Seattle Eastside and HOA

[Rhonda C.]

I imagine this will generate a lot of discussion. I am looking at my first investment. The Eastside of Seattle is very expensive, but I have found a home built in 2007 for 200K (totally unheard of). I would like this to be a rental. Reasons why I am interested in this property:
1. it is a turn-key property 15 minutes from my house
2. it is in a very desirable area and inventory is low
3. the HOA covers ALL outside maintenance and the roof, siding (as this house is considered a detached condo).
4. comps rent out for $1500-1700/mo. tenant pays all utilities.
5. It has 2 bedrooms/1 bath

I ran the numbers through the calculator and the numbers work out to be 16% Total ROI, total cash flow $5343/yr, considering 8% vacancy and the (choke) $225/mo HOA. I would like the input from investors who have experience with this type of situation.

[Gerald K.]

@Rhonda C.

Here's some thoughts, for what it's worth:

2006 means things are 8 years old, so, if this will be a long term hold, depending on how well it was taken care of, there could be expenses coming up in the not too distant future if it has the original paint, flooring, appliances, etc. Additionally, you can Google "life expectancy of appliances" to get an idea about that. Here's one example - check the average life expectancy column:

Life Expectancy of Appliances

The HOA could actually be a good thing if run properly, at the expense of some control. Also, they probably already pay for some insurance, so that could decrease the costs of your coverage. Your expected cash flow will depend on whether or not you're managing the tenants yourself or not, if all the maintenance is outsourced, or if you can do some of it yourself, etc. Seattle is a tenant friendly market, so another thing to take into consideration. It's tough to cashflow well in Seattle on SFRs.

To be conservative, we could use the 50% rule. If gross rents are $1600 per month, over the long term, (50% of $1600) or $800 would go toward expenses, such as taxes, insurance, maintenance, vacancy, etc, not including the mortgage. The $800 that's left would be to cover the mortgage payment. Whatever's left over after that would be your cash flow. If you self manage, you could cut expenses by 10%.