Most investors I sit down with in Mission Valley want to talk about rent first. I'd rather talk about the roof.
Here's why. Say you're looking at a two-bedroom condo off Camino del Rio South for around $575,000. Based on what I've seen lease this summer, it'll rent for roughly $3,000 a month. The HOA is about $575 and property tax at that price runs close to $600 a month. So before insurance, vacancy, repairs or a mortgage, you're down to about $1,800.
That's a thin margin. Thin is fine if it's predictable. The trouble is the number that isn't on the listing.
Every California HOA has to disclose how well its reserves are funded, and it's in the paperwork you get as a buyer. I read that page before I read anything else. A complex built in the late seventies, with lifts, a pool and original plumbing, sitting at 25% funded isn't a cheap condo. It's a special assessment waiting for a board meeting.
They do happen. A $20,000 per-unit assessment on that flat would take roughly a full year of what it earns after running costs, and you'd owe it whether the unit was rented or not.
I spent years as a financial planner before real estate, and the lesson carries straight over. The expense you didn't plan for is the one that wrecks the plan. Your return on paper means very little if one letter from the HOA can wipe it out.
Here's where I'll disagree with a lot of investors. I'd rather buy the unit with $650 dues and reserves at 70% than the one with $450 dues and reserves at 30%. Low dues look like a bargain on a spreadsheet. More often than not, they're a board that's been putting off an unpopular vote.
A few things I ask for on every Mission Valley condo:
- The reserve funding summary and the date of the last full study - Board minutes from the past year, especially anything about the roof, the pipes or the lifts - Any litigation disclosures
If you're selling, this cuts the other way. A well-funded reserve is a genuine selling point, so put it in front of buyers early rather than letting them find it on page forty of the disclosures.
Ask for the reserve summary before you ask for rent comps. If the other agent can't find it, that tells you something as well.