Keys things to look for when looking at HOA properties!

16 Replies

good morning ladies and gentlemen!

I heard lot of horror stories about HOAs. In order to decrease the chances of getting into a bad HOA community. What are some major key things to look for when looking at a property that has HOA?

Thanks in advance!

To me the real concern is it a "BIG" HOA vs "little" HOA.

I would categorize all condos in the "BIG" HOA. If it is a master planned community with a large common areas (perhaps a pool) and extensive landscaping could also be in that category. In both situations you have a $100+ per month expense that can go up or down at the whim of the HOA, so you have little control of your financials. They may have limits on the number of rental properties and often are militant about neighborhood rules.

The "little" HOAs don't scare me at all.  These are the HOAs that collect ~$100 per year to maintain minimal common areas such as neighborhood entrance landscaping.   The "little" HOAs usually aren't concerned if your tenant lets the grass get long for a couple of weeks and they don't make you get pre-approval on color selection for your front door.

I'll agree with and take a bit of an exception to what Gregg Scott wrote. We used to live in Houston TX, no zoning so every place had an HOA. We owned properties in some big, 900-2000 homes and a couple of small, fewer than 100 homes. I find it hard to generalize except on a couple of things.

If there is an outside, read professional management company in place they charge a fee and will have a minimum dollar amount that they will accept for monthly/annual fees. We now live in a 23 home HOA in Colorado so obviously we are self managed.

The outside management companies are always looking to goose their income so they usually drive the subdivision weekly. If your grass or anything else is out of spec they'll send you a letter and charge YOU $75.00 or more. They are relentless and will file a lien at the earliest date. This allows their attorney to goose her income as well.

As far as being "relentless" in enforcement that is ONE OF THE MOST IMPORTANT THINGS MANAGEMENT HAS TO DO. If they let you go on leaving your wheelie bins out for 3 days, leaving construction debris on your lot, letting your grass grow or parking unregistered cars (all violations in our HOA) and then I come along and add a garage to my property that encroaches on the property line (but still within city code-this is Colorado now) and the HOA tries to stop me they may well be SOL. Enforcement of HOA rules falls under civil law. Under civil law the rule of "laches" applies. What that means is that if you rest on your rights (to stop the bad neighbor with the violations I mentioned) you may well LOSE YOUR RIGHT to enforce against me.

The place I live now allowed the above situation to develop over years. Fortunately, or unfortunately, in a small HOA everyone eventually serves on the board. I was voted on within a year of moving here and a year later, the annual general meeting was scheduled when we were going to be at my wife's 50 year high school reunion, they voted me in as president.

As soon as I got back in town I called a board meeting and started action against the offending neighbor. I also sent a letter to everyone with the notes from the general meeting-required by our by-laws but not often done, and a quick summation of things that were not allowed. Nobody except me had ever read the 36 pages of our CCRs. 

Three neighbors told me the offending neighbor would never comply and one even said, "but he's a good neighbor". I pointed out that by definition he wasn't a good neighbor and that he'd comply when the judge told him too. Within a month he was working toward fixing his violations.

Read the rules carefully because some HOAs do not allow non occupant owners to serve on the board and in my experience board service can be very important. Long story for another day.

BTW, I've seen some good and some really bad management companies. 

Yes big HOA vase on your descripstions. Was worrying about getting hit with assessment fees and others . and  posted by @Greg Scott :

To me the real concern is it a "BIG" HOA vs "little" HOA.

I would categorize all condos in the "BIG" HOA. If it is a master planned community with a large common areas (perhaps a pool) and extensive landscaping could also be in that category. In both situations you have a $100+ per month expense that can go up or down at the whim of the HOA, so you have little control of your financials. They may have limits on the number of rental properties and often are militant about neighborhood rules.

The "little" HOAs don't scare me at all.  These are the HOAs that collect ~$100 per year to maintain minimal common areas such as neighborhood entrance landscaping.   The "little" HOAs usually aren't concerned if your tenant lets the grass get long for a couple of weeks and they don't make you get pre-approval on color selection for your front door.

Yea I’m just worried about hidden fees.

thanks Brother!Originally posted by @Frank Adams :

I'll agree with and take a bit of an exception to what Gregg Scott wrote. We used to live in Houston TX, no zoning so every place had an HOA. We owned properties in some big, 900-2000 homes and a couple of small, fewer than 100 homes. I find it hard to generalize except on a couple of things.

If there is an outside, read professional management company in place they charge a fee and will have a minimum dollar amount that they will accept for monthly/annual fees. We now live in a 23 home HOA in Colorado so obviously we are self managed.

The outside management companies are always looking to goose their income so they usually drive the subdivision weekly. If your grass or anything else is out of spec they'll send you a letter and charge YOU $75.00 or more. They are relentless and will file a lien at the earliest date. This allows their attorney to goose her income as well.

As far as being "relentless" in enforcement that is ONE OF THE MOST IMPORTANT THINGS MANAGEMENT HAS TO DO. If they let you go on leaving your wheelie bins out for 3 days, leaving construction debris on your lot, letting your grass grow or parking unregistered cars (all violations in our HOA) and then I come along and add a garage to my property that encroaches on the property line (but still within city code-this is Colorado now) and the HOA tries to stop me they may well be SOL. Enforcement of HOA rules falls under civil law. Under civil law the rule of "laches" applies. What that means is that if you rest on your rights (to stop the bad neighbor with the violations I mentioned) you may well LOSE YOUR RIGHT to enforce against me.

The place I live now allowed the above situation to develop over years. Fortunately, or unfortunately, in a small HOA everyone eventually serves on the board. I was voted on within a year of moving here and a year later, the annual general meeting was scheduled when we were going to be at my wife's 50 year high school reunion, they voted me in as president.

