I'm looking for a bit of advice on investing in condos. Specifically, I'm looking to understand what is actually included in HOA fees so I can do a more accurate job when running the numbers. My understanding is that utilities, general maintenance, and property management (to an extent) are all covered. Is this generally true? Also how does insurance work when investing in condos, is that lumped in with the HOA as well, or would I still need a separate policy? Based on the purchase price and potential rent, I found a what I think to be a solid investment, but I want to make sure everything is factored into my assessment before moving forward.
Zakk each community is different. Some include Sewer, Water in the HOA fee and some don't. They usually include anything that is walls outward, however, some are different.
Before investing in a condo, you need to get a copy of the ByLaws, which will tell you exactly what is included. You also should reach out to the property manager and get everything in writing as to what is covered. Also get financials as that will tell how the association is run.
Do they have enough reserves, what is the tenant to owner ratio, etc. Get lots of information. Just because it is a good deal, doesnt mean it is, after the ink is dry on the mortgage.
Also make sure that you can rent out the unit!
You will also want to see a reserve study of the condos to see how well funded they are.
Also, find out any recent special assessments that have been done. I worked with an HOA that assessed the max each year that they were allowed to without requiring a membership vote.
Underfunded HOAs may have a large special assessment coming down the road to catch up on taking care of the facilities.
Check to see if the HOA allows tenants.
Each HOA is different and will need a bit of due diligence put into figuring out
HOA property management only covers the common areas. The HOA management will not collect rent for you, respond to calls about a clogged toilet, or show a unit for you.
I agree with the above comments.
One addition point, about insurance: HOA communities have master insurance policies, but there are deductibles and limits as to what's covered. Unit owners are responsible for maintaining their own policies as well. With a rental, you will definitely want a rental property policy to help protect you from liability in the event that a tenant gets injured, etc.
@Steve Nowak is correct.
The condos likely have a level of insurance that they require you to carry.
Your policy should cover damage to common area and adjoining condos in the event damage is due to your (tenant's) negligence.
I have seen a number of losses where the condo owner found out they were under insured.
If you are finding properties on MLS the listing agent SHOULD list what is included in the HOA fee. Most of the email "drip" services realtors use to send you new listings will include this field on the "listing sheet." Obviously double check. Utilities, except for common area needs, are not usually included in the HOA fee. If the condo was an apartment building (with common utilities) and later converted to condos then you are likely to find the HOA fee covers SOME of these things. A typical thing in MA I ran into when I was there is that apartment buildings had 1 heating system and when converted to condos, the HOA was still responsible for the heating system and the HOA fee covered the heating expense for all the units.
And yes, check the budget and bylaws and ask about legal action, current and pending, as others have said. When the realtor writes the offer for you, these are "standard" things that all realtors in MA would be expected to include IN EVERY OFFER. Have a discussion with the realtor (you should have a buyer's agent in MA - it's great for that) and make sure you understand the process. You won't actually get the docs until the offer is accepted and then you will have to review them prior to P&S. (if you don't get that last part, you definitely need a realtor to explain it for you)
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