Q & A With America’s Real Estate Professor: HOA Fees

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Zillow

Posted on December 31, 2012 at 1:00 PM

Updated Monday, Dec 31 at 1:00 PM

By Leonard Baron

College Student Real Estate Major

Q. I want to get started investing in real estate and I’m considering working with my parents to buy a property at my university to live in while I attend school. What would you suggest I do to get started on this track? Timothy N., University of Southern California.

A. I’d advise you wait until you are a few years out of school to start buying any real estate. Get a good education, study lots, have a good time, and enjoy college – there is no need to add significant additional stress to your studies from being a landlord. In addition, student rentals endure a lot of wear and tear on properties, do not produce very good investment returns, and often end up being orphan properties that the parents will have to handle, and lose money upon, once their child finishes school. So, skip a college rental and get a good education, then you’ll get a good job and an income that will allow you to start investing in real estate just a few years out of school.

HOA Fees Increasing Each Year

Q. I would like to buy a condominium as my first home but am concerned about HOA fees that I hear can rise dramatically after one purchases a property. Is there any way to buy properties where the HOA fees will not go up that much? Jane A., New York, NY.

A. A buyer can review the proper documents, board of director meeting minutes, financial statements, budgets, reserve studies, and do a pretty good analysis on where HOA fees are headed in any particular condominium development. The issue is that doing the proper homework is truly a herculean task. There are myriad documents and reports to review, and unfortunately you’ll have a tough time even obtaining them. If you do get them, it needs to have been in a timely manner and you need to be able to review them, which is tough even for a CPA and/or lawyer. Only doing all this proper analysis will give you a better chance of buying into maybe one of the 20% to 30% of condominium communities where the HOA is stable, has enough reserves, and shouldn’t have special assessments nor dramatically increasing HOA fees.

To add to the difficult task on this one, there are few people who are really well versed in doing this analysis. And if you do find someone who claims to be an expert, they’d have to charge you at least $1,000 - $2,000 because of the amount of work required on this task. I’d suggest for the community in which you are interested to purchase, call the HOA’s property management company and see if they will provide you an honest assessment of the community condition. I always tell people there is “no good news” when it comes to doing the proper analysis on an HOA, and that’s just unfortunately part of the risk in condominiums.

Leonard Baron is America’s Real Estate Professor® - his unbiased, neutral and inexpensive “Real Estate Ownership, Investment and Due Diligence 101” textbook teaches real estate owners how to make smart and safe purchase decisions. He is a San Diego State University Lecturer, blogs at Zillow.com, and loves kicking the tires of a good piece of dirt!

Email Your Questions to: Leonard@ProfessorBaron.com


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