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How do fixed costs impact the value of an asset? Specifically, how do I compare condo prices with wildly different HOA fees and property tax rates (e.g. NJ vs NY)?

Should I augment the price with the present value of the perpetuities? If so, what is a practical discount rate? How do I factor in uncertainties and future expectations (e.g. NJ is in deep financial trouble, maybe property taxes will rise)?

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  • Is this for your own edification, or are you planning on buying investment real estate?
    – RonJohn
    Jan 5, 2021 at 20:35
  • Do you mean in the short term, or do you mean how are the long-term values affected? If the latter ... I live in an area with zero state income tax and high property tax, so property values are generally flat over time, especially in the suburban areas where there is always more empty land to build more tract homes on.
    – shoover
    Jan 6, 2021 at 0:23
  • @RonJohn -- I am passively looking for a first home (maybe a condo). But the amount variables makes it difficult to compare. Price per sqft doesn't make sense if the condo fee is large.
    – michaelkovarik
    Jan 6, 2021 at 18:59
  • @shoover What's the difference between "short-term" and "long-term" value in practice? I am interested in the fair value of a home (e.g. if it is over- or under-priced). I don't plan on owning for more than 6 years, and want to minimize market risk by buying a home that is reasonably priced.
    – michaelkovarik
    Jan 6, 2021 at 19:01
  • How much do HOA fees increase every year? If you don't know that, and since you can't know how much property taxes will go up, "guess". A 3% discount rate seems reasonable to me. My KISS method of factoring uncertainty is to manipulate the discount rate. Fortunately, spreadsheets are good at that... :)
    – RonJohn
    Jan 6, 2021 at 19:28

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