Time to ditch rental property because of HOA?

Lexington-Fayette, Kentucky
Buying & Selling Real Estate
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Time to ditch rental property because of HOA?

Brett Morris
Member since 2020 · 3 posts · 1 vote

I've owned a townhome for about 20 years. It has always been subject to HOA but recent issues have arisen that have caused fees to increase from $35/mo to $150/mo as well as random assessments popping up for maintenance of the aging property. Add to that the fact that board and property management company have proven to be extremely inept over the last few years, I'm seriously considering taking advantage of high market sales prices and selling this unit and re-investing in a less problematic property.

The property has a remaining mortgage and with the increased HOA fees, insurance costs and taxes, rent barely covers cost. I only own two properties currently so Im hesitant to sell as I want to expand, not shrink.

So here's the question. Properties are selling for about $200k..I owe about $20k. So let's say I sold and could clear $150k. What's the best use of that money to turn the sale of this one property into several additional properties for our portfolio? I'm less concerned with cash flow as I am with long term equity 

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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
2y

Sounds like a good time to sell. I sold my first rental for some of the same reasons-increasing condo fees, but also special assessments and poor management.  I took the money from the sale and used it to buy two places-one with cash and one as a down payment (plus kept some in the bank).  If you have the borrowing power, I'd use it for down payments on two rentals.  Keep in mind interest rates are higher, so your money won't go quite as far as it would have 5 years ago.

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    2y

    Sounds like a good time to sell. I sold my first rental for some of the same reasons-increasing condo fees, but also special assessments and poor management.  I took the money from the sale and used it to buy two places-one with cash and one as a down payment (plus kept some in the bank).  If you have the borrowing power, I'd use it for down payments on two rentals.  Keep in mind interest rates are higher, so your money won't go quite as far as it would have 5 years ago.

    1Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y

    @Brett Morris

    Depending on area $150k may not get you super far. It also depends on your current financials and type of loan you get (DSCR or traditional. Today to cash flow you probably need 40% down which with $150k would get you $350k of leverage

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  • K S.
    Member since 2021 · 401 posts · 254 votes
    2y
    Quote from @Brett Morris:

    I've owned a townhome for about 20 years. It has always been subject to HOA but recent issues have arisen that have caused fees to increase from $35/mo to $150/mo as well as random assessments popping up for maintenance of the aging property. Add to that the fact that board and property management company have proven to be extremely inept over the last few years, I'm seriously considering taking advantage of high market sales prices and selling this unit and re-investing in a less problematic property.

    The property has a remaining mortgage and with the increased HOA fees, insurance costs and taxes, rent barely covers cost. I only own two properties currently so Im hesitant to sell as I want to expand, not shrink.

    So here's the question. Properties are selling for about $200k..I owe about $20k. So let's say I sold and could clear $150k. What's the best use of that money to turn the sale of this one property into several additional properties for our portfolio? I'm less concerned with cash flow as I am with long term equity 

    I just sold my condo weeks ago because of the increased HOA fees. It jumped a few hundred bucks a month over the last few years. I sold it and purchased another condo with lower HOA fees and some land to build on with no HOA zoning. So I can build a condo like multi-unit structure with no HOA fees and without the typical Single Family Home maitnenance and headaches. All in all, I much rather invest in condos than Single Family Homes.

    1Reply
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y

    Don't sell until you identify where you can invest the proceeds for a better return.

    Interest rates are now highest in 20+ years and will make it more challenging to find better ROI on new purchases.

    Logical Property Management4.9455 Reviews
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  • K S.
    Member since 2021 · 401 posts · 254 votes
    2y
    Quote from @Michael Smythe:

    Don't sell until you identify where you can invest the proceeds for a better return.

    Interest rates are now highest in 20+ years and will make it more challenging to find better ROI on new purchases.

    I don't get it, he's got 6 months to find something once he 1031 exchanges. It's not that diffucult. If it's a bad investment, get rid of it before prices potential drop further depending on where he lives. Interest rates will not be going down for possibly a long while.

    1Reply
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y
    Quote from @K S.:
    Quote from @Michael Smythe:

    Don't sell until you identify where you can invest the proceeds for a better return.

    Interest rates are now highest in 20+ years and will make it more challenging to find better ROI on new purchases.

