HOA fees - The buy/hold investors uncontrollable nightmare. Share your thoughts please.
Hi all,
Well here goes again... I am human... Every so many years I start to look at Townhomes in my area and the prices are perfect and the numbers for 3Br 2Ba are on target for awesome cash flow. THEN I see the HOA fees... "GULP" WHAT! HOW MUCH? I am not sure whom is running the organizations but I can't find "managed" properties that the numbers come even close to single families I manage. Oh, and by the way my properties are better landscaped, in safer areas and I provide more regular maintenance then these Condo and Townhome associations and I control the costs for the betterment of the the property as that will make my tenants happy then maintain cash flow/appreciation. WAIT! Then there are the "special assessments" Mold issues, Roof issues, Parking lot issues, Damn Issues, oh and my favorite EMBEZZLEMENT issues (google "Toms River NJ Saratoga Development $400,000 embezzlement" where the property manager killed himself after being caught steeling) Now the owners have to pay an additional $75 a month for ? years on top of there already high fees for no services except a cracked pool & to rebuild the reserve fund account . I might flip a townhome or condo if I get a great deal (and i mean great deal) but hold them NO WAY! Your thoughts and experiences would be appreciated..
I've seen the same things you mentioned. And my concern is that I've seen quick turnaround from good to bad. Like a guy who was "bothered" by a tenant next door, so he pushed through a no-lease clause that said after any lease expired the tenant has to buy or leave and no new leases were allowed. Then there are the underfunded ones with the surprise capex to replace the 20 year old roof that assess ridiculous one time fees.
I will not buy if a HOA is involved. Period.
I would never consider a HOA property. In Chicago I have seen HOA for over $2k a month
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Real Estate Agent Illinois (#471.018287) and Wisconsin (#57846-90)
- http://www.MidwestRESummit.com
- Podcast Guest on Show #132
I very much share those concerns and that is why have stayed away from anything HOA up to this point. That said, just like you, @Account Closed every so often I look at those opportunities and wonder if there is not a way to make them work. Clearly, some folks here on BP (including some who were on the podcast) have discovered the secret sauce and are successful with HOA related properties. I'm definitely interested in those people's stories and how they sorted out the seemingly impossible....
Love to share my story here. I moved into a condo 13 years ago. Lived there for 5 years during which time I got my contractors license and started my own construction business. I watched the "unhandy men" do all sorts of projects on this place, always for twice what I would have charged and with extremely poor workmanship.
Fast forward, year 5. After 10 years or so of neglecting to aim the sprinkler system which was soaking first floor windows daily, someone discovered..gasp..rotted windows! Who knew right. Turns out about 1 in 5 windows were showing signs of rot due to the negligence of the association and the grounds keepers. Solution: To maintain continuity throughout the 10 building complex everyone was going to get new windows, at the owners expense.
They held a meeting with the association members to discuss these new windows. The association was made up of accountants, retired grand mothers, computer programmers, basically no one that knew anything about real estate or construction. When we arrived at the meeting to discuss this window issue, we were informed that a sales person had already convinced the association members to use there windows and the contract had been signed. We were now responsible for $2000/window for each and every window in our units whether there was any damage or not. $2000/window! For vinyl inserts!! I could have purchased vastly superior, German engineered windows and installed them at a huge profit for less than half that.
4 months later we sold the condo for twice what we paid for it and bought a house. Oh, and by the way, they had recently passed a "no rental" rule as well since someone didn't like the smell of someone else's cooking and that person happened to be a renter. What a bunch of fools.
Here's the bonus though, within months of selling our condo, for $160k, the bottom fell out of the market and similar units wouldn't move for 80k, even with the nice vinyl clad, $2000 window inserts. Nobody could rent there condos either due to the wise rule this association had put in place. Now there are foreclosures throughout the complex and empty units. That's bound to increase their value don't you think?
I might someday consider building a condo building. Might even consider managing one since I know what the margins have to be but own or live in one, not a chance.
