The Pros and Cons of Special Assessments vs. Borrowing for Condo Communities

Stratastic Inc.
Mar 3, 2025
5 min read

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When a condo corporation is faced with the need for a significant repair or renovation, the financial burden of covering the costs can be overwhelming. These projects—whether it’s a new roof, elevator repairs, or a major plumbing overhaul—often require substantial funds, and the decision of how to pay for them can have a lasting impact on the owners and the community as a whole.

Two of the most common methods of funding these large-scale repairs are special assessments and borrowing. Both options have distinct advantages and challenges, and the decision to pursue one over the other is not always straightforward.

To shed some light on this topic, we spoke with Jim Wallace, Owner & President of Condominium Financial. With years of experience in condo financial management, Jim offered some valuable insights into the pros and cons of each option.

Understanding the pros and cons of each method is crucial, but what’s often overlooked is that the pros and cons are subjective—what’s best for one owner or board may not be ideal for another.

The Pros and Cons of Special Assessments vs. Borrowing for Condo Communities

Special Assessments: The Basics

A special assessment is a one-time fee that condo owners are asked to pay for a specific project or repair. It’s an immediate way to raise the necessary funds for maintenance, repairs, or upgrades. The funds are collected from the owners, often in the form of a lump sum or installments over a set period.

Pros of Special Assessments:

Quick Access to Funds: Special assessments allow the condo corporation to raise money quickly without the need for lengthy approval processes.
No Interest: Unlike loans, special assessments don’t accumulate interest, meaning the total cost for the project is straightforward.
No Long-Term Debt: Once the assessment is paid, there’s no lingering debt to manage, which can be an advantage for condo corporations looking to maintain a balanced budget.

Cons of Special Assessments:

Immediate Financial Burden: The biggest drawback for owners is the immediate financial impact. Many owners may not have the extra funds available to pay the assessment upfront, which could cause financial strain or lead to default.
Potential for Resentment: Owners who are forced to pay a special assessment might feel resentment, especially if the cost is substantial, creating tension within the community.

Borrowing: Spreading the Cost Over Time

On the other hand, borrowing involves taking out a loan to cover the cost of the project, which is then paid back over time, usually with interest. This is often done through a line of credit or a loan from a bank or financial institution.

Pros of Borrowing:

Easier on Owners’ Finances: Instead of requiring an immediate lump sum, borrowing allows condo owners to pay off the costs over time, spreading the financial burden.
Lower Immediate Impact: Owners may appreciate the option of monthly payments rather than a large upfront cost, especially in cases where they can’t afford the full amount at once.
More Flexibility: If the project costs exceed initial estimates, borrowing allows the condo corporation to adjust its financial strategy without requiring another round of special assessments.

Cons of Borrowing:

Interest Costs: Loans come with interest, which means the total cost of the project can end up being significantly higher than a special assessment.
Long-Term Debt: Borrowing creates debt that the condo corporation must manage and pay off, potentially affecting the financial health of the corporation for years to come.
Approval Processes: Borrowing often requires board approval and, in some cases, a vote from condo owners, which can delay the start of the project.

The Decision-Making Process: What’s Best for You?

The decision between a special assessment and borrowing isn't one-size-fits-all—it depends on various factors that both individual condo owners and the corporation must consider. Here’s where things get nuanced:

For Condo Owners: Individual owners will often weigh the options based on their own financial situation. A special assessment might be manageable for some, while others may prefer the flexibility of spreading payments out over time. If given the option to "opt in" to a loan, an owner might consider whether the added cost of interest is worth the relief of spreading the payments.
For the Condo Corporation: The board will need to consider not only the financial health of the corporation but also the impact on owners, both in the short and long term. A decision to borrow or impose a special assessment will affect the community in different ways. The board’s role is to determine what’s in the best interest of the corporation and its owners, considering both current and future needs.

Further Resources

Our blog also offers a wealth of information on relevant condo law topics, making it a valuable resource for property managers and boards alike. Or, explore Stak’d, our library with over 10,000 hand-curated condo-related resources for additional summaries and tools, or dive deeper into our blog for more detailed discussions on topics that matter to you and your community.

Check out these expert-written articles:

There’s No Right Answer: In Conclusion

The choice between a special assessment and borrowing is not a decision that can be made lightly, nor is there a clear-cut "best" option that applies universally. Every condo corporation is unique, with its own set of financial circumstances, owner demographics, and long-term goals. A special assessment may seem like the simplest solution to raise immediate funds, but it places a direct financial burden on owners, which may not be feasible for everyone. On the other hand, borrowing can ease the immediate financial strain by spreading out the payments over time, but it creates long-term debt and adds interest costs that can significantly increase the total project cost.

Ultimately, the decision must be made through a thorough evaluation of both the short-term and long-term implications. Condo boards need to consider the financial health of the corporation, the capacity of owners to contribute, and the nature of the project itself. While each method has its pros and cons, the best approach will depend on the unique needs and priorities of the building and its community.

Clear communication, transparency, and careful planning are essential to ensuring that all owners understand the impacts of the decision, and that the chosen method of funding best serves the collective interests of the condo corporation. As the landscape of condo management and financing continues to evolve, this decision will remain an essential aspect of maintaining a strong, sustainable, and well-maintained community.

-Stratastic Inc.

P.S. Need expert financial advice for your condo? Connect with Jim Wallace, the Owner and President of Condominium Financial, or explore more financial professionals on our My Condo Vendor.