    I don't get it, he's got 6 months to find something once he 1031 exchanges. It's not that diffucult. If it's a bad investment, get rid of it before prices potential drop further depending on where he lives. Interest rates will not be going down for possibly a long while.


     Didn't state he should find a property!

    But, he should ID property type, location, etc. and research to make sure he'll be happy with the average ROI of a new asset BEFORE just selling blindly.

    Logical Property Management4.9455 Reviews
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  • Account Closed
    New to Real Estate · TX · Member since 2023 · 27 posts · 29 votes
    2y
    I used to own a couple of condos, I don't know why HOA has become like that... It was the main reason I sold them, reinvested the money into multifamily and things are better now
    1Reply
  • Daniel Dobbs
    Real Estate Agent · Nicholasville · Member since 2022 · 38 posts · 10 votes
    2y

    I understand HOAs and they have their purpose but I myself aren't a fan of them. Depending on your finances you could potentially turn that one into a couple. If you don't have a local realtor, give me a call or PM me and I would be glad to help you. Some prices have come down, yes rates are still high. Would enjoy talking to you and see if there is anything that I can help you with to reach your goals. 

    How many properties do you wish to own? Are you seeking financial freedom, or just building wealth with real estate?

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y

    @Brett Morris

    Typically lower priced properties have lower appreciation. So if you were to get $150k maybe consider a $300-400k property as you may get better appreciation

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  • Account Closed
    Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
    2y
    Quote from @Brett Morris:

    I've owned a townhome for about 20 years. It has always been subject to HOA but recent issues have arisen that have caused fees to increase from $35/mo to $150/mo as well as random assessments popping up for maintenance of the aging property. Add to that the fact that board and property management company have proven to be extremely inept over the last few years, I'm seriously considering taking advantage of high market sales prices and selling this unit and re-investing in a less problematic property.

    The property has a remaining mortgage and with the increased HOA fees, insurance costs and taxes, rent barely covers cost. I only own two properties currently so Im hesitant to sell as I want to expand, not shrink.

    So here's the question. Properties are selling for about $200k..I owe about $20k. So let's say I sold and could clear $150k. What's the best use of that money to turn the sale of this one property into several additional properties for our portfolio? I'm less concerned with cash flow as I am with long term equity 

    Have your CPA run the numbers on selling. It appears to be a rental that you haven't lived in for 2 of the last 5 years so you may have capital gains and depreciation recapture. You may want to do a 1031 exchange. 

    0Reply
  • K S.
    Member since 2021 · 401 posts · 254 votes
    2y
    Quote from @Chris Seveney:

    @Brett Morris

    Typically lower priced properties have lower appreciation. So if you were to get $150k maybe consider a $300-400k property as you may get better appreciation

    I think it's more like lower priced homes are appreciating against a lower price. 4% appreciation on a 100k house is 5 times less than 4% appreciation on a 500k house. But true in that a larger home will increase in equity and appreciation faster than a smaller home thus leveraging yourself more without the extra maintenance and headache of multiple smaller homes.
    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y

    While that is true the appreciation is not close to being equal. The Midwest for example was more expensive and similar priced to the west coast 50+ years ago and the south was the cheapest - now California and Florida and Texas are significantly more expensive

    Goes back to location location location and a $100,000 house is typically not a great location.

    https://www.cnbc.com/amp/2017/06/27/how-much-housing-prices-have-increased-since-1940-in-every-state.html

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    2y

    @Brett Morris, The market will speak to you.  We have clients who go both ways.  Appreciation as a rate is fairly consistent across a given market.  But appreciation rate can vary widely from market to market depending on what state is this years flavor and what billionaire is moving some factory to where.  

    Your first decision needs to be keep or sell.  If you decide to sell then get laser focused on the market you see up and coming the most.  and then dig down to the asset class you can get the most of with your borrowing capability.  The 1031 exchange will give you some time (45 more days after closing your sale) to identify your replacements.  So you can get fluent in an area and then jump as soon as you have a contract for sale.

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  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    2y

    @Brett Morris I would definitely sell. I would NOT replace it with anything else with any kind of HOA or any other kind of fee or association. You have no control if that is the case.

    0Reply
  • Alex Olson
    Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
    2y

    @Brett Morris To me it seems you have made up your mind. Definately 1031 exchange and get into a better area that fits your needs. @Dave Foster is a great help as a QI. 

    1Reply
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