The Expert Podcast

So here's an interesting question for the real estate industry, especially in Florida: Are condos the new timeshares? For a long time, timeshares were a desirable way of getting a property that you could use for a certain purpose at less cost than a typical single-family home or vacation property, allowing use as needed. However, it soon became apparent that the financial downsides of timeshares were overwhelming. After a certain period, when a new timeshare building had run its course of usable life, the value almost went to zero. The maintenance fees, upkeep fees, and monthly association fees became so expensive that it would be cheaper just to stay in a five-star hotel for a week. People wanted to get rid of their timeshares, but there were no buyers, and registered owners were still required to pay those fees. If they didn't, they could be personally pursued for payment.

Is this happening with condominiums? Condominiums are typically in a multi-family building structure—a high-rise, a townhouse—they're not single-structure homes for the most part. If it's in a larger building, as the owner of that condominium, you own from the paint on the walls inward; you don’t own the walls, the boards, or the roof. At the beginning, this seems like a good thing because you’re not responsible for maintenance. But just because you’re not directly responsible for maintenance doesn’t mean the cost won’t eventually show up on your doorstep.

For example, if you live in a 10-story condo building with multiple apartments and you own one of the units, every 30 or 40 years—or sometimes 20 years—the roof has to be replaced. If the roof on that building costs $800,000 to replace and there are 20 units, each owner would have to pay $40,000. Presumably, the condo association would reserve a little bit from monthly dues, knowing that the roof repair will come up in 10, 15, or 20 years. But what if the association isn’t properly allocating or budgeting for these future expenses?

Many times, when it comes to voting to raise condo fees to cover these costs, the vote is against it. People figure that they’ll deal with it when the time comes. Well, then everyone has to deal with it, and each owner gets what's called a special assessment for the condominium. It’s not just the roof—repairs could involve the pool, electrical systems, or repaving the garage. Now in Florida, many buildings are dealing with not just these issues but the entire structure needing a redo.

Many buildings were not constructed to the same standard as commercial structures because a commercial building has a single owner who ensures high quality. When a condominium building is built, the contractor, builder, or developer often assumes that unit owners might not demand top standards. As a result, some of these buildings are literally falling apart. The Surfside condominium collapse in Florida is a tragic example. In response, Florida passed a law requiring every building to be inspected to ensure it’s safe.

Because of this new law, buildings are now getting repair estimates of $1 million, $2 million, or even $5 million. If you divide $1 million over 100 unit owners, that’s $10,000 per owner. If it’s $2 million, it’s $20,000. Some unit owners are receiving special assessments of $100,000 or more, which may exceed the value of the condo itself. Consequently, many people want to leave these condominiums, similar to how people once tried to get out of timeshares. Although it hasn’t reached the same level as the timeshare crisis, the condominium market in Florida is facing serious trouble.

Another expense adding up is insurance. As a condominium owner, you may think you don’t need to worry about insurance because it’s handled by the association. But that doesn’t mean the cost isn’t passed down to you. The association only gets its money from the unit owners, so if it receives a $200,000 bill for building insurance, that amount is divided among the unit owners.

Many condo buyers assume they're off the hook for these expenses because they just pay their condo fee, which may initially seem reasonable. However, there’s no guarantee that it will remain at that level. The condo fee is calculated by taking all the expenses and dividing them by the number of unit owners. Unlike owning a single-family home where you can decide how much you want to spend on landscaping or roofing, condo associations make these decisions for you. The board members may be unit owners, but they aren’t directly responsible for the full bill, which can affect the thoroughness of shopping for good deals.

Condominiums are beginning to lose some of their appeal. While they were a great option for a long time, we’re now seeing financial problems in condo associations in places like Florida, California, New Jersey, and New York. These problems are trickling down to the unit owners.

If you have experienced significant condo association price increases, let us know in the comments and share how much your fees have gone up.

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