How to analyze a condo deal

Question

If one is looking at a condo deal, ie 4 separate units that are condos, how does one evaluate this deal. Ie how to factor cap ex if HOA does this. Also do you still use cap rate and noi to calculate value?

Lastly, I've heard of issues with HOAs . Do many people shy away from condos for investments?

Thanks!

Lastly, I've heard of issues with HOAs . Do many people shy away from condos for investments?

Thanks!

Brian Ploszay · Answer

You have to be careful when buying condos.   First, is the HOA healthy?     Second, are there special assessments that can be levied on the property?

You can use a cap rate, but deduct the HOA fees from your net operating income.   If the fees are high, most of these condo deals are low cap rates.

Also, check to see if there are recent sales in the condo complex to regular buyers.  This is a plus.   And check to see if there are any rental restrictions on the unit.

Uwais Zaid · Answer

Thank you for the advice!

Brian Ploszay · Answer

All buildings will eventually have cap ex.  Some of that could be funded through the HOA fees.   If the building requires a major project, they may do a "special assessment."   Make sure you talk to the HOA before buying any units and ask about upcoming special assessments  or  projects.   Ask them about any deferred maintenance that they know about (future projects).  Ask them about their cash reserve.  Ideally, semi-audit them.