Should rental amount include HOA

Question

Hello everyone!  I know that HOA fees are ultimately due by the property owner, but my question is:

Should the rental amount include HOA fees or should HOA fees be an addition to the rental amount?

My thought process is.... if the average rent in an area is $1000 and HOA fees are $300 should I charge $1300 and be at the high end of the rent curve or should I charge less and have the HOA fees come out of the cash flow in order to keep rent near the middle of the rent curve?

Thank you in advance for your help!

Kenneth Garrett · Answer

@Patrick Stuckwish

I would look at other rentals within the HOA and see what there getting.  No utilities is a big plus.  Make sure there is no restriction on the number of rentals.  In my area, we have some HOA’s restrict the number of rentals.

Cash flow of $50-$100 is very low.  Are maintenance,repairs, pm, capex included in your cash flow.  The equity is nice, but if any repair is required it will put your cash flow in the negative.  I always look for minimum cash flow in the $300 +- range.

Theresa Harris · Answer

Your HOA fees are part of the costs, same as property taxes.  Just because HOA are $300 a month, doesn't mean the house is worth $300 more in rent.  Now if there is a pool and other amenities, that will increase the rent price.

As it is a condo with all utilities included, I would write it up as $1000 with no utilities and then have them pay you for the utilities separately.  I have  a place where I have base amount of water included in the rent and they pay for overages.  If there are no overages, they don't see the bill.  You could try something similar.

Dave G. · Answer

All of my properties have HOA fees. I don't know why you would want to try to tell a prospective tenant that they are responsible for the HOA fee. Why stop there, tell them they also have to pay your property taxes and owners insurance. Obviously this would not be received well, you'd probably never rent the place out, at least not to a quality tenant.

So, I don't think you're asking an HOA question, I think you're asking what you should market the property for.

For a vacant property, I market the property right at the average rent that comparable properties are getting leases for.

For an occupied property with a good tenant, I will temper rent increases to not drive the tenant to non-renew. So this may mean a slight rent increase, but pointing out to the tenant that they are below market. This often works and it's win-win as moving is disruptive and expensive for the tenant. Tenant turnover is expensive for an investor as it comes with maintenance and vacancy expenses. The only thing I hate more than vacancies is evictions.

Andrew B. · Answer

The HOA fee is irrelevant to the discussion. Your rental gets priced at the rental amount that makes sense, given the rental price on comparable units. The fact that you have an HOA fee has no bearing on what you charge, it only effects your expenses.

Steve Morris · Answer

"Should the rental amount include HOA fees or should HOA fees be an addition to the rental amount?"

Like any 3rd party pmt with any kind of real liability (like HOA or mortgages) tenant pays YOU and YOU pay the 3rd part.

Since tenant doesn't suffer (unlike a utility bill) if he doesn't pay, you need to protect your interests and avoid default.

Patrick Stuckwish · Answer

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Theresa Harris

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Theresa Harris

Theresa Harris · Answer

@Patrick Stuckwish  Say that rent is $1000 and utilities are $100 a month, you will get more traction than saying rent is $1100 including utilities.  It is the same amount to you, but some tenants won't see that it is the same.

Patrick Stuckwish · Answer

@Theresa Harris the utilities are all included in the HOA, I won’t see those expenses, is there a way to add the average electric cost for the community to the monthly rent? Or should I leave it off as to be more of a draw to renters?

Patrick Stuckwish · Answer

@Kenneth Garrett  great tips on how hat to check for within the HOA

THE $50 - $100 is after 5% maintenance fee, 5% vacancy fee, and $1200 yearly insurance and $1000 yearly CapX.

If I do a SFH I could have a much larger cash flow, as long as there is not HOA. I work just down from this area and it has the equity, I a feel that balances out the low cash flow.... is there anything else I should consider?

Patrick Stuckwish · Answer

@Greg M.  Hi Greg! Thank you for your comment. I live in Houston and there is no zoning here. Depending on the part of the city, there can be very big ranges for rent in the same area.   If you have any tips for narrowing down for comparable units in areas with no zoning laws I am eager to know them. I’m new to RE and can use all the help I can get!

Thank you

Should rental amount include HOA

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