All Forum Posts by: Jack B.

Sorry if I somehow gave you the impression that I can't use code enforcement in my HOA, I am in fact doing just that currently as a result of the HOA not enforcing some policies even after contacted repeatedly. The point was that with the HOA, I have a risk of losing my house and currently my HOA doesn't seem to add any value by enforcing the nuisance rules, though I've heard horror stories about old ladies losing their paid off homes because of the wrong type of flowers being planted, etc.

The HOA doesn't seem to add much value because they don't currently enforce rules but at any year that could change if enough people complain and it could swing the other way. As long as the market keeps going up in my area and I can cash out in 2-5 years, it MIGHT be worth it. But who knows what's going to happen.

I do need a place to stuff this money, so I either keep looking for class C properties instead, or pay off one of my other rentals for now. I like the idea of buying a cheap house to live in with a $600 payment after putting 20% down. Something in the 130-150K range not in an HOA. I can move into it now and turn it into a rental later or just use it as a "Mustachian" retirement home. My rentals would pay my expenses and I can cash out of the house I have in an HOA now, and put that in index funds as another stream of income that I could tap but will just let grow unless I need it during vacancies, major renovations, etc.

Summary:

My current single family home in an HOA which I live in has left a bad taste in my mouth. I have another under contract in another community (that I put under contract before I had an issue with my current HOA) that I plan on turning into a rental but the HOA and potential changes in rental restrictions worry me. I'm still considering going through with it as a 2-5 year or so hold since appreciation in the zip code and development is 14% in the last year (greater Seattle area) so long as the market doesn't turn, with the money invested, I'm getting 60% cash on cash return on my money just from appreciation alone. Cash flow and principal pay down are 11%. Though they say not to buy for appreciation, only cash flow...


Details:

I live in a single family home in a deed restricted neighborhood( HOA) now, and have one under contract for a rental in another HOA, but my recent experience with my own HOA has left a bad taste in my mouth and am starting to regret buying in an HOA. Neighbor disputes were more easily resolved with the police and code enforcement before (and in this case really, since the HOA is not doing anything about it). Seems like they really don't protect my property value but are a risk to my property in that they can take it away from me.

Conversely, I was looking through the bylaws of the house under contract and they say in there they require board approval and could implement or outright ban rentals. I spoke with the property manager about this, and she said the board doesn't enforce it, it's unenforceable (apparently the development period has passed so it's no longer a valid rule since it said DURING the development period specifically; she said it was requested by the developer to prevent investors from buying the homes and renting them out initially which would decrease resale value) and they have no intention of enforcing it, in fact, they want to take it out because they'd rather have the houses occupied than empty, which causes other problems.

But she also said that they will actually be meeting with several home owners to discuss as some want cap or outright ban. I know HOA's have a lot of power on choosing what they enforce and let pass, as well as what rules they adopt, but it still makes me uneasy, as I could and up sitting on a house that I have to sell with high transaction costs if they adopt such a ban or cap. Even in that case though, it's likely a ways out, and I could at least cash out and make some money, assuming the 98042 market in the greater Seattle area stays hot. The houses in this zip code where I am buying increased 14% last year and unlike other zip codes I own in, sales are increasing super fast.

That said I don't like the idea of owning a property in an HOA anymore, at least not in the long run. It seems that they are either too lax or too strict with no middle ground in between,and really they have the advantage since they can take your home; what can you do to them? If you sue and lose, you have to pay their attorneys fees as well. I had planned on turning my current property that is in an HOA into a rental at least for 5 years or so, but now I'm thinking once I've lived in it for 2 years and rented it out for 3 years, I will likely sell it. Depends on the kinds of problems I experience with the HOA at that point. May sell it sooner or later.

So why consider going through with this other property if I don't like HOA's anymore? Because I will gain about 30K in equity on closing, and appreciation in that neighborhood, if it keeps up, will give me 60% returns on my money invested alone, not counting principal pay down and cash flow, which are roughly 11% after expenses.

I have two rental properties currently that are not in deed restricted neighborhoods, and man, much better. No one to tell me whether I can rent my property out or not. Neighbor issues were easily dealt with using police and code enforcement. One thing is for sure, I will not LIVE in a HOA community again after this house is converted to a rental. But it is hard to give up the prospect of such high gains right now. Then again, the market can cool down as interest rates rise, I wish I had a crystal ball. Maybe I'm better off just pooling money until another downturn.

I could just buy a house in a non deed restricted neighborhood, but the returns won't be as high. Though they will be safer and as long as I pay the taxes, I'm golden...

I like the idea, but if I flip it right away, real estate transaction costs will eat the profit and I will have done all of this merely to pad the pockets of the real estate agents. 

This is kind of a two part question. I own property in 98404, 98002 and 98038. I have under contract a house in 98042 which has seen a 14% increase in prices since this time last year according to Trulia.

