Should You Buy a Condo as a Rental? The HOA Math

HOA dues are an operating expense you do not control, attached to rules that can stop you renting the unit at all.

1.9 points

Of cap rate consumed by HOA dues on a typical condo rental.

The arithmetic

A $200,000 condo renting at $1,700, dues $320/month

Gross scheduled rent: $20,400
Less vacancy @ 5%: −$1,020
Effective gross income: $19,380
Property taxes: −$2,400
Insurance (HO-6 — the association covers the structure): −$700
Management @ 8%: −$1,632
Maintenance @ 3% (exterior is the association’s): −$612
CapEx reserve @ 3% (interior only): −$612
HOA dues: −$3,840

NOI $9,584 → cap rate 4.79%

Note that the model is fair to the condo: maintenance and CapEx are cut from 5% to 3% because the association owns the roof, the siding and the parking, and insurance is much cheaper because the master policy covers the structure. The dues are buying something real.

And it still costs you. Strip the dues out entirely and NOI is $13,424, a 6.71% cap rate. The association is consuming 1.92 points of yield — more than it returns in reduced maintenance and insurance, which is the honest summary of most condo rentals.

Dues are an expense you do not control

Every other line in your pro forma is either fixed by contract or influenced by you. Dues are set by a board you did not elect, can rise materially in a single vote, and come with special assessments that arrive without warning. Underwrite them growing faster than rent, not in line with it — insurance and deferred capital have pushed association budgets up sharply in recent years.

The three documents that decide it

Document	What you are looking for	What kills the deal
CC&Rs and bylaws	Rental caps, minimum lease terms, owner-occupancy requirements, approval rights over tenants.	A rental cap already at its limit. You own a home you cannot rent.
Reserve study	Percentage funded, and the schedule of major components.	Under about 50% funded with a roof due. That is an assessment with a date on it.
Budget and last 12 months of minutes	Dues history, pending litigation, discussed assessments, insurance renewal problems.	Minutes discussing a shortfall, a lawsuit, or an insurer declining to renew.

Rental caps are the existential risk

Many associations limit the proportion of units that may be rented — commonly 20 to 30% — and some maintain a waiting list. If the cap is reached when your tenant leaves, you may be unable to re-let. Ask in writing for the current rented count, the cap, and whether there is a queue. A verbal “it’s fine” from an agent is not diligence; the association’s own written confirmation is. This belongs at the top of your diligence checklist for any condo.

Financing: warrantable and not

Conventional financing on a condo requires the project to qualify, not just you. A non-warrantable project — one that fails the review — pushes you to portfolio or DSCR lending at a higher rate, and it will do the same to your buyer when you sell.

Common reason a project is non-warrantable	Effect
Investor concentration above roughly 50% of units	Conventional financing unavailable; buyer pool narrows sharply.
A single owner holding too large a share of units	Same.
Litigation involving the association	Often an outright decline, especially construction-defect suits.
Reserves funded below the required minimum	Increasingly scrutinised after recent structural failures.
Commercial space above a set share of the building	Mixed-use projects frequently fail review.
Delinquent dues above roughly 15% of units	A signal of association distress, and a financing blocker.

This matters twice: at purchase, and at exit. A property only cash buyers and portfolio lenders can finance sells for less and slower.

When a condo rental does make sense

Works when…	Avoid when…
Dues are low relative to rent — under about 15% of gross	Dues exceed 20% of gross rent
The reserve study is well funded and the minutes are boring	Reserves are thin and the building is over 30 years old
No rental cap, or a cap far from its limit	The cap is at or near its limit
The project is warrantable	Non-warrantable, with no path back
Location genuinely commands a rent premium	You are buying it because the price looked low
You want low physical management	You need control over capital decisions

The last row is the real trade. A condo outsources the roof, the landscaping and the exterior — which is genuinely valuable if you are remote or own several. You pay for it in yield and in control, and the numbers above are what that trade costs. Run your own version in the free calculator with dues as an explicit expense line, and compare it against a house in the same market.

Frequently asked questions

Are condos good rental properties?

They can be where dues are low relative to rent, the association is well funded and there is no rental cap. The structural disadvantage is that HOA dues are a substantial expense you do not control — on a typical condo they consume close to two percentage points of cap rate, more than the maintenance and insurance savings they provide.

What is a condo rental cap?

A limit in the governing documents on how many units may be rented at once, commonly 20 to 30% of the building. If the cap is reached when your tenant leaves, you may be unable to re-let until a slot frees up. Always get the current rented count and the cap in writing from the association before buying.

What is a non-warrantable condo?

A project that fails conventional lending review — usually because of high investor concentration, association litigation, underfunded reserves, excessive commercial space or high dues delinquency. Financing then requires a portfolio or DSCR lender at a higher rate, and the same constraint applies to your buyer when you sell.

How do HOA dues affect cap rate?

Directly, as an operating expense. On a $200,000 condo renting at $1,700 with $320 monthly dues, the cap rate is about 4.79% versus 6.71% for the same property with no association — a gap of roughly 1.9 percentage points, even after crediting the lower maintenance and insurance that the dues pay for.