What I Learned About Rental Property Investing From Being President of an HOA

by | BiggerPockets.com

I am always intrigued by investors who buy a property in a homeowners association (HOA). They buy a property because it was priced right, looked to be in a great area, and had the potential for profit. Unfortunately, some of the investors I have come across did not understand HOAs, did not read the rules, or did not think the HOA would enforce the rules. They were interested in their own profit, at the expense of the other investors.

I own multiple properties in an HOA. As a matter of fact, 20 of my 24 properties are in the same HOA. The property is comprised of 120 units, of which I own 20. The property looks like it should be owned by a single entity, but instead there are ~30 different investor/owners. Only three of the properties are owner-occupied out of the 120 units. I am the majority property owner in the complex.

Pros and Cons of an HOA

There are pros and cons to this investor situation. All these properties are located close to each other. I can walk to all of them once I park close to any one of them. I have a set of rules that I must follow. If the HOA needs a major improvement or a budget increase, I pay 16%+ of it. If the neighborhood goes bad, all my investment is at stake.

Related: The 4 Reasons a Higher HOA Fee is Good for Your Vacation Home Community

This property was just over 20 years old when I purchased my first 4-plex, in a class A neighborhood. Most of the properties had already cycled through two or three owners by this time. Virtually all of the previous owners had already gone into foreclosure; this was well before it was fashionable for investors to be foreclosed on. The place was a dump and vacancies were rampant. The property’s prime years for making money were squandered by “investors” who did not understand HOAs, rental property, and tenant selection.

Get on the HOA Board

Once I purchased property in the HOA, I offered my help with anything the HOA Board of Directors needed. I did not want to be on the Board. At a meeting I was unable to attend, I was appointed Secretary, and was on the Board. (Note to self: Never volunteer any services prior to a meeting you cannot attend.)

After attending several meetings and purchasing additional property in the complex, I began to understand the rules. I came from a point where I did not know the difference between the Declaration and the Bylaws to a point where I could recite many of the clauses. Knowledge is power. As I came to understand the rules, I also came to understand that many owners were violating them.

With many unpaid volunteer organizations, if you show up to about three meetings, you have a hard time not getting elected to a higher position. I was soon elected President due to my diligence in the meetings and calling out for different investors to abide by the rules. At that point, we had a simple tenant screening rule: “No felons and no sex offenders.” As simple as that rule was, we had many investors who could not abide by it. So the battles began.

Abide By the HOA Rules

One of my first actions as President was to foreclose on an investor who refused to abide by any tenant screening rules. He has an outstanding assessment balance, somewhere around $7,000 across two 4-plexes, and I convinced the HOA Board to foreclose on his two properties. Our logic was simple: Whatever the legal expenses were, they would be less than the cost of letting the investor bring in subpar tenants. If we received the property due to the foreclosure, we would have a property encumbered by a mortgage. We were never going to make any mortgage payments. We were going to rent the property out if we could — and delay any bank initiated foreclosure once that started.

At some point, in the middle of our foreclosure, one of the investor’s tenants was involved in a large neighborhood fight involving 10 to 15+ people. It was large scale brawl where several people were arrested and multiple police cars were present. If you do not think that this impacts rents for everyone else, your head is in the sand. We sent a letter to the investor’s tenants that the Association was going to evict them if they did not leave voluntarily. Since they were on some sort of housing assistance, the housing support company agreed to move them out if we did not evict them. This too was a great thing, as we were not 100% sure we could even legally evict them. That dried up a guaranteed source of the investor’s income and helped the foreclosure against him.

Once we started the foreclosure, I contacted the bank and made sure they knew about the foreclosure. I told them that we were not going to make any payments and were going to delay any of their efforts once we received the property. From what I could gather, the owner was already late or behind on several payments, and the bank was getting tired of continually trying to work with him. Once our foreclosure was initiated, the bank knew they were going to lose additional money if they did not get started, so the bank began to foreclose on their own. This was a great thing, as we saved additional legal expenses by letting the bank proceed.

Make Rules to Protect Property Values

There is no rule more important to our HOA that our minimum tenant standards. A single bad tenant can reduce rents across the complex by a significant amount. What would the value of your own home do if a level 3 sex offender moved in next door? Or if there was a murder (or two) on your block? Or a notorious crime figure moved into an apartment complex?

Related: Handle With Kids’ Gloves: An Insider’s Tip for Dealing With Your HOA

We have had other investors attempt to skirt the tenant screening rules as well, although 90%+ of them comply. A rule violation that is not corrected immediately gets a simple letter from an attorney. That letter will cost an investor ~$250, immediately becomes a lien, and is foreclosed on if not paid in 30 days. If we have to submit the $250 for collection, it can get to several thousand pretty quickly. One owner recently paid almost $6,000 in legal expenses to protest a fine that was only $1,000 initially. Once she saw her property advertised in the public notices for the Sheriff’s sale, she knew we were serious and the foreclosure train had already left the station. She promptly paid our legal expenses that were incurred due to her actions.

As a result of our aggressive rule enforcement, I would guess our rents are up over $100 per unit across 120 units. That is an increase in revenue of over $144,000 per year for the entire complex. The investors have come to like the taste of the increased rents and less work of better tenants. It took time and effort — and was worth every cent.

Do you have property in an HOA? What has your experience been?

Leave your comments and stories below!

About Author

Eric D.

