HOA Assessments - any experience?

Question

I am considering buying a portfolio of 7 condos in Memphis, TN. They are in a great area, big upside potential. Everything about this deal looks great. But I am nervous about working with an HOA. This is my only hang up.

My biggest concern is being hit by special assessments X7. Yikes! Anyone have experience investing in condos? I can see some of the perks as they deal with everything outside, common areas and amenities, but this feels like a big con to me!!

I have already asked the listing agent:

1. how frequently special assessments have been done in the past and the amount.

2. to see the income/expense report to verify.

Waiting on answers to both. I can imagine how this could NOT be good, but I have also heard stories of people having great experiences with condos.

NOTE: I would be setting aside $100/month per unit for cap x and maintenance. Don't want all of that to go to assessments, but it could when necessary.

Any insight would be appreciated. Even recommendations for questions to ask in addition to those mentioned above (have not owned a condo) would be a big help. I want to get a better idea of how the HOA is managed but this is all new to me.

Thanks team!

Jenny

Jenny Stecklair · Answer

@Daniel J Cano Thank you!! This is just the thing I have been trying to figure out how to ask for. I will follow up with the listing agent to request. This is so helpful!! Really appreciate it. J

Theresa Harris · Answer

It really depends on the management. I've had 3 condos (and several SFH). The first condo was poorly run and they failed to save enough money to do regular repairs, so we were hit with special assessments-the worst was just after I sold it and I was so happy I sold it when I did. The other two are better run and (knock on wood) we've not had any special assessments despite doing major renos at one of them (new roof, new flooring in common areas, new exterior windows and patio doors).There are pros and cons of condos. If the management is good, you don't have to do much for upkeep of common areas or exteriors. The con is you have HOA/condo fees that take up a good amount of money. They can also restrict rentals. For some, you could use that money for larger mortgage payments to get a home with no HOA.

Jenny Stecklair · Answer

@Julie Hartman that’s good to know!! Thanks for the tip. $30k is CRAZY!!

Jenny Stecklair · Answer

Thanks @John Mocker! This is really good to know, I like the idea of insuring for some special assessments. Appreciate it!Jenny

John Mocker · Answer

Jenny,From an Insurance Standpoint you can protect against some assessments. The coverage is called Loss Assessment and it is available as an endorsement to most condo unit owners or dwelling fire policies. It does not cover assessments for things that just wear out (ie. replacing the 20 year old roof) but it does cover damage to the building and common areas due to a peril (fire, theft, etc.) that is covered by your policy. The assessment could be due to a high deductible or not enough building coverage on the Associations policy. The assessment could also be for an Liability claim (someone slips in the parking lot) that exceeds the coverage of the association policy. When someone comes to me with a Owned or Rented Condo, I often find that the Loss Assessment is missing. The other area that you should review on coverage for a condo unit is the Improvements & Betterments (parts of the building you own based on the condo bylaws). You need to determine from the Condo documents what the boundaries of your unit are and what things inside that unit and outside the unit that you would need to replace (could include Sheet Rock & Painting, Cabinetry, Fixtures, Heating & Air conditioning Units, etc.). Hope this info helps. If you have an questions on the information feel free to PM me.

Daniel J Cano · Answer

@Jenny StecklairBefore wholesaling, I was a Property Manager specializing in HOA’s in SoCal. Special assessments are usually triggered by what’s on the HOA’s reserve study. If you’re able to get a copy of the reserve study, you’ll have a good idea of when the Board will need to replace major components of the HOA (therefore triggering a special assessment). A reserve study is a report that evaluates the condition of the HOA’s common areas (roof, gate, pool, sidewalks etc) and provides the remaining “life span” of those components. In addition to the remaining life span, it’ll also show how much the HOA has in reserves (savings) to cover those expenses. If the HOA does not have enough reserves to cover the major component being replaced, a special assessment may follow. This report is only accessible by Homeowners, so your agent may not be able to get his or her hands on it. BUT the owner/s of the units you’re looking at, most definitely will. Good luck!

Jenny Stecklair · Answer

@Mary Aviles thanks for the tip!! I will search for that thread. Didn’t realize there was a recent one on the topic!! This helps. Thanks Mary!

Julie Hartman · Answer

We recently had an owner slapped with a $30,000 special assessment for roof hail damage. We let him know that his insurance may cover special assessments and after checking on that, he was indeed covered for it. That is worth looking into as well if you are concerned about it.

Mary Aviles · Answer

@Jenny StecklairThere was another thread not too long ago on this same subject, and several people chimed in. All of us got hit with special assessments, and everyone said they would never buy in an HOA again. Special assessments can be a few thousand dollars, but some can be quite large. I almost had a $10,000 special assessment to be paid all at once, so some of these can be devastating.The other thing you have to be careful about is the HOA dues always go up. Mine have almost doubled in a few years.So a deal that looks good now can quickly be a bad deal due to rising dues and special assessments. You have to make sure you have a large margin.

Jenny Stecklair · Answer

@Steve Morris, thanks for the insight!