I have been searching homes in the NC triangle area but I see most town homes have a pretty high HOA fee. How will this affect the flip of a property or even renting the property out? I see many older town homes have a fee between $200-$300 per month.
If you are flipping then account for how many months of holding x the hoa monthly fee. This will be paid at closing when you sell unless you end up carrying the property when the fees are due. If it's a rental it will definitely affect your returns. However, the hoa dues often cover certain maintenance items (roof, gutters, siding, decks, landscaping,etc) so you won't need to necessarily take 200+ /month in maintenance cost into consideration. You could possibly lower it to 100-150, depending on what the hoa covers.
Hi @John R.,
As an investor in Raleigh, I have never had an issue with high HOA fees. What areas are you looking in? What types of properties?
Uriah hit it on the head. Keep looking around and you'll find some town home communities with slightly lower HOA fees.
Thanks for the responses! I was looking at 2 foreclosures on Sandy Creek Dr. in Raleigh NC and also one on Stonewall Way in Durham. Great point about the maintenance of the roof, gutters, siding, decks and landscaping. I am learning now on the highest amount I want to spend plus renovations costs. Seems like some of these homes it may be better to just build a new home haha
Are these free standing homes, or are they part of larger units? If they stand on their own, I doubt the HOA covers those things. In my experience, single family homes in the Raleigh area (going for just north of $100k, renting out for north of $1k) don't have HOA dues, and if they do, they are very low. Maybe we're looking at different class properties?
He said he was looking at townhomes. A lot of townhomes cover all exterior maintenance.
Ah -- I missed that. Right you are Uriah!
Having had two townhouses in Raleigh with HOAs you need to keep on them about making the repairs/maintenance to the exterior if that is covered under your HOA. The HOA that over saw the one I had in Riverknoll was horrible to deal with. They would never call you back or reply to emails so you need to stay on top of them. Both of my HOA fees were under $90.
The properties in Raleigh are condos, not townhouses. Regarding "...looking at 2 foreclosures on Sandy Cre..." technically they are post-foreclosure REOs. The HUD property went at the courthouse for $69,840. Listed now at $92,700.... So the foreclosure was $69,840 and the REO is $92,700. That's why there are real (as in courthouse) foreclosure investors... but obviously not in this case, they passed this up.
If your going to flip or hold short term, its not going to make a difference as long as you account for it in your holding costs. If the numbers make sense and you can make a profit, then go for it.
If your plan is to buy and hold long term, I'd say your much better off buying a single family home without an HOA or a small yearly HOA that doesn't cover much. My first two investments were townhomes in the Las Vegas area. The developments were fairly new and the HOA fees were low. What I noticed is that over time the HOA fees start to rise at an ever faster rate. Usually as a development starts to age, the cost to maintain it goes up because you start to run into major expenses (new roof, sidewalks, common areas, etc). This can eat away at your cash flow and make a great investment into a bad investment. Also a lot of times HOA's will suddenly change the rules and decide to stop allowing rentals, or put certain other restrictions. So I would definitely try to avoid investing with an HOA if your plan is to buy and hold.
I live in Raleigh (near NCSU) and am running into this HOA problem right now trying to find townhomes in the Raleigh/Cary/Apex area. Just wondering if either of you have figured out strategies since the original post to help offset the HOA eating your monthly cash flow. I am seeing many town homes with HOAs as high as $200-$250. Are TH with lower HOAs out there, we just need to keep looking? Do you find that duplexes, triples, and quads can be found without HOA fees?
I have heard from a couple of local investors that 6-8% return is considered good in Raleigh- have you found that you are able to do that with HOA costs?
I am a new investor currently working with a real estate agent to buy my first rental, any suggestions for maximizing the return on a $85k-$120k budget would be appreciated!
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