Posts Tagged ‘real estate investments’

Beware of the HOA

Ok, so I’ll admit it, my relationship with the animal that is the HOA management company is a bit of Jekyll and Hyde or love at times and dislike immensely at other times. I understand that the role of the HOA is to step in where government can’t get the job done, but of late I’ve seen a whole lot of abuse.

Most management companies charge buyers a fee at settlement so that the management company can update their records with the new name, address, telephone number and email of the buyer purchasing the property.  I think all of this is important information to have on hand when managing a community. The fees charged range from $45 to $200.  In my opinion anything over $50 is outrageous and gouging. Especially since many HOA management companies never really get around to actually updating the information. This leaves me questioning; exactly what is it that the HOA management companies are charging for?  I think that if buyer information isn’t being updated that’s tantamount to theft or willful negligence.

There is an association here in Durham that rigorously enforces that trash cans be removed from curbside the day of collection.  That’s fair and right; what isn’t fair and what isn’t right is that this particular HOA management company has Durham Neighborhood Services; a city department funded by taxpayers, come onto private property and drive the neighborhood’s private streets and tag unit owners and tenants who neglect to bring their cans in by sundown on the day of collection. If its private property the city has no business enforcing HOA rules; the duly paid property manager needs to do their job and get out there and can patrol for trash cans.  I did manage to set the city enforcer right on this one with a digital photograph of the “private road” sign after he insisted to me that he would never venture onto private property to enforce city code.

Finally, there is the strong hand weak hand paradigm which I see as pervasive in associations and their management companies. In my neighborhood typically parking infractions bring down an iron fisted strong hand on the transgressor. However, leave your trash cans out at the curb 365 days a year and you are treated with a feather light weak hand. Replace doors with permission but wait a brief time to paint them; hard handed chastisement; yet replace a front door with a non-conforming door, neglect to get permission; stall and delay in finally getting permission; refuse to remove the non-compliant door; weak hand so much so that years later the offending door is still up and no one is doing anything about it.

So what’s the solution for those buying real estate in communities with an HOA and HOA management company? Educate yourself; know that if an association was formed decades ago that the covenants and rules of governance might be weak, outdated and inadequate. Like anything else, time has a way of healing and adapting to deficiencies. Read the neighborhood covenants and rules and review the manager’s contract. If time permits, attend a board meeting or review meeting minutes before buying. Drive the neighborhood at different days and different times; observe lawns, gardens, garbage cans, parking and what you observe happening day to day. Once you buy, send your information to the community manager and insist that they acknowledge that your information has been updated; failing to do so may cost you thousands of dollars. Lastly, once you close on your property, get involved with the board of directors, know your stuff and don’t be afraid to be a squeaky wheel. Many boards and managers are acutely aware that their residents are complacent and operate from that premise.

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Real estate investments and rent to own community service that makes sense
Do you have $10,000 give or take?
Do you want to invest in a sound vehicle that has some risk but won’t scare you?
Then think about this.
In my practice I run across potential buyers who are fairly good risks but have some dinks and dings in their credit or may lack down payment. One such individual that I’m working with now, is currently renting at a high dollar amount. She has a good job, which is steady and stable, she has good income. She is lacking down payment and her credit needs a little clean up. Here is what she is willing to do; she is willing to meet in an on-going fashion with my in house mortgage lender as an ad hoc financial counselor so that she stays on track. The (buyer) has a credit score of 648 (fair), she makes 61,000 per year; she works for the city of Durham. She is looking at a condominium priced at $199,900.
She and I are looking for backers who are willing to buy the property that she’s identified, own said property for three years and then sell said property to her. Here’s how it could all lay out…
In very broad strokes:
We would buy this property, we would then lease this property to her on a rent to own basis and in three years when her credit is completely repaired she would buy this property from us. I say we because I am willing to put in my money too. We would collect incremental profit monthly on the lease and at the end of the term in three years when the property is sold to her.
If we purchase for $199,900, and our mortgage is at a 5% interest rate, we put down 20% which is 39,980, and our final loan amount is $159,920 financed for 30 years; then our payment would be $858.49 principal and interest + taxes $186 + HOA dues $213= which is a grand total of $1257.48
We enter into a rent to own agreement with our future buyer. Her monthly rent could be $1800, less $1257.48 our monthly expenses which leaves us with $543
We apply $200 from that $543 toward her down payment, at the end of three years she has $7200 saved up.
We could apply the additional $343 to our principal or we could divide it up on a monthly basis.
At the end of three years with no additional principal paid our outstanding loan balance would be: $152,000
We then sell her the property at 199,900, less payoff and the return is $47,900 less $39,980 (our down payment) is $7,920 + 12,348 ($343×36 months)= $20,268 return on investment which is not bad and much more lucrative than any bank or the stock market.
The reality going in the door, know that capital is going to be tied up for three years. Once in, then in for the three year period, secondly, know the risks, she defaults, we keep her down payment money and the property, but then we’re stuck with the property.
Additionally, we buy the property a tad discounted at the front end, say for $190,000 or $188,000 with seller paid closing costs and the revenue stream looks even healthier.
Interested in learning more, call me and let’s talk about it.

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