Wise to invest in community with HOA?

Question

I am looking into investing into a large community with many amenities. There is a $1700 a year HOA for road maintenance, garbage, water, sewer and amenities. I am looking into purchasing it for a short term rental property. It is wise to invest in a property with a high HOA? Anyone have any investments that are similar? There are places in the community that rent from anywhere from $99-$350 a night depending on the home. Wide range of luxury housing to fixer uppers. It has its own pools, ski resort, horse farm, private power boating lake. Only two hours from NYC. It seems like a good place to invest. Just want to make sure I'm not overlooking something.

Thanks!

John Underwood · Answer

I personally like the saying "KISS" Keep it simple stupid. I think having an HOA adds an unnecessary layer of complexity.

They can change the rules on you later even if they allow it now. They may also have provisions for fining you for problems with renters.

Paul Sandhu · Answer

Run!!! Run for zee hills!!!

Joseph Bafia · Answer

I've quickly learned from these forums, my reading of books and what short amount of personal experience I've gained (about 2 years of REI) that every situation is unique and a blanket "that never works..." is not accurate.  I was told to stay away from STR for the very reason of HOA, and although I agree that there is added costs and rules, its not always "they never work".  We own in a NC mountain community (Wolf Laurel if you want to google it) and it has higher HOA as well, but we love it and our STR has done great!  We just purchased a 2nd home 2 months ago in the same community.  I did my research by looking at other listings, seeing their availability, rates, reviews, etc. and we found that the smaller homes offer the best return. