Milwaukee Condo HOA Concerns

[William S.]

2 bed, 1.5 bath (Cash purchase)

List Price: $40k (I think I can get $30-$35k)

Rent: $750-$800

Rehab: Under $1,000

Insurance: $33.33/m

HOA: $96.24/m (covers water, lawn, snow)

Taxes: $106/m

Vacancy 5%: $37.5/m

Repairs: $83.33/m

CapEx: $45/m

Lease Fee: $62.50/m

PM 8%: $60/m

Cashflow at $750/m = $242.10/m

The HOA concerns me. What if they decide to raise it to the point where the rent cannot keep up? Any local condo investors have this issue?

Thanks!

[Ryan Dworak]

Hi William,

I don't invest in condos, but I own one in downtown Milwaukee. The key for you is finding a low HOA fee that still has amenities that renters will want. It looks to me like you should be okay with what you are cash flowing. I would talk with the association about past capital expenditures and what they anticipate for future capital expenditures on the building. This usually is the main driver for sudden increases in HOA fees.

From personal experience, my association just increased my HOA monthly fee from $200/month to $250/month. A 25% increase which caught me by surprise. Their reason was the association was going out for bids on a new roof and it was discovered that our reserves were too low to cover it. They usually spin it as "this increase is to preserve your investment" or some line of B like that. Either way, something that can come up quite quickly but is the nature of owning condos. Good luck.