UT Reader Asks: Is a Co-op With $1,000 a Month Fees Worth It?

• November 19, 2013
• 15 Comments

by UrbanTurf Staff

A co-op building on Massachusetts Avenue NW

In this installment of UrbanTurf Reader Asks, a reader wants to know if he should be turned off at the thought of purchasing a one-bedroom co-op with monthly fees that top $1,000.

DC is filled with attractive co-op units that are often saddled with very high monthly fees which, on first impression, can be a big turn-off. However, I have wavered during my home search as to whether high co-op fees are in fact a reason not to buy a unit I otherwise love.

Here is an example. There is a 1,000-square-foot, one-bedroom plus den co-op on the market in a great central DC location for around $375,000. It comes out to $366 a square foot, which is well below market for the area. But, the unit has monthly fees of about $1,000.

The unit is quite large by one-bedroom standards in DC. The den is large enough that I could make it a second bedroom down the road.

As with many co-ops, the monthly fees include property taxes, heat and water, which I estimate at about $300 a month. If you subtract that amount, you are looking at $700 a month in fees. The building has a 24-hour concierge, which I value at about $200 a month (assuming $50,000 in concierge salary times three). So, my fees have now dropped to $500 for building reserves, insurance, trash, etc., which doesn't seem exorbitant for a gracious 1,000-square-foot place in one of DC's most desirable locations.

Curious to hear if UrbanTurf readers agree, and why or why not.

Readers, what do you think? Post your thoughts in the comments section. If you would like to submit a question for UrbanTurf Reader Asks, send an email to .(JavaScript must be enabled to view this email address).

This article originally published at http://dc.urbanturf.com/articles/blog/ut_reader_is_a_coop_with_1000_a_month_fees_worth_it/7838

15 Comments

1. Jackson said at 7:42 pm on Tuesday November 19, 2013:
   I think you're thinking about it in the right way and using good logic. For a unit of that size and in a central location, I'd consider it to be a good value. All things considered with regard to the fees, they do not seem exorbitant, particularly given all the things that you outline that they cover.

1. D.B. said at 8:00 pm on Tuesday November 19, 2013:
   The reader does a good job outlining the true costs of the monthly fees, but I would still be hesitant to move forward. I agree that there are a lot of awesome co-ops in DC, but many have 4-digit fees that are only poised to increase year after year. That could make things tough when it comes time to put the unit back on the market.

1. jag said at 8:08 pm on Tuesday November 19, 2013:
   The only concern should be whether the total cost (mortgage+fees) comes out to market rate. That and whether the coop's finances are secure. If the high fees aren't indicative of a deeper issue, e.g. rampant delinquencies, then who cares if you're paying for a lower mortgage/higher fees or vice versa. It has ancillary effects, e.g. mortgage interest write-off, but that can be taken into account when determining if the unit is properly priced or not.

1. Mark said at 8:15 pm on Tuesday November 19, 2013:
   Jackson, I would disagree with your comment. I think you need to consider the following: 1. Resale: If you are contemplating this question then, upon selling many other potential buyers will be as well. 2. Equity: None of this $1,000 payment a month is going towards equity in your condo! 3. The Alternative: As an example, for a typical row house, assume the all-in for condo fees, heat and water, taxes is $450 per month. You wouldn't be paying for a concierge and common area expenses. This would leave you with a balance of $550 per month to dedicate towards your mortgage. This means you will be able to increase your debt $108,548 so now you’re looking at a one bedroom place that is $465,000 to $475,000. If you can’t find a comparable 1-bedroom condo in that price range, then go for the co-op.

1. saladman8283 said at 9:04 pm on Tuesday November 19, 2013:
   I think the first consideration is, this is going to be the place you will live - your home. If you love the apartment and location and amenities and you can afford it, then that is a strong indicator that it is for you. That being said, you may move one day. In this town, condos are more desirable than coops -- the $/sq.ft. prices alone demonstrate that. So if you are planning to sell, you may have to wait a little longer. And if you want the flexibility to rent it, there may be tougher restrictions than in a condo.

1. Scoot said at 9:05 pm on Tuesday November 19, 2013:
   In my opinion the fees are not that high (based on how you've deconstructed them) but my principle concern would be resale potential. I think co-ops have trouble selling in this city. At least that's what I've read, and what my agent told me when I was looking at a very attractive unit in a large co-op building in Dupont. You might also want to take a look at the financials of the building, which I think the agent can secure for you. That way you don't have to guess at the cost of water, doorman, etc.

