Tuesday, February 10th, 2009

Question: Will Rentals Cover HOA (Home Owners Association) dues and other expenses?

I currently receive enough rental income in both of my units to cover HOA. (A two bedroom villa and a three bedroom villa.) I have listed the monthly HOA dues below. It currently takes about three nights of rent per month to cover the HOA.

An additional three nights rent per month for property taxes.

The cable bill is $80.00 which covers phone, cable & internet. The electric bill runs around $350.00 in the two bedroom when the unit is occupied. It runs around $480.00 in the three bedroom when the unit is occupied. I don't know what it runs when it is unoccupied as we have never had a month where we didn't have paying guests.

The HOA dues in our three bedroom are around $1,700.00 per month since it is the largest floor plan. Other 3br are around $1,400.00 - $1,500.00 I believe. The two bedroom runs around $1,200.00 per month.

So one seven night rental per month should cover the HOA, property taxes, electric bill and cable/phone/internet bill. Of course, this will depend on your nightly rate, but at my nightly rates, this works.

Note: After the June sale, the amount of rental units will probably double. Logical since half are sold right now and the other half will be sold on June 6th & 7th. Depending upon the buyer mix, it could be more or less, we'll just have to see. If the number of rental villas doubles, nightly rates will probably decline until demand catches up. If this is the case, I project that it could take up to two weeks of rent to cover monthly expenses before debt service for current homeowners. (I always like to project worst case senarios so I can figure out how to overcome them.)

For new buyers, the reduction in the purchase price will translate into a lower mortgage payment which should cover the cost of the monthly HOA dues. In addition, your property taxes will probably be 25% - 35% lower than current homeowners. (I don't know how the state will work this.) So even if nightly rates decline, you'll still probably only need one week a month to cover the monthly expenses excluding debt service and you'll have a lower mortgage payment.

I can assist you in calculating your projected cash flow, break even point, expenses, nightly rates, etc.

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Please allow me to represent you as your buyers agent on selection day. There is no cost to you and your purchase price is exactly the same. What you select and how much you pay will make a big difference in your profitability; both from an appreciation standpoint and if renting, covering expenses. Afterwards, we can also work together to "get heads in beds".

(All of the thoughts expressed in this blog are my own personal opinion, they are no guarantee that you will achieve similar results, it's just me sharing my own experiences and what has happened in my own situation. I cannot know what will happen in the future.)