Homeowner Associations - Why Buy There

16 Replies

I hate HOA's. I always have. I always will. However, others must love them because they are built. People buy.

Question:

What are the pros and cons of flipping in an HOA?

Parts of the reno (depending on the reno) will need to be approved by the HOA. Moving electrical outlets, changing the plumbing to have a double sink instead of a single, moving walls, etc etc etc... You will have a group of individuals making decisions that will affect your bottom line, sometimes drastically.

That's not a gamble I would be willing to take. But others have had success doing this

Originally posted by @Jon Huber :

Parts of the reno (depending on the reno) will need to be approved by the HOA. Moving electrical outlets, changing the plumbing to have a double sink instead of a single, moving walls, etc etc etc... You will have a group of individuals making decisions that will affect your bottom line, sometimes drastically.

That's not a gamble I would be willing to take. But others have had success doing this

EXACTLY! That's what I do not understand but I am trying too (but doubt I ever will).... I'm a "when you start paying my house note then you can tell me what to do and not do - kind of girl... So, I'm just trying to understand the "WHY" someone would want to live in an HOA. Certainly there must be an upside- somewhere.

In many newer areas around Dallas you can't avoid them.  They are everywhere and in Texas, HOAs have quite a bit of power.  For the most part though,  they only have to approve exterior changes such as paint color, fences, roofing material.  I have had no issues with the few flips I've done that have HOAs.

The cons can definitely being having to get approval and mostly the wait time.  If you are ahead of the game the better.  Ask for approval early, even if you do exterior paint last, ask for permission on day1.  Also, they typically add an annual cost which buyers will watch for.

The only pro I can think of is the benefits of HOA such as pools etc. I did one in Carrollton, TX that had its own small golf course, pools, nice walking paths, camping area, stocked ponds. I didn't know it when I bought the house but that particular area was pertty well coveted because of all the benefits.

Watch for HOAs if you want to rent!  Mine started limiting rentals in the area.  Texas passed a law which limits HOAs a little, but they can still make it hard and expensive if you don't comply.

@Virginia H.   Another thing is assessments. A property I own decided to make an $1,800 assessment to dig up the boards on the walkway of the common area. Personally, I thought the area was fine, but one person got a splinter and made a big deal. The board voted, and passed the assessment. I would have much rather seen that money go towards anything that would increase the value of the community (e.g. workout room, new windows, etc). 

A good hoa provides amenities ,security , and increases property value through the maintenance of roads, landscaping etc. 

The downside is the community rules. The rules might prevent short term rentals, regulate landscaping and architectural standards..As  long as you know the ccrs of a community it should not prevent your wholesale projects but from the viewpoint of a homeowner there a many tangible benefits of a hoa 

It's definitely better to not get involved with them at all... They have rules and regulations and fees that you'll have to deal with. Why do that when there are so many SFR's out there?

While living in a condo that was worth in the mid $100s, my wife and I got hit with a $24k special assessment. It was for a major renovation of the exterior of the buildings but still, that was quite a shock.

A good friend of ours got hit with a $4k assessment for exterior painting. After the painting was done we did some measurements and ran the numbers. It worked out to about $40 per square foot.

Here in Houston HOAs are pretty commonplace even in SFR neighborhoods. We don't have zoning here, so the HOA protects the homeowner in much the same way zoning would. No strip clubs going in next door, etc.

Originally posted by @Dana Whicker :

While living in a condo that was worth in the mid $100s, my wife and I got hit with a $24k special assessment. It was for a major renovation of the exterior of the buildings but still, that was quite a shock.

A good friend of ours got hit with a $4k assessment for exterior painting. After the painting was done we did some measurements and ran the numbers. It worked out to about $40 per square foot.

Dana brings up what an economist might call agency costs here... and one issue many don't think about in HOA's is when you have someone else doing something for you (like a manager, even one with a group supposedly overseeing them ), which is common in HOA's, they may not always be working with the same level of interest as the actual person paying the bills--the owner (easy to spend others' money). So alignment of interest around management and especially large projects and costs can be an issue, too.

Originally posted by @Jon Huber :

Parts of the reno (depending on the reno) will need to be approved by the HOA. Moving electrical outlets, changing the plumbing to have a double sink instead of a single, moving walls, etc etc etc... You will have a group of individuals making decisions that will affect your bottom line, sometimes drastically.

