Dallas/Fort Worth Real Estate Investor Club

town houses, condos, and HOAs

  • 04 Jan 2017 7:40 PM
    Message # 4507874

    I'm interested in hearing what advice/experience anyone has to share about buying townhomes and/or condos as rentals and what the implications are for a property that's within an HOA.

    Thanks, Paula

  • 05 Jan 2017 6:44 AM
    Reply # 4509271 on 4507874

    I am just a contractor but have dealt with HOA on condos for a long time. They can be difficult to work with at times But typically you can do pretty much what you want with interior finish out but they will want to maintain exterior or have you meet the HOA criteria. Be aware if the HOA has chill water system and boiler to supply AC and Hot watre to units run fast as the water lines run trough all units and sometimes they burst flooding units and are very expensive to maintain and some HOA will not work expeditiously to make repairs or will fight with you on the responsibility of damages. 

    we have just completed a 400,000.00 condo in Dallas and had 0 issues with the HOA. I have an associate I work with (Realtor) who may be able to help you out with more info Jason Reynolds 817-269-0988.

    If you would like more specific details please feel free to call me anytime at 682-597-6814 Kenny Powell

  • 08 Jan 2017 6:34 PM
    Reply # 4516685 on 4507874

    Thanks, Kenny. I have used your services...

    Now, does anyone have any advice on *investing" in this type of property? That's my real question.


  • 08 Jan 2017 7:28 PM
    Reply # 4516737 on 4507874
    Robin Carriger (Administrator)

    I haven't bought any condominiums or townhomes.  They look and feel like apartments, but they're not.  They're homes, and, as you mentioned, a Home Owners' Association (HOA) is often in place.  In a scenario where my desire is to hold a condo as a rental, that alone is enough for me to be say "No, thanks."  Why?

    A quick Google search yielded the following.  I borrowed most of it from www.frugalwoods.com.  BTW, there's lots more info out there too.  Again, the stuff below is more than enough for me to seek other investment opportunities.

    1. Condo Fees: Any condo is going to have a fee. Usually this is referred to as a Home Owners Association (HOA) fee on the MLS listing. Make sure to factor this fee into your monthly payment calculations. When you’re calculating the long-term cost of ownership, make sure to index this fee to inflation. It will go up.
    2. Condo Assessments: Did you know that just paying the condo fee may not be the full extent of your financial obligation? When something major needs fixing like the roof, the boiler, or all of the windows, the Condo association can levy an assessment on all of the owners. This is a lump sum of money you have to pay in a certain period of time. I’ve seen major assessments run into the $15k-20k range per owner! The Condo association can tell you whether they have anything immediately planned and this can be a point of negotiation in a sale. If there is an upcoming assessment you can often get the seller to pay all or part of it in the closing.
    3. Condo Association Financial Health: When evaluating the above fees and potential for fees it can be useful to know how the Condo association is doing financially. You should request financial statements from the association as part of your due diligence, but here are some common questions to ask:
      • Does the association maintain a large reserve to cushion or prevent assessments? If the reserve is small or non-existent, you should expect periodic assessments for major repairs.
      • Has the HOA fee been steady for many years?  If so, it may be due for an increase. If it has been increased recently, you should find out why. Sometimes a recent increase is a signal that deferred maintenance is becoming critical.
      • Are any units behind on their dues or past assessments? While the condo association can put a lien on a unit for non-payment, often the other owners in the association will be stuck with paying necessary expenses for units that are in default.
      • What’s the composition of the Condo association leadership? Are they owner-occupiers or landlords? Landlords often want to keep the monthly fee to a minimum in order to maximize cash flow at the expense of association reserves and maintenance. Owner-occupiers tend to take better care of the property but can be busybodies when it comes to association rules.
    4. Condo Association Rules: These can be the pits. Everything from whether you can use an antenna for TV to the color you can paint your front door. Common are restrictions on pets and on renting out your unit. Maybe these don’t bother you… but it’s worth giving them a hard look before buying.
    5. Condo Governance: Some associations are super chill. Other are run by Atilla the Hun. Somewhere in between is a happy medium where the major rules are enforced and common sense reigns.
    6. FHA Lending Rules: If you need an FHA loan (and if you do, you probably shouldn’t buy until you don’t need FHA), buying a condo comes with additional restrictions. There are many, but the big one is that at least 50% of the units need to be owner-occupied.
    7. Your Neighbors Are REALLY close: Don’t forget to check out the neighbors all around you (including above and below your unit, if applicable). Are they rented? Do they contain a shut-in hoarder? Buying a condo is a much bigger commitment than renting an apartment and you could be stuck with these people for a long time.
  • 09 Jan 2017 4:24 PM
    Reply # 4519282 on 4507874

    Paula, I actually own a townhouse that is in a HOA for an investment property. There are certainly two sides to every coin on this so as long as you know both sides you will make the right decision.  For me the attraction was that I could advertise a no-work needed property for rent.  Meaning, no yard work, no pool cleaning, the renter could basically come home and not worry about anything!  This townhome is also very conveniently located, had a gated community, pool, fitness center, etc. and those are also selling points to certain renters.  It has always been rented and I always have a higher quality renter in this property than my other properties.  Now, I did my due diligence with this property also.  I reviewed the HOA bylaws before hand - they allow owners to rent the units as long as the HOA community has a copy of the lease agreement on file.  And I made sure that the HOA monthly fee was factored into my costs and I reviewed the HOA budget to ascertain if the fee would ever increase (it hasn't increased for 8 years). For lending purposes a HOA is viewed differently than a COA (Condo Owner's Association).  Since this would be a conventional loan type (or portfolio) for an investment property the conventional loan would require the COA to be approved by a Fannie/Freddie underwriter.  This is normally not a big deal as long as the COA is financially solvent they normally pass.  You will not be receiving an FHA loan since those are for your personal residences. Hope this helps!

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