Ah those pesky Home Owner Association Fees, also known as Maintenance Fees, these fees will just kill your cash flow if you do not take them into account when do your cash flow analysis.
While these fees can vary from $90/month to several hundred dollars, and sometimes thousands of dollars per month, they are often forgotten when you initially find that gem of a investment property that cash flows out so nicely.
I once found a nice condo, that was well below market cost. I was excited to make an offer on this condo. In doing my due diligence I skipped over the HOA fees. As I prepared my cash flow analysis I got even more excited. This was going to bring me an ROI of 100%. Or so I thought.
But something was bothering me. After sleeping on it I went down to the neighborhood where this condo was located. I started asking some of the other renters and homeowners what they thought of the area. How was the management of the complex? Any maintenance issues? Crime? A nice pool? The number on issue that most of them brought up was the ever increasing HOA fees.
After I did some further research, I realized that there was a significant amount of deferred maintenance on this condo complex and the Home Owners Association was raising the HOA fees to as much as $300 month per unit. $300/month would have eaten into my cash flow by almost 50%. I would have gone from $600 a month positive cash flow to $300/month. With no expectation that the HOA would not raise the fees even further.
Needless to say, I walked away from this “DEAL” and went about looking for another, better deal.
So watch out for those HOA fees. They can be a deal killer. If you do not know what they are or how much they can rise, go ask the people that live in the condo complex. They will be more than happy to be honest with you. Don’t just rely on the MLS listings or current owner. Do your homework and come out of the deal a winner.