WSJ: A Retirement Wealth Gap Adds a New Indignity to Old Age

[Scuba]

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Originally Posted by pb4uski +1 Expectation change over time. Today's homes are bigger and nicer than similar "level" homes of 40 years ago. A friend lives in an Association that has invested a lot of money in expanding and improving their recreational facilities to keep up with what members and buyers want and expect... that Association will likely thrive and property values will increase... while at the same time some residents will get priced out of their homes. Our Association is hopelessly stuck in the past, will eventually become irrelevant and uncompetitive and property values will decline or not appreciate as much as neighboring more attractive properties. It is all supply and demand.

Yes this is already happening in our area. The condo complex down the street is about the same age, similar oceanfront location, etc., but has done major upgrades to their common areas and security, while our building hasn’t yet. The units down the street are about 20% smaller but are now selling more quickly and for higher prices than our building, despite their HOA dues being over 15% higher.

It’s hard for me to understand why owners in our building aren’t demanding that our HOA keep up with the competition. I guess they don’t see how this directly affects the value of their property.

If we hadn’t invested in a major remodel 3 years ago, we might consider moving, but we did and we love it so we are trying to motivate other owners to support positive changes.

[Souschef]

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Originally Posted by Scuba It’s hard for me to understand why owners in our building aren’t demanding that our HOA keep up with the competition. I guess they don’t see how this directly affects the value of their property.

I think, for many, including us, this is our "last home". We do not care what the resale value will be when we pass on.

[NW-Bound]

Maybe the oldtimers do not want to splurge, and just want to keep status quo. They just do not want to "blow the dough".

Of course, letting the neighborhood and the common area falling into decay is not maintaining status quo.

[Scuba]

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Originally Posted by Souschef I think, for many, including us, this is our "last home". We do not care what the resale value will be when we pass on.

We see our condo as our last home too. However we also see it as a resource we can rely on if one or both of us needs LTC or funds for some other reason. We certainly don’t want any of our investments, including our real estate, to fall in value over time due to lack of proper attention.

[Scuba]

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Originally Posted by NW-Bound Maybe the oldtimers do not want to splurge, and just want to keep status quo. They just do not want to "blow the dough". Of course, letting the neighborhood and the common area falling into decay is not maintaining status quo.

Yes, I agree. “Falling into decay” has different definitions though. To some, sixteen year old furniture that is totally dated but still usable and patio furniture that the finish is noticeably chipped on is not decay. To others it is. Objectively since the units a few blocks away are selling faster and for more $$, it must be perceived negatively by prospective buyers but I suppose some people who never want to sell are ok with this.

[Oz investor]

it might relate to cash conservation as well , some might not have a huge cash buffer

borrowing to update might not be the ( long term ) sensible way to go

[scrabbler1]

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Originally Posted by HNL Bill Correct! After working for small companies for the first 7 years of my career, I moved up to a 10K+ person company. I did not know that they were an ESOP company, or even what that was. 17 years later, I had nearly $0.5M in ESOP company shares, without paying a dime. I stayed with the company to earn more shares (not luck), but joining them was pure chance. I 'earned' more than $120K in real estate holdings (buying and selling 3 condos), but I could have just as easily lost that much or more if my timing had been worse, or my judgement had been worse. I was lucky to find my first job out of college in 1991, when almost no one was hiring (ok, some luck, some education, some experience). Even if you work really hard, LBYM, invest wisely, getting to the point of FIRE before age 50-55 can more easily be done with some good 'luck'! Good luck!

My former company established an ESOP 12 years after I began working there. Like you, I was given a bunch of shares without paying a dime, and those shares grew to $300k by the time I left 11 years later. The share allocation was based on one's salary, and my peak earnings years in the late 1990s were the ones which got me the most shares. Then, in the 2000s, even when I received much fewer shares, the value of my existing shares exploded to the point where I could simply take the money and run.

This good luck, combined with some key life decisions I had made over the years, enabled me to retire 10 years ago at 45, several years earlier than I thought I'd be able to. Many coworkers had as much as or more than I had in ESOP value, but due to their making different life decisions (or they simply didn't want to) were not able to retire. Other people I know made the same life decisions as I did but didn't have the good luck to have a valuable ESOP behind them to enable them to retire. I had both, and was able to retire.

[pb4uski]

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Originally Posted by Oz investor .... borrowing to update might not be the ( long term ) sensible way to go

While I agree, I have found many of the members in our Association to be very conservative (like the many members here who are totally opposed to having a mortgage in retirement).... I served on a clubhouse renovation committee and suggested a bigger project with modest financing and it was like I had 20 heads.

[samclem]

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Originally Posted by pb4uski While I agree, I have found many of the members in our Association to be very conservative (like the many members here who are totally opposed to having a mortgage in retirement).... I served on a clubhouse renovation committee and suggested a bigger project with modest financing and it was like I had 20 heads.

I'd guess the resistance comes because $20/month saved in HOA assessments is a real, no-doubt-about-it difference, money they can use for whatever they want (or, money they already need for a real purpose). Any increase in property value is a long way off-- a delayed second marshmallow that might not even be paid out (overall drop in RE values) and/or might be given to somebody else (heirs). I can very well understand why many folks would rather keep those assessments/assessments low and find other ways to store up treasures.

