No, the $2k/year is if you buy it with cash. If you finance it, you'll be negative $1k/year cash flow, I'd estimate.
Break it down like this:
-$750 gross rent. So $9k/year.
-Figure 10% vacancy. Down to $8100.
-Management @ 10% is $75/mo, down to $7200.
-$50/mo to fix stuff that breaks and replace wear items (this is probably *really* low). $6600.
-$260/mo association fees. $3480.
-Taxes/insurance $1200 for the year. I'm a little dubious that you can get insurance for $25/mo as a landlord, but we'll roll with it. $2280.
-Assume your city and HOA don't have any licensing/non-occupant owner fees or onerous landlording requirements.
-Assume the place requires no rehab/work to be rented (almost never true, but whatever).
Now you've got to pay your $3k worth of mortgage payments. So negative $720 is your cash flow - negative 6%. Yes, you get ~$2k/year knocked off the principal. I would not count on any appreciation beyond inflation, so that's not really a factor. And that's not even considering closing costs to buy, or commissions/fees/taxes to sell if you're treating equity as part of your return.
It's also nice and risky given that a tenant can sue you, or you can have the water heater blow up and wreck the carpet, or the association can decide they want a new roof and your costs can go through the roof. This would be a semi-ok deal without the HOA. With that, it's IMO not worth doing.
-W
@2,000 cash flow/ year, at initial invest of 12,000, wouldn't the return be 16.7%? nOt including appreciations and paydowns?
I dont necessarily agree with walt on his math, but I do agree with his decision.
The amount on the HOA is excessive, and makes a non-viable buy for anything other than outright purchase in cash.
Your net cash returns will get you at best mediocre returns if you choose to finance, that money should go to the great index ocean of love.
Alternatively, if you choose to go head on with the HOA, ie you decide you want to buy in this area, start with an offer of a special meeting or a letter of intent to sue, that will bring most HOAs to the table.
Attorney fees can be charged off to the HOA fund in the event they dont choose to hold a special meeting. The looks on this seems like the buyer/developer of the area is trying to recoup investment costs via the HOA, which is not the place of the buyers to pay. If they want those costs recouped, they should charge the costs as part of the condo's purchase price. If you look at the prices they are asking for buy wise, and the prices of their "claimed FMV", it indicates the value has been decreased, which indicates that they are selling lower than the property is assessed to be valued at. The only logical reasoning to sell the properties for less than they are worth is they are destitute, in which case its a horrible buy, they cant sell them at their FMV, in which case its a horrible buy, or they plan ot recoupe the costs in other ways (the most likely of the three here) in which case its illegal, and can be challenged in court. See the links I referenced you to.
Development and upkeep are two separate categories, and an HOA cannot require a buyer to pay for initial development costs, only upkeep and maintenance costs. Additionally, they must itemize and release all of these assessed costs to all members of the HOA upon request. Failure, or refusal to do so, is an easy one way trip to the courtroom.
Dont be afraid to play hardball to protect your investments, and to open doors to investments. The better things in life are more often than not harder to achieve than easier, more mediocre things.