HOA fee too high on rental property??

Question

I have been looking at a condo near downtown Denver right now thats in an amazing location, and with current market trends will do very well in the years to come as far as equity gains are concerned.

My issue is after reading thru all of the documents/bylaws and rules of regulations from the condo owner, I am a bit wary because of the HOA being very very strict. My main concerns are, the HOA cost is $175 per MONTH; and there is a "working capital" fee upon condo possession that is another $2000.
Who knows if I ever get that back. It goes into a "segregated fund" by the board.

Is this HOA fee too high?? I was planning on using this property as an airbnb location as it is PERFECT for it, but the $175 per month fee has me wary... I am doing a 24 month lease option on this property and will be paying it at least 80% in cash if not all by that time frame ($160k); so...I was wanting to get it started as a rental property so I'm not out of pocket the entire 1k a month ill be paying on it as well until lease option ends. So it could at least balance out at zero for me. Other than the equity ownership ill have by lease end and then positive cash flow by that time.

I'm just not sure the route I should take... is this high for an HOA? This is my first condo purchase so I could use some advice when it comes to renting these things. thanks!

James Carlson · Answer

Hey @Ande Andrea . It's already been said, but I'll reiterate: A $175 HOA is great. I put in an offer for a buyer today on a cute condo in Mayfair. It had a $200 HOA, and they were ecstatic.

That's a great idea about Airbnb and one I really wish was allowed. Unfortunately, as @Linda Weygant  and @Matt M. have pointed out, you can only rent a space for less than 30 days in your primary residence. This is pretty restrictive. BUT! I will talk at the end here about how if you can get in at a certain price point, there is a slim window to capitalize on Airbnb in Denver. Because I dork out over Airbnb, here's more information than you asked for.

A few modifications to what was said by others.

• My understanding is that the fines follow the administrative citation rules. First, it's a warning. Second is $150. Third is $500. Fourth and all subsequent is $999. 
• Also, while not many other cities have rules yet, most are coming. Aurora passed a law in December very similar to Denver's (and with the primary residence provision). Ft. Collins just last month passed their law, allowing it in certain areas but not in others. Arvada doesn't have a law yet, but their planning director has issued an opinion stating they're not allowed under current code. Edgewater has a moratorium on any new short-term rentals while they study the issue. A subcommitte of Lakewood's city council is currently studying the issue. I could go on. The trend is clear to me. Most cities are looking at it, and they're looking at Denver's model.

That's not to mention the restriction most condos put on this, as you've found out. And even if you find a condo building that currently allows it, I wouldn't bet on that continuing. I've consulted with some Airbnb hosts in one particular LoDo high rise where their bylaws had no minimum-rental-period restriction. People bought multiple places and started Airbnbing them. That building is now in a huge internal fight over whether to change the bylaws.

We can talk about the merits of that, but it is what it is right now. (I will say from conversations I have with members at the city of Denver's Short Term Rental Advisory Committee, there are stirrings of again raising the issue of primary residence restriction. I don't think it's going anywhere, but a lot of people still aren't happy.)

All that said, there is one way to still capitalize if you have the money to buy a certain home. While the law specifically does NOT allow renting out the other side of a duplex, it DOES allow you to rent out a basement or attic apartment or a carriage house out back, if you're staying in the main home. I work with buyers looking for just this, and while they're not plentiful by any means, they are out there. I just put in an offer for a buyer for an Englewood home, one block off Broadway with a totally updated basement apartment with a separate entrance and everything. When  you have something like that, you can rent that space full-time on Airbnb.

I could go into all kinds of details on how they define primary residence, how you prove it should they audit you, and how the enforcement efforts are going in Denver, but I won't bore you too much. If you're looking for more info, PM me or attend my monthly happy hour event where I go into detail about the laws in Denver.

Linda Weygant · Answer

$175 per month for an HOA fee in Denver is actually quite low.  Average HOA fee that I'm seeing is around $300 and it's hard to swallow since rents have cooled slightly.

Also, I'll just repeat what the others said - City of Denver does not allow AirBNB for a property that is not your primary.  I was just at a seminar this weekend where the guy in charge of enforcement for the City was speaking.

The new laws went into affect on 1/1/17 and he said that they currently have 54% compliance rate with the law, have forced roughly 18-24% to either stop renting or change the way they rent (no contract less than 30 days) and are still actively and aggressively pursuing the balance.

Step 1 is a warning letter, Step 2 is a $50 fine, which they will waive if you come into compliance within 30 days.  Step 3 is a $999 fine.  I wouldn't screw around with that.

Boulder is worse.  Colorado Springs isn't quite so bad.

Those are the only towns that have enacted legislation, so you might be able to do what you want in one of the adjacent cities.  However, most HOAs are also starting to put rules into place regarding short term rentals, so be very very careful about reading the documents and asking for updated rules and regulations.

Ande Andrea · Answer

Ok thank you guys!

What I would do if airbnb didn't work out is I would just rent it out at 6 month-1 yr leases and I would maybe break even at that point so it just won't be cash flow for me for 24 months.

If I was to airbnb it by this summer then I could have at a minimum $2-300 on it a month and if I was booked regularly most of every month I could make a 1k profit monthly; I will have to figure out the primary residency thing tho...

Matt M. · Answer

You should look at the short term rental laws in Denver. If it's not your primary, you can't rent it out. $175 is cheap for an HOA fee. $300 is expensive and common.

Michaela G. · Answer

Have you made sure that the HOA allows renters, especially airbnb? With a very strict HOA I would not base anything on trying to go behind their back.

HOA fee too high on rental property??

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