Cap Ex for Townhouses with HOAs?

Question

What percentage do you put towards Cap Ex when purchasing a townhouse for a rental? I am practicing analyzing deals with the BP rental property calculator. I found a townhouse that cashflows ~$200/mo if I remove Cap Ex (I currently have it at 10%).

The HOA says it includes:

• Sanitation, Snow/Lawn Care, Outside Maintenance, Water/Sewer, Professional Management

Should I treat a townhouse with HOAs the same as a single-family home when it comes to Cap Ex? Or does the HOA typically account/cover for big expenses within their HOA fee?

Any thoughts/advice would be greatly appreciated!

Tim Herman · Answer

@Brandon Boogren First things first. What do the reserves look like in the HOA finances. A lot of condo associations are like beginning investors and don't save enough for capex. Example 10 unit complex and 5k to repair a roof. Assume only 5 years left before roofs need to be replaced. In reserves their should 40 k already in savings for 1 item. Have to save for parking lot, exterior maintenance, etc. If their is no reserves they will make a call and you will have to come up with the money. Where does that money come from, your capex budget.

Given my bias against HOA's, if they have reserves. You still have interior expenses. Appliances and hot water heater 12 year life span, hvac 20 year life , floors 10 year life span except carpet only 5 year life span, bath and kitchen remodel 20 year life span, etc. You might be able to go to 5%.

Tim Herman · Answer

@Brandon Boogren First things first. What do the reserves look like in the HOA finances. A lot of condo associations are like beginning investors and don't save enough for capex. Example 10 unit complex and 5k to repair a roof. Assume only 5 years left before roofs need to be replaced. In reserves their should 40 k already in savings for 1 item. Have to save for parking lot, exterior maintenance, etc. If their is no reserves they will make a call and you will have to come up with the money. Where does that money come from, your capex budget.

Given my bias against HOA's, if they have reserves. You still have interior expenses. Appliances and hot water heater 12 year life span, hvac 20 year life , floors 10 year life span except carpet only 5 year life span, bath and kitchen remodel 20 year life span, etc. You might be able to go to 5%.