I'm a noobie investor. I've been looking at starting out with 1/1, 2/1 or 2/2 condos in my area (NW suburbs of Chicago, specifically Buffalo Grove).
The issue I constantly run into is that when I run the numbers on a property, the HOA dues, typically between $250-$400/mo. completely kill any potential cash flow on the property.
The rental ratio for condos in my area is around 1.5% of purchase price. The ratio for SF houses is even lower approx. .8%-1%.
Does anyone have any experience solving this kind of problem? Do the renters take care of the HOA dues every month?
We had a rental where the renter was supposed to take care of the HOA fees - it worked for a while until they stopped paying them (it was paid separate from the rent and not through us) we didn't find out about it until it was over $1000 in the rear - Ouch!
I like the Idea of having them pay it - especially if you do a rent to own, they need to get used to paying it anyway ... but it can kill a deal!
Let's use some real numbers. What's the purchase price on a typical 2BDR condo in your area, what are the rents and what are the HOA fees? One solution, if you have the stomach for dealing with HOAs, is buy it at a screaming discount.
@Roman Pak - from my experience I would avoid HOA at all costs. You need to read every bylaw to make sure rentals are allowed (even if not enforced they can be)
and no, it is not customary for tenants to pay HOA in our area. I have yet to see a condo deal that makes sense
HOA's also usually cover insurance and maintenance for the outside structure plus landscaping. Remember you will need to pay for this every month anyway in a non-condo. Water might be included too-at least for outside use? You won't need to pay for a new roof in a few years either unless the association does not have it together or if it's not covered.
I think that once you crunch the numbers you might find the HOA fees can still work.
Avoid HOA at all costs. If for no other reason than this. They could pass a rule banning renters the day after you close, it happens. That is just the tip of the iceberg with HOA.
The money out every month with very little in return is bad enough. Do you really want to add the additional rules, and restrictions that come along too?
Run from HOAs. Not only do they wipe out your cash flow but they control what u do and don't do and often have financial troubles themselves that only cost you the investor more of your cash flow. The trouble I have with HOAs is they are ran by a board of volunteers that lack the experience and knowledge to take on that kind of responsibility most of that time and if there is a Managment company they can get stuck following the boards lead.
I do own condos (early on purchases)and try to stay active on the board to make sure I have a controlling stake on changes and influence on the way the property is being steered.
Your in Buffalo Grove with the proximity to areas like Grayslake, lake Zurich, & round Lake where there are plenty of single family deals getting better rents for the same cost of a condo and maybe even a lower price.
@Mark Ainley - Thanks for the insight. I've thought about areas like Grayslake, just not very familiar with the market up there.
I wouldn't touch a condo HOA with a ten foot pole. You have zero control. I want as much control as possible with my investments. Otherwise I'd just leave it up to a fund manager and the CEOs of various US companies to manage my investment dollars.
I have read on here about HOA's just flat out not living up to their end of the bargain (not doing outside repairs and maintenance) and of management embezzling funds
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