As soon as I got back in town I called a board meeting and started action against the offending neighbor. I also sent a letter to everyone with the notes from the general meeting-required by our by-laws but not often done, and a quick summation of things that were not allowed. Nobody except me had ever read the 36 pages of our CCRs. 

Three neighbors told me the offending neighbor would never comply and one even said, "but he's a good neighbor". I pointed out that by definition he wasn't a good neighbor and that he'd comply when the judge told him too. Within a month he was working toward fixing his violations.

Read the rules carefully because some HOAs do not allow non occupant owners to serve on the board and in my experience board service can be very important. Long story for another day.

BTW, I've seen some good and some really bad management companies. 

In my HOA, the management company seems to only send complaint letters to landlords and leaves the owner occupants alone.

Do your due diligence on what the HOA documents say, buy you'll find that it really has more to do with who's running things and whether they're nice people or not.

Right I will do my h.w on management before buying! Thanks brother! Originally posted by @Collin Garbarino :

In my HOA, the management company seems to only send complaint letters to landlords and leaves the owner occupants alone.

Do your due diligence on what the HOA documents say, buy you'll find that it really has more to do with who's running things and whether they're nice people or not.

@Jerry Cinor be sure to ask for the CC&R’s, Bylaws, etc. Some communities only allow a certain percentage of landlords to homeowners. Don’t get stuck buying an investment property and not being able to rent it out! Check out the HOa’s financial statement too.

Exactly answer I was looking for. I will do my head.w before buying into hoa community. thanks a lot Brother!
 
And what does “CC&Rs” mean? posted by @Ken Nyczaj :

@Jerry Cinor be sure to ask for the CC&R’s, Bylaws, etc. Some communities only allow a certain percentage of landlords to homeowners. Don’t get stuck buying an investment property and not being able to rent it out! Check out the HOa’s financial statement too.

@Jerry Cinor CCRs means: Covenants, Conditions & Restrictions - they are the governing documents of your community that all property owners must abide by and vote to change. What nobody mentioned above was the financial stability of your HOA. Ask to see their books. Are they collecting enough in monthly or yearly dues to take care of the day to day expenses? Are they also "reserving" monies for future major repairs? If there are buildings and pools and that sort of thing can they replace a roof or take care of a major pool repair without a special assessment? The dues should be raised every few years to account for inflation etc.

Thanks you for clarifying what CCRs means. And for an amazing answer. I was worried about assessment fees and rental rules. Last thing I want to do is buy a property  and can’t rent it out. The BP community is truly amazing. very knowledgeable people in here. thanks a lot guys. Special thanks Teri.
 posted by @Teri S. :

@Jerry Cinor CCRs means: Covenants, Conditions & Restrictions - they are the governing documents of your community that all property owners must abide by and vote to change. What nobody mentioned above was the financial stability of your HOA. Ask to see their books. Are they collecting enough in monthly or yearly dues to take care of the day to day expenses? Are they also "reserving" monies for future major repairs? If there are buildings and pools and that sort of thing can they replace a roof or take care of a major pool repair without a special assessment? The dues should be raised every few years to account for inflation etc.

1) in my market, got to be 100+ units minimum. Anything less, assessments get too high too quick. With more units, bigger budgets, making it easier for the HOA to absorb (not always tho)

2) having someone on the inside is key, they can share with you information as to the true health of the HOA and politics.

3) FINANCIALS - Need to see balance sheet and P&L. Looking for operating cash, reserves, low A/R. On P&L, I want to see previous year if possible, then compare to current year, and focus on YTD actual expenses compared to YTD Budget - I then look at variances to see where the “leaks” are. This matters because if I’m getting financing, or to ensure the association is solvent. Under (very) rare circumstances do you buy units within HOA with bad numbers. You ultimately want the HOA to be very healthy so whenever you want to sell one day - your chances are higher, and the property at large is likely to be well kept and maintained

4) identify the politics - can you rent? Board make up, understanding the do’s and don’ts via the Dec

Balance sheet and law suits.

Great answer.

thank you for feedback Brother!

Originally posted by @Christopher Leon :

1) in my market, got to be 100+ units minimum. Anything less, assessments get too high too quick. With more units, bigger budgets, making it easier for the HOA to absorb (not always tho)

2) having someone on the inside is key, they can share with you information as to the true health of the HOA and politics.

3) FINANCIALS - Need to see balance sheet and P&L. Looking for operating cash, reserves, low A/R. On P&L, I want to see previous year if possible, then compare to current year, and focus on YTD actual expenses compared to YTD Budget - I then look at variances to see where the "leaks" are. This matters because if I'm getting financing, or to ensure the association is solvent. Under (very) rare circumstances do you buy units within HOA with bad numbers. You ultimately want the HOA to be very healthy so whenever you want to sell one day - your chances are higher, and the property at large is likely to be well kept and maintained

4) identify the politics - can you rent? Board make up, understanding the do’s and don’ts via the Dec

I will make sure of that. and do all my due diligence

Thanks Brother!
Originally posted by @Sam Shueh :

Balance sheet and law suits.

Make SURE you have voting rights.  Do NOT buy in a community where you do not get to VOTE on major decisions.

@Teri S. is absolutely right. Today we were reviewing the Condo Financials a realtor sent over. THe income looked as if they were receiving their monthly HOA fees but the end had a negative balance. The Accounts Receivable was high. The A/R page at the end listed the individual units but 5 out of 12 had arrears and 2 looked like they were behind a year. I still don't know what the deal was but it is not for me. My realtor said the other realtor refused to get answers for us. I would like a lesson on how to understand the condo docs. I agree with @Christopher Leon that a small condo association has to make up the difference and the piece of the pie is much larger. We will look at bigger associations.

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