Condo Fee -- a hidden cost when buying homes

Buying a detached home with its own yard may be a dream to be fulfilled for many home buyers. However, this dream is often unrealistic for most first-time home buyers since the price of detached homes are generally unaffordable to them. The dream will come true, but it does take some time to accumulate enough fortune. Therefore, first-time home buyers may consider buying a condo for its lower price, while sacrificing spaces and sharing facilities with others.

Although many people may have misconception that condos refer to those high-rise buildings only, condos are actually a type of ownership rather than a type of home. A condo can take the form of apartment-style complexes, townhouses or converted multi-family dwellings. The owner of individual unit doesn't own all the land or the whole building. Instead, all individual owners in the condo share the land and the building. Each individual owner only owns a portion of the land and the building, depending on his unit size. That's why condos are generally cheaper than a detached house.


Since condos are based on the concept of ""sharing," there are facilities or services, such as swimming pools, gyms, or concierge, meant to be shared as well. In order to maintain these services, a condo management team is generally needed and all tenants are required to pay a monthly fee of a certain amount to run the management. This fee is called "condo fee." Condo fees can be very different in different condos since each condo provides different services. Some condo fees may cover basic repairs and maintenance only. Some may cover utilities and some may also cover future construction plans such as swimming pool construction, and etc.

According to my personal experiences, condo fees for a comparable 2-bedroom can range from less than 200 CAD to more than 700 CAD per month! I would be very concerned about the condo fee since mortgage will be paid out some day, but the condo fee will last as long as I own the unit. For example, if  my condo fee is 500 CAD per month and I am going to stay in this condo for a duration of 10 years, the additional cost for me would be equivalent to 64,000 CAD considering a semi-annual compound of 1.25%! So, never forget to consider condo fee as a part of cost! Also pay attention to what kind of services are included in the condo fee. You may not need these services at all, and you can try to find another comparable condo with lower condo fee.




However, I also found that there is some complicated relation between the condo fee and the price of the condo. Sometimes, a condo with a lower listing price may require higher condo fees than a comparable condo with a higher listing price. This phenomenon might be able to be explained that lower-listing-price one is older (so listing price is lower) and its cost for maintenance is higher (so the condo fee is higher) if other conditions are similar (same location, same services provided, etc..). Yet, it's hard to fully explain why this happens since it is always case-by-case.

So, I just thought about one thing: say today there are two choices for me. One is a high-rise condo priced at 300,000 CAD with a condo fee of 600 CAD, and the other one is a  townhouse priced at 380,000 CAD with a maintenance fee of 200 CAD. Assume these two choices are identical (same size, same appreciation....), and I am going to stay for 20 years. Which one is cheaper?

Assume I can only pay the same down payment (100,000 CAD) for both case. For high-rise condo case, I have to pay 400 CAD more per month, and it will end up with an additional cost of roughly 110,000 using same calculation. So, it seems that condo fee may overpower the price difference in the long run. Should I pick the townhouse? Not really. Note the mortgage rate is always higher than the saving rate. If I use a same mortgage rate of 4.39% for 20 years for both the high-rise condo (borrow 200,000 CAD) and the townhouse (borrow 280,000 CAD), the total amounts of money I paid at amortization are actually 299,808 CAD and 419,731 CAD, respectively. So, the results shows that the townhouse is still a little bit more costly than the high-rise condo.

The reason for showing this case is that although condo fee can be a huge cost over a long time and we should pay attention to it, we cannot overstress its importance and assume buying the one with low condo fee is always cheaper. We still need to calculate the total cost carefully!


Reference website (mortgage and saving calculation)
http://www.calcudora.com/regular-savings-calculator.php
http://www.canequity.com/mortgage-calculator/