@Robert Collins
Totally agree with Azeez here. HOA fees and rental restrictions kill most condos as investment opportunities.
That being said( and for the sake of knowledge sharing), I’m not 100% anti-condo. It’s just that they usually don’t work. Condos can have some potential differences that make them worth analyzing a little differently:
1) HOA fees often cover things like water, trash, etc. If that's the case, you can factor this into your financial analysis as one less expense. Often these expenses are covered by tenant, so you can pass these along as "rent = $1000 and water, trash, etc. = $100" or whatever number you use.
2) You can often budget less for CAPEX because a lot of stuff like exterior of the home, roof, etc. is covered by the HOA. So this helps the financials work a little better.
I actually found the properties you’re talking about. For funzies I looked at it as a thought exercise. Here’s how I’d analyze it at a high level. Take it with a grain of salt because it’s just one perspective.
1) What can you rent it for? I did a quick Zillow search and was seeing some 3/2s in the area for around $1000. So let’s say you can get $750 per month plus $100 in “water, garbage, etc. service” for a total of $850.
2) What are your monthly expenses (i.e. mortgage and HOA fee)? The killer here is the HOA. This is like $575 per month that is out of your pocket. Gone. Versus at least a mortgage payment which had a principal component that grows over time. There's also the risk that the HOA could vote to increase the fees in the future.
Since the purchase prices are so low, you might be able to pay in cash and avoid a mortgage (not saying this is even YE best decision, but to keep numbers easy let’s pretend you do).
3) What are your upfront costs? Let’s say you buy the $25K one at full price (just for kicks). There will probably be some title and attorney fees and other stuff when you buy it, plus an inspection, so let’s call it $3K (I’m making this up). Then based on the pics I’m assuming some work is required to touch it up, so let’s call it $10K. So you’re all into this house for $38K.
4) What are your other monthly expenses? This includes maintenance, CAPEX, property taxes, etc. While you can get away with budgeting less on CAPEX, you'll probably need to set aside at least $2-300 per month for all of this. Let's call it $250.
6) Vacancy and property management. I’d assume at least 1 month vacancy per year, which is $850 (or $71 per month).
5) Is this a high growth area that can expect high appreciation? If yes I’d factor his into the numbers. But I don’t think that’s the case here, so we’re not going to factor it in.
So...based on this quick math, $850 - $575 = $275 left to play with right off the bat. Then factoring in $250 for CAPEX, maintenance, etc. and $71 for vacancy = -$46 per month. Sometimes if back of the envelope math is close, it could be worth a deeper dive, but I don't think that's the case here.
Just thought I'd share some of the things I'd think about. If the HOA fee was about $300 lower, it might actually work (again assuming there aren't rental restrictions and that you have belief in the long term value of the area).
