Baking in Maint/Common Charges

You could use the simple formula of M/r, where M is the annual maintenance fee and r is the interested rate, to get the present value of future maintenance obligations. I don't think it should depend on how long you plan to live there since the next buyer will have to factor it in when they decide how much to offer.

Using current 30 year treasury rates as the interest rates, i like to multiply monthlies by ~400.

Use 3 percent as discount which is appx 30 y treasury rate. So 12k/.03 =400k. Assuming there is no difference and the one with lower maintenance and taxes will not increase at a faster rate than the other one. The second assumption in practice may not be correct but there is no way to know.

Also, you need to factor in whether the apartment with lower maintenance has constant assessments or does not maintain the building properly which you will pay for eventually.

Not sure the point in comparing maintenance charges for condos unless you are comparing real estate taxes or commercial income that subsidizes common charges. Assuming you are talking about coops, I think the only relevant difference may be the amount of maintenance allocated to the underlying mortgage. What I have done in the past is to compare the allocated portion of the maintenance attributable to the underlying mortgage payment and apply a discount rate to the difference in allocated payment of a unit in another building. Alternatively, I use the percent of the underlying mortgage attributable to the unit as a comparison to the percent allocated to a unit in another building. Not a simple exercise of course.

Some condos are run much better than others and may have economies of scale. A 30 unit condo with doorman will have lower maintenance that a 15 unit condo with a doorman with same service. An old 80s condo may need a lot more maintenance than a condo in a newer building.

The problem with using any of these methods is that the market does not discount for higher than expected maintenance linearly. The only actual study I know was done a very long time ago (?Olshan?). Back then a $100 a month higher than expected maintenance resulted in a $10,000 discount in purchase price (remember interest rates were much higher). However, a $200 a month higher than expected maintenance result in an ADDITIONAL $20,000 discount (i.e. $30,000 discount), a $300 higher resulted in an additional $30,000 discount ($60,000 total), $400 resulted in $40,000 additional ($100,000 total), etc.

You also have to take into account the services/amenities in the building. You can't compare the maintenance in a building with nothing (no doorman, walk-up, etc.) with an ultra luxury building and say the latter's price needs to be discounted because the maintenance is higher.

One of the things contributing to higher maintenance in a lot of newer projects is that we are seeing buildings with much fewer units having doormen. The cost of a full time doorman is relatively the same whether you have a 200 unit building or a 30 unit building. But splitting that cost among 30 units rather than 200 is going to affect latter's per unit maintenance much more severely.

30, You are completely right about market not discounting linearly. Small differences are largely ignored and I think for a good reason as they difference may disappear over time. Very lage cc+taxes may get a steeper discount that extra per year / treasury rate as there are fewer buyers.

The last few comments are spot on in my opinion. Irf one is looking to place a bid on a unit with a strangely higher or lower maintenance fee/common charge, I think the best approach is to find out why there is a difference and then decide how it may affect your buying decision. For example, if maintenance charges seem higher than expected and the fee is over 50% tax deductible, I would ask if either the underlying mortgage or real estate taxes are the reason and, if so, what is the building planning to do about it? Otherwise, if fees are in the expected range of $2-3 psf, most buyers would not really care. Higher/lower charges than expected will never get the proper discount/credit that it may deserve.

"Higher/lower charges than expected will never get the proper discount/credit that it may deserve."

I think it depends where in the market cycle you are. Generally at the peaks of the market high maintenance gets under discounted and at the bottom gets under discounted. For example take 250 Mercer St, 67 East 11th t st, 61 West 62nd st, etc. At the bottom of the market it was hard to get over $100k for a one bedroom in the first 2 of those and a high floor, two 2 BR's combined at the last couldn't fetch $100K. Now that last one is over $3 million and the first two well over $1 million.

Some of the quick and easy metrics like the one 300_mercer mentioned are good ballpark estimates for how you should factor differences in maintenance and taxes etc. This is good for "quick comps" when you are filtering lots of properties.

But as you get closer to committing to a specific property, it is worth doing the detailed analysis on the maintenance charges to get a better sense of how they might change in the future. What I like to do is turn everything into a monthly rental equivalent so I can compare properties on an apples to apples basis.

So for maintenance, you break it down into its component parts to understand what is driving it. This can only really be done at a more advanced stage in the process when you are given access to audited financials. It is really part of the process of understanding the quirks of the building that you are potentially buying into. Whether the building has been holding off on major maintenance projects. Whether the board is running the building efficiently. In the case of co-ops, whether the co-op is being under or over-charged on property taxes.

Then you also have to figure out how much certain building amenities are worth to you. How much is the swimming pool worth. $50 per month? What is the alternative to having a gym in your building? Do you value the services of a doorman.

It is at this stage where you can tweak your bid to reflect this more detailed analysis.

I ended up purchasing in a building with no doorman or any amenities because I didn't value those things enough to commit to paying for them for my entire ownership period and I liked having the flexibility of procuring some of those services on the open market (e.g. a nearby gym). But I did also consider much larger buildings where the costs of those amenities could be spread across many units. I knew I was not going to even look at mid-size full service buildings (50-100).