Townhouse with no HOA fee?

Question

I've found a great townhouse in a great location.  
This townhouse meets my general criteria (2% rule, 50% rule etc.) and does not have any HOA fee.  So, any repair (exterior walls, roof etc.) would be my responsibility.

I am a buy and hold investor and have never invested in a townhouse before (only SFHs).

My question is this; do you think the fact that this house has no HOA fee is going to be a problem down the road. For example, I spend money to keep the property well maintained and look nice, and my neighbor defers any maintenance etc.?

Also, being an out-of-state investor, I cannot be actively involved in the HOA.  Do you think it will be a problem in the future because HOA may impose some crazy restrictions (no renter or start charging an excessive HOA fee etc.)?

Any other things I should be mindful of when I purchase a townhouse?

Lynn McGeein · Answer

Yes, townhouses with no HOA will be an issue down the road.  We owned 2 townhouses in an area without an HOA, and unless you have great neighbors, watch out.  We sold them both pretty quickly, about 3 years, I think.  One had a rental next door where PM let like 17 people move in, took months to contact the real owner out of state as PM didn't care and police couldn't prove it.  Getting someone to put a new roof at the same time as you is a pain, so you end up just having yours done and then the others look even worse.  No uniformity in color or landscaping, etc.  Do not recommend it.   I like our properties in the HOA's.  They haven't raised the fees much, like $10 per year, although 2 of them are ricidulously strict (think it's because they don't like rentals in their neighborhood.)   In my lease, it says tenants will comply with all HOA rules and are responsible for any hearings and fines that may occur, and I get the notices, not the tenants, so I know exactly what is going on and if it has been dealt with.  I scan them to my property manager, she makes sure the tenants comply and attends the hearing or contacts the board personally to make sure it's covered.   It's not a bad deal, kind of an extra eye on your property, so I'm okay with it so far.

Mike H. · Answer

I'd rather have a townhome with no HOA than one with. 
I don't typically consider townhomes but I do have one. Its the only property I've been able to buy in my town so the proximity made it worth the added risk.

But HOA's can get pretty scary. They could just as easily pass a rule that forbids renting. Then what are you going to do?

A friend at work owned one and thats what she got hit with. She had no choice but to sell it - and not at an opportune time.

The other fear would be the HOA becomes a liability. If the HOA is sued or does something silly, it may have to jack up the fees considerably or ask that you pay a big chunk of cash to cover something.

As far as bad neighbors with no HOA, you can get that with an HOA. The question is if its in a good area or not. To me, the more expensive the area is, the less likely you're going to have to deal with nonsense next door. Not to say you may not be the one that brings in the nonsense with a bad tenant but I still believe I'd rather have a townhome with NO HOA than one with.

Naga A. · Answer

Mike Hasemann & Scott Williamson

Thanks for your comments.  Your comments are really helpful.

Scott W. · Answer

Another problem w/ HOA fees - if owners don't pay their HOA, guess who gets stuck with the legal/unpaid HOA fees? That's right, you.  Now, I know they can attempt from the bank/new seller but I believe they can only take up to 6 months of delinquent HOA fees in our state.

Best investment for landlording is SFH or duplexes/multi families, imo.

Naga A. · Answer

Lynn M. Thanks.  That was exactly my concern.  My inclination was to stay away from properties like this (townhouse with no HOA) but I thought there may be some good opportunity.

Naga A. · Answer

Tracey Williams

I do not plan to refinance or sell in the future (well at least near future) and buy with cash.  Does that mean an opportunity for investors like me because there would be not much competition and possibly a big discount for properties like this (townhouse without HOA)?

I am just concerned about future maintenance issues with neighboring units.

Tracey Williams · Answer

In my neck of the wood: all townhouse/ attached condos have HOA fees and they are very high.
Banks and HML stays away from them because it's sometimes hard to resell after foreclosing. If you are planing to refinance or sell in the future, I'll suggest you do more due diligent before you buy.
Good luck.

Naga A. · Answer

Steve L. Thanks.  
Ok. I might have misunderstood and this townhouse may not have an HOA.

Do you feel comfortable investing in this type of properties?  It is attached to neighboring units and shares the same roof (or is it?).  Even if my unit is well maintained, it would be difficult to rent if neighboring units look run down or a roof is leaky etc. in the future.

-Financing is usally tough on properties in this situation.

Why is this? Banks do not finance for properties like this?

Steve L. · Answer

How can it have an HOA with no fee?  I would think it has no HOA at all.

I cannot seem them imposing any bad restrictions in during this market.  Financing is usally tough on properties in this situation.

Naga A. · Answer

Anybody?  Nobody invests in townhouses here?

Townhouse with no HOA fee?

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