I am having second thoughts about buying another property in a deed restricted neighborhood (HOA) as I have had a bad experience with the HOA I live in now and neither my gf or I like it. They don't enforce the rules and we miss having our chickens and such. Once I move out of the one I'm in now I will rent it out and once it is fat enough I think I might sell it.

Would I keep the property if the HOA is no problem? Sure. But right now I am having issues with them in general and the idea of yet another governing body telling me what I can do with my house is not inline with my values and they don't seem to enforce the rules that I was hoping they would enforce which is why I bought here in the first place. I'll bet as soon as I get chickens they will enforce that though...

In any case, the new house is in an HOA with no rental cap but they require board approval on paper. Spoke with the property manager who told me the board does not enforce it and wants to take that out since they would rather have a property occupied than empty. No guarantees though, since she also said that some home owners have complained about the number of rentals and want a rental cap written in. The board has agreed to meet but she tells me "all I can say the board does not enforce it, it is unenforceable". She said the board does not want any rental restrictions because it is better than having a property sit empty after foreclosure, etc. I got the feeling she was hinting it will never be an issue and I don't need board approval.

That said, if the appreciation keeps up, I could gain around 45K in the first year after I close on this house, and so forth, not counting principal pay down, cash flow and tax benefits. I know they say not to buy counting on appreciation, but this is Seattle area after all, not a town in Ohio with 1% appreciation gain.

Then again, if the price drops I'm stuck with it or I sell at a loss. I'd be putting 20% down plus a lot of money in short sale negotiation fees (3K), sewer fees (4K), other fees (2K) and 5K in repair/appliances. I stand to gain about 30K in equity once it closes after all expenses are added in since it is selling for less due to the short sale nature of it.

So part of me wants to sell my existing house down the road which is in an HOA but part of me doesn't want to give up the appreciation gains I could be looking at with the OTHER rental down the street that I have under contract. Now, if I was reasonably certain the market is going to cool off in this area soon, then I'd pass because between the HOA and the likely hood of a downturn, it's not worth the risk. Heck, from what I've learned from freedom mentor and others, these Class A "prize" properties are not prize at all (except for the appreciation when they are appreciating). I can 10-31 exchange them for more properties thanks to the appreciation though, so that's a plus.

I have all my money in real estate at this point, roughly 500K. Part of me wants to diversify in index funds, but part of me wants to keep doing what is working for me thus far. Yet the HOA and the 7 years of increasing home prices makes me wonder if should use the money to diversify or maybe just buy another property, a cheaper property in a non HOA neighborhood.

Yeah I'm aware of the 1031 exchange rules, not sure why they came up in this thread, it has nothing to do with the topic, which is: do large houses rent out well? 

I ended up getting a good idea of what the rent would be after much digging and decided it is not worth it. Four plex next for me I think.

I have a full time job and rental properties. I'm looking for ways to reduce my taxable and am looking into whether 1) I qualify for a solo 401k as a landlord and 2) whether it will help me reduce my taxable income. Is there anyone here that does this or has looked into this?

I have a tenant like this, but they are within the grace period, just on the last day most of the time or a day or two before the grace period ends. They seem to be improving, and after the first couple months the utility company stopped sending me notices that the service there was going to be disconnected, etc. I think they've gotten their act together, but it makes me uneasy. 

Right now I'm not doing anything about it other than documenting and researching rents. I can charge about $150-250 more pretty comfortably, so I might decide to raise the rents once their lease is up in a few months. It depends on how low maintenance they turn out to be overall; so far they are my lowest maintenance tenants, and they intend to stay for at least 4 years for their kids school.

I am looking at buying a house in zip code 98042 but due to the size of the house I'm having trouble finding comparable rentals. It will be my primary residence but when I move from there eventually I want to make sure it's worth it from a rental perspective to be buying the extra space. The house is 3,600 square feet, 5 bedroom 3 bath, newer condition.

While I could still rent it out for a reasonable profit at what the smaller/average sized houses are selling for, ideally I would not put more capital into a house that is necessary for the same cash flow, thus freeing up more money for down the road.

The other alternative is to rent out 2-3 of the rooms while I'm living there, due to the sheer size of the house.

Tom, I am trying to purchase either both or one or the other, depending on which ones the community thinks are keepers.

Yes, I have factored in vacancies and repairs. The repair on the house in the better neighborhood is about 3K, most of that for new appliances.

I am not counting on appreciation, these houses will fund my retirement via cashflow while my investment/stock portfolio builds up.

I manage the properties myself and have an umbrella policy for protection. LLC's don't provide the protection they once did...

I told my agent to tie them both up for now, at least for inspection. I am definately leaning toward the house in the better location, but will pursue both for now.

Sorry I did not mention the cash flow. Rents are at 950-1,100 per unit while the mortgages would be about $550 each.