The long-term cost of HOAs and Mello-Roos

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iphb

New member
While I was considering buying in WB, WBE, or SGE I did a quick calculation of what these costs might run up to over a 15 year period (assuming that's the duration of the Mello-Roos but I might be mistaken)

If you assume HOA monthly cost of $300, 0.8% yearly assessment for M-R, then for a $500,000 townhome (which is what I'm looking at) that comes out to $7,600 per year. Over 15 years, assuming no change in HOA or assessment, that's $114,000.

Say you invested that amount modestly and were able to average just a yearly return of 4%, you'd have about $150,000. Keep it in another 10 years and the amount doubles. That could be a pretty healthy chunk of cash for retirement.
 
I consider HOA much like any maintenance or utility fee.

If I look at the cost of cable, phone, electricity etc over the years... that's quite a chunk of change too. And if I had a pool in my backyard, the installation and maintenance cost will probably be more than the HOA... so that's a wash since we use the community pools regularly.

As for Mello Roos... that's the cost of owning nice and new. As a single or DINK, MRs are probably not as significant although they do pay for area development... but as a parent... it helps to know parks and schools are using that money. And if you compare property taxes to other states, California is actually on the low end... even with Mello Roos -- so that is something you should consider.

You can always look for homes that don't have HOAs or MRs but I think many would agree that the amenities/conveniences/perks that come with them may be worth it.
 
I think the reality is that in OC, the HOA will be hard to avoid. You can find older areas where the HOA will be much less than newer areas.

It is true that California has significantly lower property tax rates than other states, but prices in many parts of CA tend to be much higher too.

But to me, the extra $7-10k year a household has to cover for M-R and HOA in a new development is a pretty high price to pay for convenience, and the fact that it only adds to the high mortgages many families are carrying these days.

The $150k you potentially save over 15 years without the HOA and assessments can cover a couple's long term care insurance throughout their retirement. But I guess most families aren't really thinking about that right now.
 
The same can be said about many things in life.

Drive a nice new car every 3-4 years vs a basic reliable car for 200,000 miles.
Dining out vs cooking at home.
Cable vs over the air TV with antenna.
Starbucks vs coffee from home.

You just have to weigh the benefit vs cost and make your own decision.

As IHO stated, there are benefits that come with new house and living in Irvine.  It is worth the cost to some, but not others.

If the price ruled everything, we would all be living in a run down shack and drive a Yugo.
 
I understand what you are saying PStar... but if you use the hot tub time machine... the effective tax rate in 1996 was probably 1.8% too because MRs are fixed.

If I remember correctly, the MRs were about $3100 per year and back in 1996, those Westpark II homes sold for about $300k so actually you were looking at a 2.0% total. Now in the year 2010, the MR hasn't changed so now the rate is like 1.3%.

As for the amenities... the Westpark II pool is nice... but the Woodbury Commons blows it away (a family pool AND a Jr. Olympic pool AND a water play area)... and... Woodbury has at least 3 (or 4?) other pools you can access and more pocket parks. Sad thing about WPII? No full court night lit basketball court. Not only does Woodbury have one of those, but also fenced in private basketball courts at the Commons. So, while I'm not a fan of the density of Woodbury... I have to give props to their amenities... with the caveat that Westpark II's HOA is half that of Woobury's main HOA. Woodbridge's HOA has even more value, costs a bit less than Woodbury's... but 2 lagoons, more swimming pools (some with lifeguards) and pools with diving boards (even a high dive).

As for the greed... I'm neutral on that because I don't know the specifics of who sets the Mello Roos (also 1915 bonds... which is actually more than MRs) and who gets what percentage of that money.

I still think HOAs in certain areas are worth it (not Covenant Hills in Ladera Ranch, for that $400 per month... they better include golf/fitness/dance club membership, a casino, weekend movies and free shuttle service to work). That's why I'm a bit irritated looking at Tustin Ranch... you pay MRsHOAs but only certain areas have pools... and not all gated communities have pools (yes... I'm looking at you Columbia-Westmont). If I'm paying HOA... I need more than a gate and common area maintenance.

EDIT: Typo.
 
iphb said:
I think the reality is that in OC, the HOA will be hard to avoid. You can find older areas where the HOA will be much less than newer areas.

It is true that California has significantly lower property tax rates than other states, but prices in many parts of CA tend to be much higher too.

But to me, the extra $7-10k year a household has to cover for M-R and HOA in a new development is a pretty high price to pay for convenience, and the fact that it only adds to the high mortgages many families are carrying these days.

The $150k you potentially save over 15 years without the HOA and assessments can cover a couple's long term care insurance throughout their retirement. But I guess most families aren't really thinking about that right now.
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I am not sure you can find too many townhouses with association much less than $300.  Maybe a little less if it has less amenities, but a lot less.  Townhouses and condos usually have high association fee due to the fact the outside like roof, landscaping and paint is maintained by the association.  For example, the Woodbury SFR association fee is $105, compared to townhouse fee of $300.

