Buying land inside HOAs--advisable or bad idea?

Question

I have been looking at the prices vacant lots sell for in a couple of semi-rural counties. What I am finding is that the lots within HOAs sell for double or even triple of lots in regular communities.  I would like to start a conversation about buying lots inside HOAs so I can learn from your experience.

Let me describe the pros and cons as I see them (correct me if I am wrong, please). I know there is an annual fee and there may be additional fees. A couple of land investors have told me that after dealing with all the HOAs’ rules, they never want to buy inside an HOA again. The flip side is that I would not be paying that much in fees, because my intention is to flip the property and since I am not planning to build, I won’t have to deal with that many of the HOS’s rules. The biggest point is how much more the lots sell for.

Never having dealt with HOAs, I am neutral on the subject.  My intent is to learn from the experience of people in the group.

Rick Albert · Answer

You are looking to flip, but what do the comps say? Are the buyers going to be okay with the HOA? Are there already properties around? Otherwise whoever buys it knows there is going to be construction, which can be a turn off.

The next question is are there alternatives and what do those numbers look like? It sounds like there might be an added layer of risk but you would need to compare.

I would also talk to the HOA to better understand the process. They likely have some sort of design review board so getting clear on what can be built is imperative. They may already have approved plans. That would save you time and maybe even a little bit of money.

Melissa Brown · Answer

Hi Sylvia,

I have purchased alot of auctioned properties/land in Monroe & Pike Co (NE PA) and yes most auction properties are in HOA's.

I have found that there are buyers for each type of land ie ones that like the amenaties  afforded by the HOA either because they have kids, they want to use it as an Airbnb or they are weekenders and like knowing that the vacation home has lakes, pools and activities on site.

There are other buyers who loath the idea of being in an HOA and are not interested in your land for sale inside an HOA.

I have sold to builders/developers who like the HOAs and I have sold to end users who wanted to build a home in the Poconos.. The Developers/builders seem to prefer the HOAs that have public water and sewer because it cuts down on their building cost.. I notice that HOA's that have low HOA fees but require a septic/well also do well with the builders because its an easier sale do to the low HOA fees and those communities are usually less ridgid in the Building regulations.

I personally prefer to buy in HOA's that dont have gates.. They are really annoying and its more work to sell them because you have to deal with gate codes and check ins and whatnot.. However some end buyers like the idea of a gate because of "added security"..

What I have learned in my land sales is that there is a buyer for every type of usable land you are trying to sell.. You just need to get your property in front of the right person.

What HOA's have you bought in? What HOA's are you looking at? How are your sales going?

James Mc Ree · Answer

@Sylvia Castellanos

I think you are asking too broad of a question to answer. No one has done a survey or has hands-on experience with all of the HOAs in Wayne County, PA for a meaningful comparison. Investors can say their HOA has various rules, but your sample size is going to be much too small to be meaningful.

Instead, I recommend picking some listings you are interested in and researching the HOA rules and fees yourself. Talk with the developer there and let them pitch you. For land, you are primarily going to run into monthly/annual fees. Nearly everything else will impact your future buyer who will build a structure. You can read the rules for any problematic conditions.

I've evaluated a few of those properties but have not bought them. I was looking at developed properties for STR opportunities. I opted not to buy because they are a little far from me and I was concerned about making timely repairs. I also didn't want the HOA monthly fee. Taxes were low though.

I have experience flipping land in NJ, but not PA. My NJ experience is you are looking for someone to buy your newly purchased land for a lot more in the near future, regardless of where you buy. You have to ask yourself why someone would do that. Why aren't they buying the property you are considering right now at a cheaper price? What changes after you buy it? It didn't work out for me. My developer buyer just said he could buy land elsewhere for a better deal if I didn't want to sell.

In my evaluations, I could buy land for $20k, for example, but there were lots of lots in the $20-40K range. The $20k lots were near or in flood zones, steep slopes, rocky, woody and had limited or no utilities. The higher priced lots were less encumbered. I think these are the things that are more worth your attention than surveying HOAs.

In this example, the $20k property may become worth $40k, but not until the other similarly priced and encumbered properties rise to around there or it's one of only a few undeveloped properties left. It's not going to just snap to $40k and a buyer appears. Consider how long this might take, then double your estimate if you really have no idea. That will be an optimistic guess. Keep in mind there are other owners with your same idea.

Just some questions to think about....

Chris Martin · Answer

This post is meant to be constructive.

Regarding the "someone told me" thing, that shows you haven't done your homework.

Have you thoroughly read the recorded Declaration and Covenants for the parcel you are considering? Have you read through all the HOA meeting minutes over the past two years? How many HOA liens in the past two years? How many foreclosures? Those metrics really matter. If there is an HOA, then, yes, you will need to deal with the HOA. In case you don't know, the HOA boards are made up of homeowners and lot owners in the subdivision. I have been on several HOA boards. Some of these boards have members that are total BS and some have members who are really impressive. And, yes, some failed subdivisions lose a LOT of value for landowners, all across the country.

Sounds like you are in the Poconos and you are trying to flip vacant land, governed by an HOA, without a defined buyer. Good luck with your venture.

Sylvia Castellanos · Answer

If anyone who reads this has had experiences with specific HOAs in Northeast Pennsylvania, I would love to have you share them with me, either on this forum or privately. It is becoming obvious to me that I will have to deal with HOAs. The question is more which ones are more reasonable and which ones I should stay away from.  Your input would be very valuable.

Sylvia Castellanos · Answer

Thank you so much for your very valuable input. My main concern is that someone  told me that there are HOAs whose rules are so restrictive that people who bought lots found they couldn't even build. This person was in a position to know, but that does not automatically mean that it is true. On the other hand, at the auction Wayne County held back in the Spring, about half the auction was the  listings for Sterling Township inside Pocono Springs. Not a single one of these lots sold. Not a one got a single bid. I witnessed this myself first hand. So while some rules only affect potential residents, they can have the effect that investors in land like us will have trouble finding buyers.

Again, what I am after here is having others share their experiences in dealing with HOAs as land investors.

Chris Seveney · Answer

Cons are the monthly/yearly fees and the lawn maintenance.

Sylvia Castellanos · Answer

Thank you so much for your very valuable input. My main concern is that someone  told me that there are HOAs whose rules are so restrictive that people who bought lots found they couldn't even build. This person was in a position to know, but that does not automatically mean that it is true. On the other hand, at the auction Wayne County held back in the Spring, about half the auction was the  listings for Sterling Township inside Pocono Springs. Not a single one of these lots sold. Not a one got a single bid. I witnessed this myself first hand. So while some rules only affect potential residents, they can have the effect that investors in land like us will have trouble finding buyers.

Again, what I am after here is having others share their experiences in dealing with HOAs as land investors.

Asem Mohamed · Answer

Hi Sylvia,

I’m seeing vacant lots within HOAs like The Hideout, Indian Rocks, and Lake Wallenpaupack estates that have high margins and researching the area, I found at least a couple similar lots in the same area selling for %200 profit on the low side.

The main variable that jacks up the assessment value is the household income of every neighborhood you find those lots in, I’ve seen lots in low income areas that had a much lower acreage value. I’m not sure if buyers would be discouraged by the HOA rules but if they researched the area and found your listing they probably wouldn’t mind it.

Have the land investors advised you against HOA lots? If you are buying land to sell immediately for a fair profit then how much of the HOA fees & rules apply to your property flip? Recently moved to the poconos and a lot of wealthy people move to the area from NYC and neighboring states, seems like finding buyers will not be hard if the deal is right

love to get the conversation started and please correct me if I’m wrong on any point. Thank you!