Buying and holding condos that have HOAs?


I’ve been reading and going through this forum, 50% rule, old math/new math /.02, and been out looking in the Los Angeles County for properties.

I have found what looks like a good deal on a townhouse 3/2 1126 sq ft, 200 HOA (water, ins., cable), asking 60K. FMV 135k. ARV 90K.
Rents in the area are $925-$1150 on nearby 2/2 apartment complex.

My numbers look like this:
Mortgage $399.18 (50K at 7% (10K down on 60K))
Rent $1000
Formula: 1000 / 2 - 332.65 = 167.35 cash flow.
HOA = 240/mos (includes water/cable/insurance)
Are my numbers right, or do I need to add 240+500 - 332.65 = -72.65 ouch!

Anyone holding and renting in HOAs?
Or are free standing single owner homes/duplex/triplex/apts/etc the only way to go?

Please let me know.



All my houses have HOA. We need to buy at a deep discount and count all the costs. Make the offer as to what you want to buy the house for. The asking price is not your issue. It only lets you know that the seller is in the range of what you want to pay.

I had a buddy that was so anxious to buy a house that he overpaid. We were talking today and he is crying the blues that his house won’t really cash flow and he knows that he can’t sell it.

Don’t be so anxious to buy a house that you overpay for it. When I make an offer I want the house really badly at that price. But I don’t want it any more than the mansion at full price if it is higher than what will work by $1. Console yourself with knowing that anybody that beats you out of a deal has just overpaid. Better him than you.


Thanks for the info. So just 'cause I don’t see it on this forum, I should not be scared of HOA (Home Owner Association fees). The HOA is already included in the 50% costs when doing the formula. As long as the 50% cost is lower than the HOA. I’ve seen some HOAs in the $900-1200 range in some stand alone houses. Ouch. No wonder they can’t sell.

This is a bank owned REO. I will probably try 35K low ball, all cash and see what they counter with, or maybe I get lucky and they accept my low ball offer.

A 60K 3/2 in Los Angeles is in a really bad area. I suggest you get in your car and go drive around the neighborhood after 5 PM and make sure you feel comfortable collecting rent and doing repairs in that area.

HOA’s vary a lot. Read the CCR’s and association rules. Some can be lived with, some can’t.

Also, check into financial health of HOA. Do they have enough funds to pay for repairs? If too many units are in foreclosure, you might end up with very high assessments for major repairs.

Checking out the building and area is good advice. Management is different from building to building. If you can get it for $35k , maybe you could flip it to an owner occupant. I think it is harder to buy and hold condos as there is a lot that is out of your control…the HOA can be raised or there could be special assessments,etc .


Thanks for the heads up. I know it’s not that great of an area, not a gang/slum either. I’m guessing 35K if I get a sweetheart deal (doubtful), otherwise 60K asking price by the REO bank. And yes, there are 2 other REO units in the complex.
But the info on the HOA’s health is really a great insight, I totally forgot about that.
I used to live in a Condo where there were no rentals allowed (minimum 2 year lease required owner would loose security deposit if tenants stayed for less time), and we did get hit with big time 3-9K assessments after hurricane damages in Florida. Now,

That is why I’m asking anyone that has rentals in HOA locations to see if it pays or if it’s a hit-or-miss situation. For example, if it pays now, what about in 1, 2 or 3 years? Will I be singing the blues, where once I was making $100/min/mos after the 50% rule?

Thanks and please keep the comments and experiences comming?



I was an appraiser for over 20 years in the So Cal area. Almost every Condo I appraised had a problem of some kind. One of them was the extra assessment for roof repairs when there wasn’t enough money. Another was the HOA being a clique and doing whatever they wanted such as raising dues and hiring family at inflated prices. Almost all of them had some kind of litigation going on. I would steer clear of condos especially ones that cheap. Just my opinion.

Good luck,

I don’t think you understand how to work your numbers. If you are starting with the 50% rule, then you allocate half of your rental income to ownership and rental overhead expenses. This leaves 50% of your rental income to ocver your debtr service. Anything left over is your before tax cash flow.

