Investing in strict HOA

[Juan Carlos Castillo]

Looking at buying my first piece of property and finally found a condo I like in a great location, under budget but the HOA is stringent on rentals (all leases must be approved by HOA, approval process seems lengthy and min credit score is 700 FICO) should this be a deterrent for me in terms of buying this as rental property? Also everything I'm seeing in my area doesn't seem to produce any cash flow at the end of the month, does this mean it's a bad investment? Like I'm calculating to spend $1500 month between mortgage insurances and HOA but think if I rent it I'll probably only be making $1250 a month.

[Christopher Brainard]

Hi @Juan Carlos Castillo and welcome to BP!

As far as HOAs go, a strict HOA is probably a negative for an investment property. The additional approval step is an annoyance, but a 700 FICO score for a renter is very optimistic. Most folks that have good credit scores buy houses, they don't often rent unless its for a short period of time, which is what you don't want as a landlord. A strict HOA is probably more likely to cite you for HOA violations, as tenants tend to care less about the condo that they're living in than a homeowner would.

As far as your cashflow goes, you need to take into consideration a lot more than just the mortgage, insurance, and HOA. You have taxes, utilities, CapEx, Repairs, Vacancy, Turnover, etc. If you're expecting to lose $250 a month from the get go without calculating all the other costs associated with renting a unit, its going to be a big time loser.

Remember, cash flow is always king! Especially when you're first starting out.

-Christopher