I am considering buying a portfolio of 7 condos in Memphis, TN. They are in a great area, big upside potential. Everything about this deal looks great. But I am nervous about working with an HOA. This is my only hang up.
My biggest concern is being hit by special assessments X7. Yikes! Anyone have experience investing in condos? I can see some of the perks as they deal with everything outside, common areas and amenities, but this feels like a big con to me!!
I have already asked the listing agent:
1. how frequently special assessments have been done in the past and the amount.
2. to see the income/expense report to verify.
Waiting on answers to both. I can imagine how this could NOT be good, but I have also heard stories of people having great experiences with condos.
NOTE: I would be setting aside $100/month per unit for cap x and maintenance. Don't want all of that to go to assessments, but it could when necessary.
Any insight would be appreciated. Even recommendations for questions to ask in addition to those mentioned above (have not owned a condo) would be a big help. I want to get a better idea of how the HOA is managed but this is all new to me.
Thanks David A.! I am adding that to my next email. 6 of the 7 are already filled, hope that helps me! This helps. Thanks David
@Jenny Stecklair , our HOA restricted rentals to only 5% and we had to apply to be a rental every year. They would fine you $100 a week for unapproved lease. This is why we ended up selling.
HOAs will always have special assessments even if brand new. Since they're responsible for common area stuff that benefits all owners, don't think you have a choice usually. You're going to run into CapEx you buy something w/o a HOA.
However, as noted read the CCNRs since lenders (on owner-occupied) don't like >x% being non-owner occupied which affect value/saleability.
My own $0.02, unless you buy enough (>50%) to control the HOA and you can find a real killer deal, its tough making money as a rental. You may make it when you sell though.
It really depends on the management. I've had 3 condos (and several SFH). The first condo was poorly run and they failed to save enough money to do regular repairs, so we were hit with special assessments-the worst was just after I sold it and I was so happy I sold it when I did. The other two are better run and (knock on wood) we've not had any special assessments despite doing major renos at one of them (new roof, new flooring in common areas, new exterior windows and patio doors).
There are pros and cons of condos. If the management is good, you don't have to do much for upkeep of common areas or exteriors. The con is you have HOA/condo fees that take up a good amount of money. They can also restrict rentals. For some, you could use that money for larger mortgage payments to get a home with no HOA.
@Bryan Mitchell that sounds like a nightmare! This is the stuff I need to hear about, so I know what to ask. Thanks for sharing!
@Theresa Harris thank you for sharing your experience! I'm gathering it's different from one HOA to another. I've got some homework to do. This helps!
@Steve Morris, thanks for the insight!
There was another thread not too long ago on this same subject, and several people chimed in. All of us got hit with special assessments, and everyone said they would never buy in an HOA again. Special assessments can be a few thousand dollars, but some can be quite large. I almost had a $10,000 special assessment to be paid all at once, so some of these can be devastating.
The other thing you have to be careful about is the HOA dues always go up. Mine have almost doubled in a few years.
So a deal that looks good now can quickly be a bad deal due to rising dues and special assessments. You have to make sure you have a large margin.