HOA

5 Replies

Weekend millionaire audiobook says to avoid investing in houses with HOA due to HOAs taking control of what happens in the community and possibly increasing HOA fees. Don't most homes have HOA? Pretty much any home with playground and amenities have HOA is that right?

The amenities can be town or city owned as well. HOAs are becoming more prominent so it's going to be harder to avoid them as development continues. I will say that they can be hit or miss. A lot of it depends on what the HOA is actually in charge of. Some are just landscaping while others have a lot more control.

Originally posted by @Ben M. :
Weekend millionaire audiobook says to avoid investing in houses with HOA due to HOAs taking control of what happens in the community and possibly increasing HOA fees. Don't most homes have HOA? Pretty much any home with playground and amenities have HOA is that right?

You may have to get a property with an HOA, and if you do, look for the lowest fees. Some houses I have seen pay $30 a quarter, which would hardly at all cut into you rental income. On the other hand I have seen 4 unit buildings in Phoenix with HOA fees of close $6500 a year!!! Oh and the worst part is that they charge the same rents as me in my building without an HOA. I'm sure you wouldn't be surprised to know that this buildings linger on the market for a long time.

HOA get a lot of negative opinions. But if a HOA is managed correctly, it should be a non-issue for an investor. Yes, you may have dues for amenities such as security, pool or playground. But, can't you charge more in rent for a home with a security, a community pool or playground?

Or if your in a condo or townhome, the HOA dues may be covering grounds maintenance, building maintenance or insurance, but would these not be paid yourself if the HOA was not taking care of them?

The main things to watch out for are (1) professional management fees (2) assements for deferred maintenance and (3) a small community with pools and playgrounds to support. It is a big difference if 60 units are maintaining a pool than if 300 units are maintaining a pool.

Steve

HOA's are hit and miss. From the Governments perspective, they love HOA's because they gain all the property tax revenue but don't have to concern about the maintenance and snow removal so I suspect builders get faster easier approval etc. It seems like I'm seeing a lot more HOA's in new construction popping up for this reason and probably for baby boomer reasons too. Anyway, HOA's can at random vote to restrict renting and thus grandfather in your lease which defeats the purpose if its a rental property. I've had clients sign 99 year leases to another LLC etc but that's a stretch at best. If the community votes to restrict rentals then investors may sell but values may rise over the long haul as lending will be easier to obtain for owner occupant buyers (assuming a low about of fellow investors in the community). They other issue with HOA's is that if they are irresponsibly managed you can have differed maintenance building up that may bite you in the a$$ later in the form of an increase or special assessment. I would only look at well managed stable HOA's that have a low (20%) amount of "off site addresses" (rentals). Most lenders have a fit at 40% ish. If you are buying for investing an HOA increase or rental restriction (possibly causing a flood of listings) could totally torch the deal.