I'm currently looking at a property in Houston (Humble area) as an out-of-state investor. It's a fully-occupied triplex with rents totaling $2495/mo. Here is the data I have on it, hoping that you guys can tell me if this is a good deal:
asking price: $179,000
rent: $2495/mo (800+800+895)
HOA: $7749/yr (all external maintenance + external insurance, $215.25 per unit per month)
internal insurance: $630/yr (figure from seller, this number is much lower than it would normally be due to HOA insurance)
Since all external repairs are done by HOA, I factored in 5% repairs and 5% vacancy (both of which seem conservative given the area), which gave me a ROI of 14.71% with 25% downpayment.
Here is where things get interesting, and tell me if this is fine or if I should run from this deal. The seller's agent was extremely friendly, went out of her way to tell me all the details and explain why the seller is selling (moving long-distance apparently). After I mentioned that the PM companies I talked to would not give me a discount just because most external repairs are handled by HOA, she volunteered to be the boots on the ground if needed, saying that she has worked with the seller since 2007 and knows this property really well. When asked how much it would cost, she stated that she'd only expect to be reimbursed for the mileage of driving there when needed (obviously the repairs would come out of my pockets) and 0.5 of monthly rent if I decide to list through her. One thing that concerns me is why the current owner doesn't just do the same if he's moving out of state.
Moving out of state is a pretty common reason for many people to sell.
The listing agent is being incredibly nice to you and trying to make it as smooth as possible on you so you buy the property. Which is good, seeing as that is her job.
Most PM will charge 10%.
If PM is not in her normal wheelhouse I can see why at 1st glance offering to do it for you at 5% would seem mutually beneficial to her seeing as all outside work is handled by the HOA & she'd likely be gaining you as a future client.
I am not familiar with this market so I don't know whether or not this is a good cap rate or not but I don't see any major red flags.
Also wanted to mention that the tenants are already paying via ACH deposit.
I'm sorry, but I don't like this at all. I don't post much on BP at present, but I have plenty of posts with my aversion to condos or HOA properties. The monthly "required" HOA fee takes you down to 1% and you WILL have some special assessments coming along eventually. I have never been a fan of HOA properties because of the unknown and the fact it will NEVER be free and clear. Owning 1 single condo out of over 1000 homes is how certain I am in my attitudes. Good luck.
@Alex T. Perhaps the agent knows she stands to receive both sides of the commission if you offer to purchase the property through her.
What are the terms of the financing you'd be using to purchase this property?
Why would you want to buy in HOA?
@Lyall Storandt conventional loan
I don't understand how HOA is that different from a property management company, is it because I can't fire them? I do agree that the HOA fees here do seem high, the way I was looking at it though is that they also account for the bulk of my insurance, repair, and management costs (once all 3 are factored in, my fees would probably be similar). I'm also concerned that the owner is selling it because he's moving away yet my plan for managing it is not any better than his existing plan (in other words, if it really is hassle-free, why doesn't he keep it?).
Alex- The HOA is completely different from a property mgmt. company. HOA are fees you must pay. The HOA does NOT do the property management as far as finding tenants, renting the units, eveiction and so much more. It also doesn't cover your repairs or maintenance INSIDE (carpets, paint, repairs, appliances and so much more). As I always say, run the other way, fast.
@Alex T. Rate? Length? Any points? Other lender costs? Just trying to get a handle on your cash-on-cash return...
For my calculations I assumed 30 years at 5% with $5000 closing costs (no points, 25% downpayment since it's a multi). That's the default I use in my calculations, although the actual interest rate will probably be a bit lower.
Am I missing something? Those numbers don't look all that great...
What is the presumed cash flow?
@Justen Ashcraft Here are my calculations:
Are you seeing better returns in Humble/Spring/Katy/Cypress areas of Houston? I'm not, but perhaps I'm doing something wrong.
I would stay away from HOA properties. After living in a condo, here is my experience with HOA.
- My HOA due was at $280 / mth at purchased. After a year, they increased it to $350. Great...
- I got hit with their special assessments twice. Somewhere around $3K-5K.
- I can't rent my condo out since there is a ratio of home owners / renters. I was on the waiting list for about 2 years.
If you want someone to control your home as in what you can/can't do, HOA will be it. As for me, I would stay as far away from HOA properties as I can.
Join the Largest Real Estate Investing Community
Basic membership is free, forever.