Andrew S.:My significant other owns several "niche construction service" businesses and he markets the Associations of Condo and Town-home developments and makes a fortune from them as a contractor that does great work at a fair price. He never is the cheapest but never overpriced. Many of these owners that eventually leave the condo for SFH ownership have him follow them to do repairs at there now new home.
Chris C. I watch the condo and T-Home market closely. They tell a lot about neighborhoods and the R/E market in general. Again like you I hit big in the flip condo market many years ago before the first tank BY LUCK! Now I am very cognoscente of it and again flip them only on great deals. FTR Central Jersey REI pay close attention to the condo/t-home and senior development markets there might be some corrections coming so again only invest in properties with good spreads and a strong property mgmt team. But again I might suggest flips be careful of the Holds.. Just my opinion
I have always been against condos. However, I'm going to be buying a condo this month as I wanted to try it as an experiment. I had to ensure though that the rent less the HOA fee was my "adjusted rent" and that the "adjusted rent" made sense in order to invest.
So I found a nice, move-in ready condo at 3 bedrooms, 1.5 bathrooms, with newer central air and furnace and double-pane vinyl windows (hopefully they didn't cost the owner $2,000 apiece!) with all the appliances.
So we will see how that experiment goes.
@Account Closed
I should have stated that I'm looking at this issue purely from a buy-and hold (and rent) point of view. I'd probably be more bullish on flipping these, but that's not my focus at all.
Dawn,
Maybe you should set up a post giving a day by day account of the property then maybe a month by month. It appears you are a seasoned veteran and I believe this surely would help many....... Congrats and best of luck
Andrew S.
I do Flips and B/H/R Give me something I control and I believe I can manage it better than most (NOT ALL) or get someone affordable that can for me. To many un-educated ("but they mean well property board members"?) cooks spoil the broth. Just my opinion
High HOA fees are usually associated with luxury condos, from which the net rental income is usually very low. Investors buy them mostly for appreciation.
Rental restrictions could be a big problem. Without rental income, the carrying cost would be too high.
I personally agree on most of the points made here. However, sometimes I come across deals that make me look 2-3x and I think, hmm. That being said, if you are ever going to buy within a community that charges a fee, find out when they hold their meetings and sit in on 1 or 2. This way you can get an idea of what kind of issues they are dealing with and how they handle them. The meetings vary from week to week and month to month depending on the community. Also google reviews on them. You can often expect someone to have made a public complaint. Then you can ask them what the deal what and hear the other side of the story. Between those two "checkpoints", you can make a slightly more informed decision. If they don't hold meetings regularly, then ask a lot of questions from the management. Ask what kind of problems they have had to deal with over the last couple of years and how they handled them. Anyone telling you, "we've had none" is most likely lying. Push the issue if they say they can't think of anything. GL
I'll go against the grain here and share my opinion, although I'm less experienced than most on this board and only have a couple buy & hold properties.
Obviously HOAs eat into cashflow and hurt your bottom dollar. But I wouldn't avoid all HOAs like the plague. I bought a property in Southern CA about 18 months ago for $310k with a $75 HOA. It covers the (very minimal) landscaping, trash, etc. All of the houses in the community are identical and the neighbor of my rental just sold for $370k.
I like this HOA because it is very cheap and they keep the community looking immaculate. I live about 45 minutes away so I like the feeling of them keeping the community looking nice.
So while I certainly don't prefer HOAs, and if I did buy one it would have to be a low monthly expense. But I wouldn't avoid 100% of properties that have them because there are some gems out there.
Scott, Great Points... In my experience you really pay for amenities. IMHO If you can find a desirable neighborhood that does not need them to attract quality tenants that absolutely suppresses potential special assessments (hence additioanl HOA fees) that might crop up. Thanks!
I will not buy anything with a HOA. I don't want the added cost, the loss of control of my property, the fact that I don't really "own" anything other than the layer of paint on the wall, and the potential for increased HOA costs and/or corruption in the future (even if it's great currently). Absolutely will not do HOA for buy and hold. Ever.