Should you avoid buying a home in an HOA community for investment?

13 Replies

If you're buying a home from out of state in hopes of renting it out...does it make sense to stay away from homes that have significant HOA payments? Or do these generally get passed onto renters? If so, do these renters generally accept that HOA's will be folded into the rent?

@Tony T.  

The renters will not be paying the monthly HOA, you will and this will kill your cash flow. Also make sure you can even rent the home out as some HOA dont allow for renting out of the homes.

Curt Davis, Real Estate Agent in TN (#00321765)

See my response to your other post. In short, a HOA is a legal dictatorship, and as such I avoid them religiously.

@Tony T. A few of our rentals are in HOA neighborhoods. There are not many pluses.

As Curt said, check your cash-flow first, then the CCRs to see if tenants are even allowed.

Rental comps with the HOA will generally be higher to accommodate the dues. If you have non-HOA rental areas nearby that poses a competition problem. And you would never want the tenant responsible for paying direct, since non-payment usually results in a lien against your property.

As to the legal dictatorship angle, when your tenant parks a boat in the side yard, or forgets to take out the trash, or has friends over for a party... expect a call from the Association.  And they will want YOU to fix it immediately. But then the tenant will tell you five other people are doing the same thing... then the Association will have their lawyer send a letter and threaten a lien for the legal fees... You get the picture.

I generally don't have a problem with "low-cost" HOAs. The ones that charge $500 a year generally don't do much other than maintain the gated entrance.  But the ones with "significant" dues have enough amenities or services (and a big enough budget) to be a general pain in the neck.

Be careful, even if an HOA allows rentals now, the HOA can decide to no longer to allow rentals in the future.

Avoid HOAs and Unions, they are evil and have no place in the USA.

Joe Gore

Funny, @Joe Gore !!!

I agree with others though - I stay away from all HOA properties.

Where I invest, HOA's are the norm. SFH's are typically owner occupied and most tenants would not even consider renting an SFH. Tenants want to be in HOA settings where all exterior stuff gets taken care of. Landlords like them too because all exterior stuff gets taken care of.

I don't like HOA's for all the above reasons but (1) finding a tenant to rent a SFH would be that much harder and I would deal with higher vacancies and (2) I always make sure I am active on the HOA's (have someone attend the meetings on my behalf with a proxy to vote) and (3) I do extensive due diligence on the HOA prior to making an offer.

If you are a busy professional or don't invest locally, then HOAs can save you a lot of time.

In large, multi-unit buildings, HOA fees tend to reflect building amenities quite fairly because there is always a group of people who are proactive with the board. In a smaller building there is a higher probability of mismanagement, corruption and abuse of authority; so it is not a place to skip on due diligence. Go over the financials, talk to the property manager about the building's condition, special assessments, reserve levels and auditors rotations. Get to know the board officers by attending at least one of their meetings. And, by all means, show them that you're proactive.

Everything I own is in an HOA.

When I buy re usually a pretty cost efficient way of taking care of big maintenance issue. If you but for 're going to count the cost of the HOA you have to count the value they bring. Frequently this includes outside building maintenance including the roof, grounds maintenance, and building insurance. Using economies of scale they're usually better able to do large things for many buildings than each person doing their own thing.

In short, a well run HOA can keep a community from deteriorating. Essentially you have an unpaid partner trying to keep the community in good shape. For that reason I go out of my way to become a known quantity to every HOA where I buy. I'm on a first name basis with most all of the board members.

Some don't like the loss of control of owning in an HOA, but for me it's well worth it. The value they bring is worth much more than the monthly fee.

IMHO I feel like a lot of people discount HOA fees as throwing away money. As if it is going directly in someones pocket. No, that money acts as reserves to improve, maintain and provide services to the property. Many of which will also be required on non-HOA properties. HOA's MAY be less efficient/flexible, but don't discount them completely.

I own two homes in a hoa community. I have to pay the hoa fees with takes from your profits and also they send me vialation letters for almost anything they can. 

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