10-18-2010 12:22 PM
This is a pretty broad question but I am curious what people think. It seems like condo prices were affected more than SFR prices in the Bay and that buying a condo with reasonable HOA fees might be an OK deal in the Oakland area right now. Anybody have thoughts on this?
Furthermore, does anybody think that there is an opportunity in general to make a little money by buying a condo that could use some interior updating and flipping it? What are the obstacles to such a process, is the permitting process in condos too difficult? Thanks.
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10-20-2010 07:59 AM
For the most part YES. Unfortunately, the HOA dues make any "investing" equation next to impossible to be able to generate a positive cash flow. Now, I've heard agents saying things like - "with 40% down, you'll have a positive cash flow". I am yet to see a unit where one can go in with 20% down, and pay the HOA dues, collect rent, pay the mortgage and end up with at least a dollar in their pocket (all-cash deals with HOA in litigation does not count).
12-23-2010 01:09 AM
Thanks for the response. I think you're right - the HOA does seem to kill the deal. You mentioned: 'all-cash deals with HOA in litigation' what does this mean? I'm looking at a property right now and the HOA is in litigation and I'm told all deals must be cash. I completely don't understand why this is necessary, I have about 60% down and most places would be a good buyer - why is it that HOA's in litigation necessitate all cash deals?
12-24-2010 03:10 PM
When an HOA is involved in a lawsuit there is always uncertainty as to the outome. Banks do not like uncertainty, therefore they will typically not issue mortgages under these circumstances. Furhtermore, the most common reson for HOA litigation is alleged construction defects - something that banks like even less than the uncertainty of pending litigation.
This typically presents an excellent opportunity for cash investores. Obviously, there are no restrictions on how someone can spend their own money, and values of units located within an HOA with pending litigation tend to go down (becuase they are difficult to sell). A cash investor may be able to get a very good price for such a unit, particularly if it has been foreclosed. Eventually, the lawsuit will be settled and when that happens, values are likely to increase.
Until the litigation is settled, though, it will be virtually impossible to obtain financing for a condo or townhome located within the HOA in question, even with a significant the down payment.
12-24-2010 04:17 PM
Thanks for answering Phil. I explicitly said that "all cash deals" do not count - because it is easy to generate a positive
cash flow with a 100% downpayment.
Anyway, when a HOA is in litigation, it shrinks the pool of people who will be able to buy the property (as most banks
will not float a loan). But there are exceptions. Loans that are not sold to Fannie/Freddie (that the institution holds
as an investment), or private loan sources are still possibilities - but from what I have seen, the interest rates through
these sources are ridiculously high.
12-28-2010 10:11 AM
Thanks Phil and Bapcha - it seems like what you said is true. The HOA litigation is the HOA suing the developer for a pretty exhaustive laundry list of defects. The places seem nice, though, and it seems rather frivolous. As such, this does seem like a good opportunity to enter with all cash to purchase up the property.