Using your numbers, with $1000 monthly rent, you have $500 to pay property taxes, insurance, advertising, leasing fees, repairs, maintenance, HOA, management fees, legal fees, utilities when not paid by tenant, vacancy allowance, and something to set aside for future replacements. Until you know firm numbers for all your costs, you are just guessing that your overhead will run 50% of rental income.

The other $500 has to cover your debt service. Again, using your numbers, $399.18 for your loan payment would leave you just $100.72. Since you are not putting at least 20% down, you will have PMI premiums each month which will add another $35 or so to your monthly debt service and further reducing your projected cash flow to about $65 per month.

That is $65 per month if nothing needs replacement. A new refrigerator could eat up a full year of cash flow. A $6500 HVAC replacement will take you almost nine years to break even.

With an HOA fee of $240 per month, coming off the top of your overhead, you have just $260 left to pay for everything else. I would expect your advertising, vacancy, property taxes, and insurance premium to run a bit higher than $260 per month. If so, then your cash flow gets even smaller.

If we assume that 50% of the rental incomewill cover your overhead, then you need look at the ratio of net operating income to debt service. In this example, your monthly net operating income is 50% of gross rent, or $500. You monthly debt service with PMI will be about $435. Dividing debt service into net operating income, you get a ratio of 1.15. For a property to support itself you really need this ratio to be at least 1.25.

I am guessing that the rent is too low, the price is too high, or a combination of both for you to really make this property cash flow comfortably. I would pass and look for a better deal. If you still want this property, you need to nail down the cost of your overhead. If $500 will cover the overhead, then try not to pay more than $30K.

BTW, all but one of my rental properties belong to an HOA or a COA. You just have to factor in those costs as part of your overhead when you do your cash flow analysis. Remember, you are not buying a rental property, you are buying a cash flow. The numbers have to work, or move on to the next deal.

Dave T:

Thank you for clearing me up on the numbers.
You are correct. With the HOA, my monthly charges would be $240/HOA, $59/tax, @ $100/ins, @ $80/vacancy = $479 + $400/mtg + $35PMI = $914.
$1000 rent - $914 = $86 cash flow, before repairs, legal fees, advertising, and miscellaneous.

Thus, I come out with a lesson that the 50% rule will usually not be valid when doing HOA properties.

I think I’ll stay clear of HOA properties, 'cause of the uncertainty of higher assessments later on which would kill any cash flow over $100 down to negative in no time at all.



The problem with this property is not just the HOA expense. If you paid less, your debt service would be lower and your cash flow higher. If you put more money down, you can eliminate the PMI which will also raise your cash flow.

You can still meet your cash flow targets for this property if you get the price lower.

Don’t discount all properties in an HOA. Condos tend to have a high HOA fee, whereas townhomes in a planned unit development tend to have low HOA fees.

However, for the higher condo fee the association will pay for the hazard insurance premium for the building structure and for the exterior building and grounds maintenance. You just need a rental dwelling policy for the interior and any personal property you provide your renters. You can probably get a condo rental dwelling policy with $25K building/contents coverage and $500K liability for around $100 per year.

With a townhouse, you may have a lower HOA fee but the exterior building and lawn maintenance will come out of your pocket. Additionally, you need a more expensive hazard insurance policy.

There are tradeoffs, but you won’t know if a deal is good until you run numbers.

Dave T:

Thanks for enlighting me with the difference in HOA fees and maintenance. The only experience I have on HOAs was from Florida, where it is sky high, and the assessments come almost every year for one thing or another.

Right now my problem is getting a lower price and until I can get the numbers to work, I will do as you say…keep looking and walk away.

On another subject, if I was to pay all cash, I will get possitive cash flow of about $400, with a cash on cash ROI of 9%.

If on the other hand, assuming same house, etc, with 20% down and carrying a loan of @ $48,000, I get cash flow of about $140, with a cash on cash ROI of 14%.

Seems to me, and I may be wrong here, that it’s always best to use the bank’s money, assuming all other things are equal and you do have a $100+ positive cash flow.

Am I wrong?