Eric is a 55 year old, soon to be former, computer professional. He started several years ago to replace his “work income”, with other alternate streams. He is well on his way to retirement at age 56, and is currently making more money at extracurricular activities, than he is working at his full time job. Whether that is Financially Independent, or just old fashioned entrepreneurial spirit, is in the eyes of the beholder.


  1. Great article! I’m part of an association where one of the owners hasn’t paid his association fees for years and he owns 3 properties in the association. About what are the costs to foreclose on someone in MN? Does it get less expensive if you foreclose on multiple properties?

    • If you foreclose by Advertisement, the cost is ~$2500. A judicial foreclosure is more expensive. Start with one, unless the owner is a real problem. Do not wait too long though. You want to get rid of a deadbeat, not prolong it. Remember, you are paying a lot of costs for them to be more profitable.

      We stopped picking up garbage and plowing snow for our owner that was not paying. The tenants got a bit miffed and called him a lot.

    • Thank you for reading!

      Interesting analogy. I suspect that either people get immune to the crime, do not think it can happen to them, or the winters from where the people live are a worse threat than being next to a murder.

      As a former Hawaii resident (11 years), I can fully appreciate the warm weather.

  2. Travis H.

    Thanks for the article, Eric. I’m interested in some of the psychology behind the investors that aren’t following what seems like a perfectly reasonable directive (partially because human behavior fascinates me and partially because I lack the experience to discuss anything else in this article but that).

    Why do you suppose those investors flouted those rules in the first place? Do you think it was simply self-absorption and counter-will or do you think they just didn’t think that the HOA was serious and would eventually go away if ignored long enough? Or something else?

    • Great question.

      Some investors think that their tenant will be good. They might be asking too much for their rental, and only low quality renters apply. They get desperate and take any tenant.

      In our HOA, anyone who thinks we are not serious is not paying attention.

      To be honest, most RE investors really do not have a clue about tenant screening. I would rather decline 10 good tenants with our criteria to get a bad one declined, than let in a bad tenant.

      We do decline some good tenants, but you have to draw the accept line somewhere.

  3. Ashley Pimsner

    This is a great article thanks for sharing. My question is how are people getting loans from Fannie and Freddie with so many rentals in complex. I own a condo in a complex of 128 ,of which we have a greater than 50% rentals, which makes it ineligible for loans from Fannie , Freddie, and we are unable to get the complex FHA approved. This is a serious problem because if buyers can’t get loans, then owners/investors can’t sell property, which in turn leads to distressed sales and foreclosures. I know there are loans for non warrantable condos but do you have any suggestions or insights? I have tried to convince the board that we need to get a rental policy in place but there is a lot of push back. Your thoughts? Identical units less than .5 miles away that are 5 years older and built by same builder are selling for 100k more than units in my complex, and I believe the inability to get loans in the primary reason.

  4. Aleksandar P.

    This is a great article. Definitely shed a different light on HOAs.
    I recently moved in a 6-units building where 4 units are owner occupied and two are rentals currently. HOA is completely non-functional, in many cases breaking the rules in the by-laws. When I tried to propose increase of HOA fees (hasn’t been increased for last 14 years) it didn’t go anywhere. They don’t send accounting reports and budget proposals. One owner is not paying HOA fees claiming that she is a senior citizen. Building is 15 years old, but there is no Budget for CapEx. How should I deal with this mess? Should I engage a lawyer?

    • Thank you for the comment!

      Read your governing documents. Then get enough owners to take control of the Board. Often, it is only a handful. Once you have a Board, make the rules and enforce them.

      You do not need an attorney, but they may be able to give you additional advice,

      The senior still needs to pay dues, unless the documents say otherwise. The odds of them granting a dues exception for a senior is slim and none.

      There are cases where owners have taken the HOA to court, and winning, for failing to enforce the rules.

  5. Michael M.

    @Eric D, I feel your pain buddy. I just about cut my arm off to leave my HOA after eight years as president . The inmates want to run the asylum, what else is new… If I was in your shoes as invested as you are I’m surprised the CCRs allow you to own more than 10% of the voting block but hey CCRs are like clay if you got the votes.

    In your situation, I’d buy out the remaining 3 owners and convert it all to an LLC tax implications not withstanding as the HOA is a non profit becoming a for profit entity.

    Automatically you’d gain any reserves if any exist. It sounds like your just below the threshold of owning it all. All those renters, wow. How do you do you do it man?

  6. Mark Bison

    I confess that as an investor, this article did nothing to quell my fears of iron-fisted HOAs run amok. The actions you described taking as an HOA member were well intentioned, but if you happen to be an out of state owner, you usually get the short end of that stick. Whereas a client, an employer, a long lost friend etc can easily find your contact information, the HOAs in my experience seem completely inept at this trivial skill. If for example the title company provided the property address as the only way to get in touch with you, then suddenly you have no way of knowing whether or not you have bills due, and the HOA has zero incentive to let you know. More maddeningly, the HOA isn’t known: you have to enquirer about which company is handling that for your property, the responsibility may have changed hands, and more often than not, they are walled off from the world without a website or even a working phone number. In more than one case, my first “introduction” to the HOA was when a collections agency put a lien on my property. I personally would not mind if they all caught fire and burned to the ground because rather than ensuring property values (or whatever it is they are supposed to do), they have never done anything more than harass me, levy arbitrary fines, and then hide behind plausible deniability in the form of shell companies and call centers. My next investment property would be far less stressful if it had no HOA. They reek of corruption at all levels.

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