1. Janson said at 9:08 pm on Tuesday November 19, 2013:
   You may want to look at the coop's history of fee increases. It's $1000 now, what will it be down the road? Is the reserve good, or have there been special assessments? If the condo equivalent is going for $200/sqft more, that would be an extra $200,000, which would cost (very roughly) an extra $900/month in mortgage payment (but some of that would be principal). Great question. I might have to fire up a power tool to figure out the condo equivalent in terms of cost of ownership and appreciation across different time periods! Figure about $500 in condo fees not including heat and electric for the same amenities?

1. apns said at 9:12 pm on Tuesday November 19, 2013:
   Resale is a significant issue with cooperatives in DC. While that seems like a remote issue when you are about to move into a place (and presumably intend to live there for years), if you need to move for whatever reason swiftly - selling a cooperative unit in a timely fashion is hard. Some reasons why: 1. You often need the cooperative board's approval of the sale of your unit for it to go through. While I doubt they would maliciously stop a reasonable sale, that does mean you have to wait for them to make a decision and there could be reasons why they disapprove of the sale (financial health of the purchaser, cultural fit, etc). 2. Cooperatives are notoriously hard to find financing for and that will limit your purchaser pool. 3. Cooperatives are not well known entities in DC so things like the high coop fee cause many prospective purchasers to pass on the unit before they even delve as deeply as you are into the reason for the cost. 4. Cooperative Boards/Membership can have strange politics that have more impact on your unit / resale because your unit is subject to more control from the collective. All of that amounts to very long "time on markets" for cooperative units in DC.

1. Chase Rockin said at 9:22 pm on Tuesday November 19, 2013:
   Go Condo, co-ops are a sham. It's like buying into a corporation and having little to no voice in its future....scary. My advice is to look further up Mass Ave near AU as there are a few buildings with large (1200sf+) condos for sale there in the high $300's to low $400's. You will also get a parking space...because who really enjoys the metro and public transportation in general 😃

1. Anon said at 9:37 pm on Tuesday November 19, 2013:
   Does the $1,000 fee include an underlying mortage? If so, I think that needs to be weighted differently then a fee that only covers monthly expenses

1. The Editors said at 10:00 pm on Tuesday November 19, 2013:
   Anon, The monthly fees do not include an underlying mortgage. The Editors

1. Leo said at 10:35 pm on Tuesday November 19, 2013:
   Coops are not hard to get financing for, it's just that fewer lenders will finance a coop purchase and you need a reasonable down payment. DC is not New York; for the most part coop boards here are only interested in whether the buyer is financially stable. Coops do not allow investor owners; this is a good thing if you plan on living in your unit for a reasonably long time because you won't then live in a building possibly filled with transients who have no equity stake in the property. Coops also get a break on property taxes which condos don't get. Condos can also have unexpected rules. Also, if the investor ratio is too high in a condo it can be hard to get financing for a purchase or to resell it. In addition, you might not know who your neighbors are from one year to the next, which might or might not be an issue. Rampant delinquencies are more of a problem in condos. The bottom line: a well run coop can be a good deal if you plan on living in it for some time, are financially stable, and want to live in a building of owner-occupants.

1. K. said at 11:14 pm on Tuesday November 19, 2013:
   In addition to the non-building-equity comment, I would add that the interest payment can be deducted from taxable income. If one pays $1000 in fees these cannot be deducted. So, if one can bear it cash-flow wise, paying no or low fees makes much more overall economic sense.

1. Mary said at 11:41 pm on Tuesday November 19, 2013:
   You can't make a co-op to be your home. Too many restrictions and inspections. From my experience living in the River Place Arlington, VA the management doesn't even allow you to place a small flower pot near the window. So, be aware.

1. Mary said at 2:47 pm on Wednesday November 20, 2013:
   Scoot, APNS, et al are being excessively alarmist, in my opinion. Leo's points about coops are about right, in my experience. I've lived in one for about six years and the differences from condos are real but not huge. Definitely the big advantages are maintenance and taxes - they do tend to keep one's property taxes lower and the combination of the ability to finance updates with an underlying mortgage (rather than special assessments) and a higher owner occupant ratio than most condos tends to make the properties better maintained. Coop board approval is pro forma in DC (most places use the meeting with the representatives as a chance to go over the house rules and make sure prospective buyers know what they're getting into. An in person meeting and discussion about community rules before signing a contract might make a lot of HOAs more harmonious places...) I think the things you want to do as you weigh this decision are pretty similar to condos: look through HOA rules and finances and make sure that you can live with the provisions there and that you think it's financially stable. The rules are where you'll see if there are any restrictions on renting your place (most coops around here limit but don't prohibit it, so you usually can rent for a period of time if you need to move suddenly or something but can't do so forever.)