Your true variable is the Mello-Roos.  The older the house, the less the mello-roos.  Woodbury would be the highest since it's new, then Northpark, Westpark, and so on until you get to El Camino Real which has zero mello roos.  Another option is to buy a newer townhouse in a small project in the middle of 40-60 year old neighborhood.  There's no mello-roos since the neighborhood is already built up and no infrastructure is needed.  You can find those in areas such as Garden Grove, Anaheim, or Costa Mesa.
 
yeah mello roos is not hard to avoid as long as you stick to the older areas - you can get a brand new house in an older area without mello roos.   

I have ALSO done the calculations on mello roos and it just doesn't seem worth it to me, but I also don't have that burning need to live in south county/irvine that some folks do.

I don't mind an HOA but I feel funny about the ones where they are managed by a company for profit.  If its a big community with a lot of amenities then I think it makes sense but I notice that in communities where its just common areas and paint the hoa barely drops in monthly cost, and I'm pretty sure its because the vaaaast majority of hteHOA fee is the management fee.  As opposed to like, my parent's neighborhood which runs their own HOA (paint and common areas landscaping and some basic rules for what you can put on your roof and paint colors and such) and it costs something like 50 or 60 a month (which, I might add, they complain bitterly about).  I don't know if anyone here has any insight into those mangement companies but they seem to take in a LOT of money for their services -- which totally make sense for large places or when you are dealing with parks and playgrounds nad lifeguarded pools and what not, but don't seem to make sense at all for smaller places that don't have all that stuff. 
 
qwerty said:
test said:
HOA by law must be non-profit.
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i believe she is referring to the fact that the HOA is managed by a for profit company.
Click to expand...

Yes - the HOA itself (the association of homeowners) uses the money only on the costs of maintaining hte common areas, BUT many of them also pay a certain amount to a management company, and the management company is a regular company operating (presumably) for profit, but the HOA fee that goes to the company is not profit for the HOA, its overhead.

So my point is that those companies suck up a large chunk of money for doing the management, but you do not NEED a management company to have an HOA.    The homeowners can vote to manage the HOA themselves, but the larger the number of homes and the more things that the HOA manages, the less likely it is that you will be able to have this work out.    And also...if Dual income households become like 90% of the households in the area then you won't be able to find enough people to be on the board.  But it still offends me to have so much money go toa company that does nothing but negotiate a  a yearly repainting of the outer walls and a landscaper.  How many manhours does it reaaaallly take to set that up?  Can't possibly be THAT labor intensive for them but its eems to add a LOT to the monthly price of the HOA.
 
Talyssa said:
qwerty said:
test said:
HOA by law must be non-profit.
Click to expand...

i believe she is referring to the fact that the HOA is managed by a for profit company.
Click to expand...

Yes - the HOA itself (the association of homeowners) uses the money only on the costs of maintaining hte common areas, BUT many of them also pay a certain amount to a management company, and the management company is a regular company operating (presumably) for profit, but the HOA fee that goes to the company is not profit for the HOA, its overhead.

So my point is that those companies suck up a large chunk of money for doing the management, but you do not NEED a management company to have an HOA.    The homeowners can vote to manage the HOA themselves, but the larger the number of homes and the more things that the HOA manages, the less likely it is that you will be able to have this work out.    And also...if Dual income households become like 90% of the households in the area then you won't be able to find enough people to be on the board.  But it still offends me to have so much money go toa company that does nothing but negotiate a  a yearly repainting of the outer walls and a landscaper.  How many manhours does it reaaaallly take to set that up?  Can't possibly be THAT labor intensive for them but its eems to add a LOT to the monthly price of the HOA.
Click to expand...

That why the smaller associations tend to have higher fees for the amenities you get.  Another possible downside to a small association is that a foreclosed home or owner in default of association payment will impact the bottom line of association more significantly.  The shortfall will be made up by the rest of the homeowners, which will have a higher impact since there are less owners to make up the difference from.

It is possible to find a small association that is run by the owner volunteers, but be prepared for possible bickering between the board members and the fallout.  Someone will always be unhappy about the level of maintenance.  Some may think that the volunteer is giving fat contracts to his buddy at inflated prices.  This is true for any kind of association, but when it's owner volunteers running the show, the complaints become personal between neighbors and can get ugly. 
 
Does the Irvine company make any upfront money? Obviously the facilities have to paid for from the bonds, but what about the land? The Irvine company owns the land - so does it take money from the bond to pay for the land the facilities are built on? The more houses TIC can pack into a community, the more people will be paying MR, the more the Irvine company can charge for the land the facilities are built on?
 
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