Townhome vs SFH + HOAs

[Chris Rodriguez]

Hi friends!! I have talked with some local investors who say they do not do condos, only SFHs. When prompted for a reason I only get "it is not in my strategy." Totally understand, it's just that said answer doesn't tell me the reason why, meaning, what is or has been the drawback. I too am trying to develop my niche and my strategy: would you recommend SFHs over townhomes for a first time investor (buy and hold) ? Or do you put them in the same category (SFH)?. Also, do you add HOA fees to the rent your tenants pay? Thank you for your feedback.

[Kenny Smith]

@Chris Rodriguez

First off, congrats on getting started! So I have 1 condo, and 2 SFH's. To Trevor's point, it really depends on what strategy you are trying to implement. With my condo, I'll be using switching it over from an LTR to a furnished MTR shortly. Which will be perfect given the surrounding hospitals, etc.

Some of the notable drawbacks to think about when buying in an HOA in general.

1. Financial Health of the HOA. This is something that is typically overlooked unless you're working with a good Realtor who will review both the HOA's reserve funds and the meeting minutes to see what is being discussed. If you are buying in an HOA that does not have proper reserve funds for emergencies, this can leave you at financial risk if something major happened with the building that the HOA is supposed to be responsible for. Without reserve funds, the cost of all major repairs have to be passed on to the homeowners through a special assessment. There is loss assessment insurance coverage you can buy that can help protect you in these situations, but it doesn't always cover anything.

2. There is more red tape. When buying into an HOA, you have to realize you are buying into a set of rules and bylaws, that you as homeowner and part of the HOA, have to abide by. This can be scary when you are an investor. Maybe they allow for STR's when you buy it and then 6 months later an STR guest causes issues, and the board/HOA votes to outlaw STR's moving forward. You are now dead in the water. To me, that is the scariest part of it, so you need to understand you don't make the rules, the HOA does.

3. Entrusting the state of the community with a board of directors. Most all HOA's will have a board of directors. These folks are typically volunteers, older and retired folks that are wanting and willing to help the community out. I've met some really good boards, and have experienced very poor boards. The truth is, you really don't know how the board is until you buy, which is scary. Most of these volunteers may not know about running a community, yet are making very large decisions on the behalf of everyone in the HOA.

4. HOA fees can continue to go up. Just like everything else, things get more expensive, including HOA fees. Depending on the HOA's budget and where they finished the prior year, the fee will likely always go up. So you need to understand that, and realize you have to factor this in when running your numbers.

5. Lastly, condos/townhomes DO NOT appreciate as fast as SFH will. If you're thinking long term, SFH (in my opinion) will always be the better option from a natural appreciation standpoint.

For all these reasons, and others including the strategy I implement, I will only buy SFH's moving forward. However, if you are strapped on capital and would just like to get started, they are better than doing anything at all!

Message me with any other questions.

Best of luck!