A lot of friction can be avoided by a clear contract/set of bylaws that sets the ground rules. I'd favor a firm cap on fees--most costs can be anticipated and an escrow fund established. This takes discipline, and should be documented in black and white. Just like any other arrangement where people need to cooperate (marriage, employment, etc), if everyone understands and agrees on a common set of expectations, the chances of smooth sailing are vastly improved. In the case of a condo or "community" with an HOA, I'd want it all in writing and fairly specific, rather than depending on something "squishy" ("this is a luxury community"= "the sky is the limit on future amenities you'll pay for"). I would think a firm set of bylaws like this would also add value to the properties. If a prospective buyer sees that he is protected by a solid contract that will keep the roads paved, but won't subject him to the tyranny of the majority to force him to pay for a new pickleball stadium, I'd think it would be worth some money in the purchase price.

[pb4uski]

Well there is sort of a clear contract in our and most associations.... majority rules... so if the majority wants change (or not) then that prevails... if someone doesn't like it one way or the other then they are free to move.

[Fedup]

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Originally Posted by pb4uski While I agree, I have found many of the members in our Association to be very conservative (like the many members here who are totally opposed to having a mortgage in retirement).... I served on a clubhouse renovation committee and suggested a bigger project with modest financing and it was like I had 20 heads.

I’m the one with mortgage in retirement and I wouldn’t approve of that either. In the last housing bubble, a lot of houses were in foreclosure by failure to pay HOA fees.

In my hood, the HOA make sure home owners paint their house exterior if it’s a little bit fade or chipped, you get a letter from them.
I’m now working on painting the exterior of my garage once I’m done painting the bathroom. They would want more but that’s all I’m going to do.

[pb4uski]

In this case, the loan would have been very modest... $1,000-$2,000 per unit... people were opposed to a special assessment and this would have prudently spread out the cost... about $15 per month.... financing a long-term improvement with long-term financing.

[samclem]

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Originally Posted by pb4uski Well there is sort of a clear contract in our and most associations.... majority rules... so if the majority wants change (or not) then that prevails... if someone doesn't like it one way or the other then they are free to move.

So it's an unlimited liability for a person who buys a property there. If 51% of the people want something, I have to take on the monthly bill, and the new fee also links to my property, so it may reduce the price I get when I sell.
I suppose it is no different in principle from a city/county, but the population size is an issue: It's just more likely with a smaller group that you can get a non-normal distribution of attributes. It doesn't take many vocal, active folks to make changes. I'd be a lot more comfortable with a hard cap with supermajorities required for extraordinary expenditures.

I'm probably not cut out for condo life.

[MichaelB]

A homeowners association has by-laws and rules & regulations. The by-laws are set by the builder and establish basic property rights, creates an association, defines it's limits and empowers the board. The board then establishes rules and regulations.

An HOA board is not omnipotent, but it does have a great deal of authority to write and enforce rules, and also to spend money on behalf of the members. As long as it stays within the by-laws an HOA board can do pretty much what it wants. It also has broad powers of enforcement; it can put a lien on a unit for non-payment of monthly fees or special assessments.

[pb4uski]

Our HOA Board has a lot of authority for maintaining what we have as long as HOA fees don't increase more than 15% a year.

For material alterations and improvements they have limited authority ... $10k/year ($69/unit/year) without membership approval... unlimited with majority approval of the members.

[jazz4cash]

Our subdivision is 17 homes that were built 20 yrs ago. The builder failed to properly set up the HOA before leaving. We have a storm water pond that needs to be maintained so most of the original owners banded together and chipped in to pay for mowing the area 3x per mo. It’s $85/yr for each homeowner. As newcomers arrive it has become increasingly difficult to get them to voluntarily pay. The alternative is to establish a legit HOA which I think would cost 1200/yr due to legal and admin costs. The collection is coordinated by a volunteer. I think the collection rate is around 70%. After a few years of being treated rudely the volunteer generally quits and it’ll probably be my turn next. . A few folks just hate to pay (including the homeowner that benefits most by living right next to the pond.

[samclem]

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Originally Posted by jazz4cash Our subdivision is 17 homes that were built 20 yrs ago. The builder failed to properly set up the HOA before leaving.

Who owns the land in which the pond sits?

[Teacher Terry]

WE are glad to not be a part of a HOA anymore. They would make everyone stain their fence every 2 years which it didn't need and was a big job as the lots were big. They would drive by and if they saw a week in your front yard you would get a nasty letter and would need to have them come back and check it was pulled or get a fine.

[jazz4cash]

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Originally Posted by samclem Who owns the land in which the pond sits?

I can’t recall if it is community property or if it was gifted to the county. The county is supposed to mow a narrow portion of it 2x per season but that would result in an overgrown jungle. The HOA is responsible for anything beyond that. We don’t have any other need for the HOA because the county takes care of everything else.

[John Galt III]

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Originally Posted by Fedup This is why we have different communities of development. Some have labels as luxury, some are not. Rich retirees should buy in the luxury village. .... snip....

My mother lives in a very expensive retirement community, and can afford to do so. The staff there are not too ethical and overcharge her for things all the time. Whenever I mention it to the staff, I get treated like I am an embarrassing *poor person* who is ruining their day. I get the impression most of the residents (also very rich, apparently) just can't be bothered to check for overbilling, and wouldn't want the embarrassment of mentioning it to the staff. edit to add: I agree with your statement, fedup.