VLOG EP.3: High monthly charges in an apartment building: a bad thing?

Hello,

Welcome to another episode of "Cornerstones of Real Estate."
Today we're going to talk about monthly charges in an apartment building and why high monthly charges don't always have to be a disadvantage when selling.

Anyone who owns an apartment knows them, the monthly charges in a building. Many prospective buyers are horrified by high monthly expenses and won't even visit an apartment if it has high monthly expenses. Thus, selling an apartment with high monthly charges seems like a tough sell where the selling price will suffer.  

 

But because monthly expenses can be composed of a wide variety of types of costs, high monthly expenses do not necessarily have to be negative for the buyer, and thus for the seller. As a seller of an apartment with high monthly expenses, it is important to first make a good analysis of how the monthly expenses are composed. How much of the charges go to private use of utilities such as heating or water? How much of the charges go to a reserve fund? What costs in the charges are of a temporary nature, for the renewal of a facade, for example? 

 

Let me give a practical example:
We will assume a "case" where an owner has received a final bill from the trustee at the end of the year of 3,600 euros, or so also 300 euros per month. That seems like a huge amount. But suppose analysis of the statement shows that these charges include payment for the private heating, because the apartment is heated with a collective boiler? And suppose that corresponds to 1,200 euros per year or 100 euros per month. The same goes for water consumption. Suppose that also goes through the trustee and that corresponds to 180 euros per year or 15 euros per month. If you use an individual boiler or individual water connection to heat or supply water to an apartment, you have to pay those costs as well, but separately in addition to the monthly charges. So in this example you could actually say that the actual charges for co-ownership, without the private consumption, are actually only 3,600 euros minus 1,200 euros heating minus 180 euros water or also 2,220 euros on an annual basis. Per month, this actually brings the charges down to 185 Euros per month. That immediately casts a different light on the monthly expenses.

 

But suppose the records of the general meetings and the annual statement also show that a monthly amount of 100 euros is requested for the renewal of the facade of the building? And that this has been running for 2 years but will only continue for one more year? Then you could reason, that as soon as those demands are over and the facade is renewed, the monthly charges will fall back to 185 euros minus 100 euros, so actually only 85 euros monthly charges purely for co-ownership. 

 

See how we have gone from a perception of 300 euros per month charges, to a perception of 85 euros per month? So, when selling an apartment with high monthly expenses, it is very important to start analyzing and "fractionizing" the expenses properly. Start breaking them down into smaller more manageable pieces. Instead of lumping everything together and announcing the monthly expenses as one big chunk of 300 euros/month, it is better to clearly communicate the division of those monthly expenses and add the necessary nuance.

 

In the example I just gave, you can even start using the monthly costs as a selling point. Because you can say that the facade of the building will be completely renewed and that the owner/seller has already paid 2/3rds of this cost but that the enjoyment of it will be for the new owner/buyer. And if you take into account the period of time until the authentic act, when the charges are still for the seller, the new buyer will have to pay only 8 months, or 800 euros, for the renewal of which the seller will have paid 2,800 euros.

 

So you see that the sale of an apartment with high charges depends on proper communication about the monthly charges.  

 

Voila, this was another episode of "Cornerstones of Real Estate."
Next time, we'll talk about when it's best for an owner to accept an offer and what the best possible acceptance strategy is. 

 

So be sure to subscribe to our YouTube channel to not miss the next episode. 

See you soon!