Analysis: HoA vs CapEx for Condo/Townhomes

[Fabian Friedrich]

Hi,

When analyzing deal I am looking at Condos and townhomes here in NoVa which often have $200-$400 HoA fees.

At the same time I kept 8-10% for Maintenance and CapEx.

Is that overkill as HoA should take care of most items or still reasonable? Asking because HoA almost always leads to massive negative cash flow.

Thanks!

[Adrienne Green]

Hi Fabian! Great question. I've found the situation is different for condos and townhouses. 

Condos fees cover everything outside your unit walls: the roof, the exterior walls, the green spaces, etc. Typically, you are only responsible for the interior of the condo (and windows, but not balconies/patios). The monthly fees for condos are usually higher than townhouse fees, but a lot more is covered. I have found that when I compare the condo fees to what I'd budget for the comparable costs on a townhouse or SFH (maintenance or CapEx), the condo fees are a better deal. I still budget to cover the condo interior, but at a much lower rate than I would otherwise.

Townhouse HOA fees typically cover shared amenities: pool, clubhouse, entrance area plantings, etc. They don't cover any building maintenance or yard care for the individual yards. In these situations, I've found that the HOA fees don't decrease my maintenance or CapEx at all, so they just hurt returns.

I like condos a lot as investments, and see that even with the condo fees I get good returns. Plus I have less work since the condo association handles so much. Townhouses with HOAs, on the other hand... Well, I have yet to find one where the numbers look good enough for me. I hope this helps!