Does it Makes sense to invest in Apartment with HOA fees

Question

I am primarily interested in multifamily but lately I have been thinking about apartment investments.

Nick B. · Answer

"Multifamily" and "Apartments" are the same things :-)

When it comes to condos, it makes most sense if you can buy the majority of the units to own the HOA. Then you get to set all the rules and by-laws. One particular strategy some people use (once they acquire HOA majority) is to issue a special assessment for repairs with a buyout provision. Something like: pay $10K for repairs or sell your unit for $60K. This will motivate remaining owners to sell so that you become the sole owner of the condo.

John Mocker · Answer

Dwayne,

Condo Associations need to put money aside for repairs and improvements that will be needed.  Things like roof replacement, repainting, etc. need to happen every so many years.  Check on what they budget each year to handle those items.  If they are not adequately budgeting you could face a large assessment when they have to make the repair/replacement.

From an insurance standpoint, make sure your agent explains:

1. How to determine what parts of the Building are owned by your unit (They will need to see the bylaws and Declarations of the Association

2. Make sure to include coverage for Loss Assessment.  There are some assessments that happen due to a loss that would be covered under your policy.  It is usually for a building loss (not adequate limits on the association policy or high deductible) or a Liability loss that exhausts the limits.

3. As a Landlord, see if you can get "Personal Injury Liabiltiy".  This is coverage for Libel, Slander, wrongful entry, etc.

Good Luck

Jonathan Greene · Answer

There are good HOAs and bad HOAs, but condos and townhomes get a bad rap for investors. They are very safe, but usually lower cash flow and appreciation, first investments because you are protected from several big ticket items depending on the development. But as others have said, the most important thing to know on a condo investment is what percentage of non-owner-occupants are allowed at any one time by the HOA. All of them have that. If they only allow 10 percent non-owner-occupants and they have that now, you can't rent yours out.

Frank Rodrigues · Answer

I have a rental in Hallandale beach with HOA fees that cashflows well. It all comes down to the numbers, the market and the unit, it can work but make sure you understand the bylaws of the building when it comes to rentals because if it's not rental friendly (and many aren't) then walk away.

Jonathan R McLaughlin · Answer

I almost certainly wouldn't do it just for cash flow, since assessments and increases to HOA fees are more common than not, but if it DOES cash flow with the fees etc. and it is in a market which stands a substantial chance of appreciation I would look at it carefully. We have done well on a few of those, even though my initial "yeah I'm making 350/month cash flow!" got eaten up pretty quick with assessments.

Lots of negatives about HOA fees, but they do lessen insurance obligations and often landscaping/plowing/water etc so they aren't all bad. For a small investor (ie not planning to take over the condo association) stay away from HOAs where one person controls a number, both to preserve your standing to protect your asset and to BE ABLE TO SELL TO OWNER OCCUPANTS. You want something a first time/downsizing homeowner can finance conventionally. Usually more than 50-75% owner occupied. Invest in a primarily "rented out" building and you will limit your resale market and upside substantially.

Thomas Corley · Answer

@Dwayne McNab

If the numbers work then do it some of my best investments have HOA’s just make sure to call the management company and see what they allow and don’t allow. Good luck!

Bud Gaffney · Answer

My first ever buy and hold rental property was a condo with an HOA. I bought it roughly 8 years ago in 2014. I will never ever ever ever ever ever ever EVER purchase another property with an HOA. Ever.

I hope this helps :)

Michael Dumler · Answer

@Dwayne McNab I believe you're referring to condos since you brought up HOA fees. Not only can HOA fees kill your deal but must condos have rental restrcitions that could dispatch your whole investment strategy. Condo investments certainly come with their advantages, but recognize the trade-offs. Hope this helps! Feel free to reach out anytime if you have other questions or just want to chat.

Does it Makes sense to invest in Apartment with HOA fees

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