Chicago Condo Deal

[Eric Hu]

Hello all, I'm new to the site and pretty new to investing in general would really like some feedback on a deal I've got going on. 

We have a cash deal for a condo on the North Side for $105,000. It will need about $5000 in work and we think we can get at least $1300 per month in rent. HOA fees are about $560 and property taxes are about $1000 per year. I did some analysis on the BP calc and J Scott's spreadsheet but I'm not completely sure if it's a good deal. I just wanted to throw this out there for some thoughts. Any help would be appreciated. Thanks!

[Samuel DeMass]

@Eric Hu,

Welcome to the site!

I tend to think it best to stay away from HOA situations.

I literally ran into a buddy today who has a condo in an HOA and is going through a nightmare scenario of a roof leak that has destroyed a couple interior walls and is very costly to repair. One of the contributing problems was the lack of regular clearing of the gutters on the property and adequate maintenance. Unfortunately the HOA didn't consider it prudent to take care of the small things before they became really big problems.

I think of HOA's like partnerships with complete strangers. I would never enter a partnership with someone who I don't trust, much less have very little in common in the ways that I think and handle problems.

The $560 for HOA fees is just the baseline. Nothing prevents the HOA from changing that number in the future and ruining your numbers. They could, and some have in the past, decide to do some beautification of the property, that doesn't increase rent relative to the expenditure that you're required to cough up.

In my opinion, you have to look well beyond the numbers of this deal and realize that the risk factors may not bring you the reward they should demand.

If you haven't yet, start listening to the BP podcasts and you'll hear some of the stories and learn some of the lessons that others have experienced for free.  They're a great resource and one of my favorite work commute entertainment pieces.

Good luck, and keep looking.  Keep us posted.

-Sam