condo association price increases, let us know in the comments and tell us how much it went up.
