I recently was walking down LaSalle avenue in River North and saw some new construction. Aside from the usual accoutrements such as more bathrooms than bedrooms and everything made of granite, one item REALLY caught my eye:
Low assessments - $200 / 2009
When you purchase a condominium, you need to consider the price, financing, property taxes, and assessments. I went out to the web to get a definition of assessment:
What's an assessment?
A condo assessment, sometimes called an association fee, is a dollar amount paid each month by the condominium owner to cover a proportional share of the common expenses of the property. These expenses can typically include, but are not limited to: gas; sewer; water, electricity for common areas; scavenger; lawn cutting; snow removal; hallway cleaning; insurance for common areas; professional management, parking lot maintenance; legal and audit fees; as well as short- and long-term replacement reserve. Be sure to consult the budget for any particular property to learn what is covered in the assessment for that property.
The dirty secret is that assessments are typically very low when you purchase the property new from the developer; but they seem to rise significantly after all the units have been turned over to owners. While my experience may be unusual, our assessments have roughly doubled since the owners took over the building from the developer.
Why is this? When the building starts out, there typically isn't much of a reserve fund. Without a reserve fund, any type of major expense that comes up requires a special assessment, which becomes very painful since they are usually unexpected and can't be planned for in advance. Everyday expenses tend to rise, too, as well as utilities and property taxes.
I laughed out loud when I saw $200 / month for a 4 unit luxury building. As your building becomes fancier and higher-end, everything costs more. You don't want to spend $1M or more for your unit (I'm only speculating, since I wouldn't pay anything near that to live in a condo) and then cheap-out on the little things, like the tile in the common entry way, the concrete on the driveway, and flowers in the entry. I can't even imagine what the assessments of $800 / month would buy (4 units) in a building like this... could that even pay the scavenger fee for refuse removal, and the common utility bills? I'd be surprised if it did.
I did live in a building once with assessments nearly this low. We took turns shoveling the parking area (this is a BIG job, because you need to clear a lot of snow and move all the cars around, too), mowing the lawn, and one of the owners even shoveled the roof every time we had a big snowstorm. If something broke, someone in the building tried to fix it, or at least took a day off work while someone came in to fix it (ever try to fix a common alarm system or a door strike... what a pain).
I'm not for or against a condo, and assessments are a necessary evil, but I'd bet a large sum of money that the assessments for this "luxury" real estate will NOT be $200 / month come 1-2 years from now. And if you are buying new construction, I'd advise to plan for increases in your assessments far beyond what the developer is telling you.
Cross posted at Chicago Boyz