That's not a gamble I would be willing to take. But others have had success doing this

This is not 100% accurate. 

If a condo then yes, 100% accurate. If a town home, there might or might not be restrictions on moving electrical and plumbing. If detached SFR, then you should not have the HOA involved in moving things in the interior, but anything on the exterior will fall under needing HOA approval.

Originally posted by @Dana Whicker :

While living in a condo that was worth in the mid $100s, my wife and I got hit with a $24k special assessment. It was for a major renovation of the exterior of the buildings but still, that was quite a shock.

A good friend of ours got hit with a $4k assessment for exterior painting. After the painting was done we did some measurements and ran the numbers. It worked out to about $40 per square foot.

The special assessments certainly can occur. IMO, they result from the HOA management establishing reserves that are insufficient (underestimated replacement cost or inflation not accounted for), or the reserves fail to even consider that certain HOA responsibilities will need replacing, or no reserves whatsoever. Of course, this is one indication of inadequate financial management. You should be able to request things about the reserve study - such as whether the HOA has ever had a study done, how recent, what items were included, is inflation accounted for, whether inflation adjustments have been compared to today's actual costs (imagine cost of materials jumping due to shortage from high demand), etc.

Thanks for the feed back. I am a Certified Fraud Examiner. My partner and I were once hired by a homeowner to investigate his HOA. Could not believe what I read. Worse yet, I could not believe anyone would agree to the terms.

The way that I get this under control is to run for a position on the board as soon as possible.  Of the 3 HOAs that I own in, I only sit on the board of one at the moment, but I think it will be 2 as soon as the annual elections come up on the next one.  The third one is ok - I don't mind the way they run things and I don't feel the need to be involved.

As a CPA, I can look at a set of financial statements and pretty quickly find areas for improvement, calculate a true necessity for a dues increase or a special assessment and do everything possible to keep the community in good shape while allocating funds appropriately.

Don't like your HOA? Be part of the change.

Originally posted by @Linda Weygant :

The way that I get this under control is to run for a position on the board as soon as possible.  Of the 3 HOAs that I own in, I only sit on the board of one at the moment, but I think it will be 2 as soon as the annual elections come up on the next one.  The third one is ok - I don't mind the way they run things and I don't feel the need to be involved.

As a CPA, I can look at a set of financial statements and pretty quickly find areas for improvement, calculate a true necessity for a dues increase or a special assessment and do everything possible to keep the community in good shape while allocating funds appropriately.

Don't like your HOA? Be part of the change.

 LOL .... Yes, be part of the change ... Or buyer beware.... Either way, be involved. 

I understand HOAs are a personal preference.  I'm just trying to understand.   

@Virginia H. ,

There actually are reasons to like HOAs. It all depends on how intrusive the covenants are.

Generally, my HOA cannot tell me what to do inside, only outside. Rentals are allowed as long as the HOA is notified. I actually have two long standing violations: my firewood rack is visible from the street and I have an unpermitted covered, screened deck (something else the ex burned up our HELOC on). The HOA has yet to call me on them.

The biggest upside is that because we have an HOA there is no SSA (Special Service Area) which is really just another form of property tax. So, the property tax is less than it would be with an SSA.

Also, my HOA fee is only $78 PER YEAR! It's gone up $4 in almost 12 years. The HOA only takes care of the subdivision signs, the retention pond and the aeration of the pond. The city provides all other services. Some HOAs provide care of the parkways, street-sweeping, road salt and snow removal among other services. That's where fees are higher. Some subdivisions have more common areas and facilities, also.

On the other hand, property taxes are deductible, HOA fees aren't for a home owner. As an owner of rental property, they count against your operating expenses just like property taxes.

Learning to operate within established limits has it advantages. You don't see any weird looking additions, acoutrements or bizarre color schemes. In the neighborhood where I grew up (no HOA or other restrictions), some folks built a big covered front porch on a Cape Cod. I call it the "Jed Clampett" house because it looks like his house before he moved to Beverly Hills or the cabin in the woods in the movie, "Doc Hollywood". When I was a train commuter, I used to see one house along the tracks in another suburb which was painted lemon-yellow with bright blue trim.