To HOA or not to HOA?

Question

Hello - I am planning on purchasing a SFH and:

- Doing a mixture of Airbnb / Househacking

- Building an ADU/Guest house to STR

Im noticing most homes in my price range are HOAs. Is it a bad thing to buy a home with an HOA (even if its like $50/mo) if i want to be able to build on the property?

Thanks

Mackaylee Beach · Answer

Homeowners' associations enforce rules regarding property usage. By ensuring that all homeowners adhere to certain guidelines, such as maintaining their homes and yards, the overall aesthetic appeal of the neighborhood is preserved.

On the other hand, some disadvantages of HOAs include the potential for restrictive rules and regulations. You may feel limited in to making changes to your property or may disagree with certain decisions made by the association. Additionally, there are often fees associated with belonging to an HOA, which can be an added financial burden.

Ultimately, it comes down to your goals and deciding which choice will most effectively support them.

Theresa Harris · Answer

I'd avoid HOAs.  They will affect what you can and can't do and will affect the home you build (ie exterior finish, landscaping, colour, etc).

Conner Olsen · Answer

No HOA. Rules can change and ruin your investing strategy.

Rick Albert · Answer

HOAs are great for owner occupied properties. SFRs with HOAs I have noticed are in much nicer neighborhoods than ones without (I'm in Los Angeles).

Most are going to have rules against what you are proposing to do. If they don't, they may later on. STRs are getting banned in a lot of HOA communities and building ADUs is a hit or miss depending on where.

For your goals, I would avoid HOAs just because of what you intend to do. If you were to do a straight rental, then it depends on how the numbers work.

Lynn McGeein · Answer

@Shawn Blake even if HOA allows STR and/or ADU now, a vote of owners can enact new restrictions that you are then forced to follow.  If it’s worth it as a long-term rental or there’s good appreciation in neighborhood, may be worth the risk of moving forward with back-up plan to sell or long-term rental if HOA restricts ADU or STR in future.  Otherwise not worth the risk. Note while HOA may allow ADU, might only for be for family, like in-law suite, no rental, so read docs carefully.  We’re fine with our HOA’s but we have long-term leases and prefer multi-year tenants.

Alecia Loveless · Answer

@Shawn Blake The HOA fees in my area are so high it’s a barrier to entry. Personally I avoid them because I have a problem with other people telling me what I can and can’t do with my property.

Walter Moneypenny · Answer

Hi,

To add on to the previous responses, you definitely need to look at the CC&R's. If you are purchasing in Maricopa County, the CC&R's are on the County Recorder website. Many HOA's do not have public access to their documents on their websites. Since the CC&R's are a recorded document, they are available at the County. Other documents like Rules and Regulations, Bylaws, Design / Architectural Guidelines are usually not recorded. Changes to the rental status of a unit, such as restricting rentals would be in the CC&R's. There are a lot of variables that make up the HOA dues. Condos and townhouses usually are higher because the HOA owns more of the common areas.

In Arizona there are laws that limit the percentage increase on HOA dues for planned communities to 20% per year, unless there is a majority of the HOA that votes for more than 20%. (ARS-33-1803.) No similar statute for condos.  (I am not a lawyer, just a 20+ year former HOA manager).

Mason Weiss · Answer

Hey Shawn, I'm assuming that at the $50 level for HOA monthly dues the HOA would not be that restrictive for different rental strategies. What I can assume is most AZ HOA's don't allow building new structures above the height of the exterior block walls. This would prevent you from building an ADU or guest house. Trying to go no HOA would be your best bet if you really wanted to puruse this strategy.

Noah Bacon · Answer

All great responses to your question, and completely agree with everyone above.

I have 2 properties in HOAs and the barrier to entry was substantially lower in my market than a single family home not in an HOA. I have restrictions on both that do not allow any sort of "vacation rentals" and a minimum 6 month lease requirement. Analyzing these properties, I knew my only option would be a long term rental. If you are able to go onto the HOAs website and download their CCRs, you should be able to get a clear idea on what their rental policies are.

You also mention the low fee of $50 / month for HOA fees and though it may look very cheap on the surface, you have no idea how the communities financials have performed over the last few years and you may have HOA fee increases annually. When I bought my first property, the HOA fees were $166 / month and this year they jumped up to $329 / month! You can dive into the specifics of that here if you'd like to see why they jumped so high YoY.What I'm saying is, HOAs are a lower entry point of course, can be lucrative if you analyze the deals as traditional long term rentals....BUT, you ultimately have little to no control over specials assessments, HOA fee increases, and even rule and regulation changes that can impact your investment.

To HOA or not to HOA?

Most Popular Reply