close to 2% rule?

[Mr Mark]

Looking at a couple of properties ... both townhomes, nice areas.

$47k, rents 850, hoa fee 355
$55k, rents 1100, hoa fee 395

How would you calc. Roi, with and without finance? Ie should I include the hoa within the 50% expenses rule?

[Another Reader]

I would take the HOA fees off the top and then apply the 50 percent rule.  Your expenses are going to be far more than 50 percent.  I personally would not be interested in these properties.

[arebelspy]

HOA is monthly or annually?  Pass if the former, worth looking at if the latter.

HOA shouldn't be included in the 50% rule generally, no.  Clearly not in this case if those are monthly.. look at the one that rents for 850 with 355 HOA.  That's already almost 42% of your rent, and it doesn't count yet any of the real expenses you'll incur.

Depending on what the HOA covers it may eliminate part of the 50% rule stuff (i.e. in a condo unit you may have a long term capital expense like roof repair paid by them through your HOA dues - make sure that CapEx is taken out though, and not done through special assessments), but generally not nearly as much as it costs.

[Mr Mark]

The 55k one has a brand new roof - the whole complex has done it, and has a really nice Olympic size outdoor pool and bbq area. Plus garbage, laundry room, parking, grounds, security, ... this is worth sometging somewhere wrt maintenance expected and vacancy rate.

[arebelspy]

this is worth sometging [sic]

Sure, but those amenities should be properly reflected and resultant in higher rents.

Either they aren't (thus the rents you posted), in which case it's not a good investment, or they are (and rents are higher there than a similar place down the street without those) but the numbers still aren't good, in which case that area may not be the best for cash flow.

[Mr Mark]

Gottcha.

if the rent on the 55k was 1.4, then we'd be more interested. Plus, the new roof and the good condition of the unit means a bit of robustizing up front should reduce maintenance costs? The location is right next to a bunch of big offices with highly paid professionals, many who fly in from overseas on shorter term assignments, so I also expect better than average tenants.

[arebelspy]

Gottcha.

if the rent on the 55k was 1.4, then we'd be more interested. Plus, the new roof and the good condition of the unit means a bit of robustizing up front should reduce maintenance costs? The location is right next to a bunch of big offices with highly paid professionals, many who fly in from overseas on shorter term assignments, so I also expect better than average tenants.

New roofs wear out too, eventually. Theoretically all of that should be taken into account with the purchase price.  In practice it often isn't. It shouldn't affect the expenses and 50% type rules! as you still need to put away for roof replacement every month.  You put away say 1/30th of the cost every year, then replace it every 30 years. If it was replaced you still need to put that money away. It's just if it hadn't been replaced for 20 years you should have 2/3 of the cost saved up already, and still need to put that 1/30th away each year.

So whether it was replaced a year ago or 29 years ago, your expenses on it will be the same, and theoretically if it's closer to replacement then here should be more in the reserve fund for it. (This is where checking an HOA's finances is important.)

Not sure if that all made sense, typing on an iPad, but I can explain more if needed, but essentially the bottom line is that the stuff you are mentioning won't affect or lower your expenses, you still will incur them, does that make sense?

For the final part, if those are who you expect your tenants to be, wouldn't you project lots of turnover?

[Fishingmn]

All of my rentals are in HOA's and I'd definitely include the monthly HOA fee in the 50% rule.

Average HOA fee for my townhouses run in the $160-200/mo range which includes most of the insurance I need, all outside maintenance and typically water/sewer & garbage. All of these are things I might normally pay for anyway as part of my regular expenses.

Actually, I don't even really use a 50% rule because it's so easy to cost out my actual expenses on HOA poperties -

Vacancy (I use 5% but it has never been that high)
HOA fee
Taxes
Repairs/Maintenance (usually estimate high)
Insurance Liability Rider ($170/year for $2M landlord policy)
Legal fund (I budget $100/unit/year for evictions which I've never needed)

I manage them myself so add PM if you need it.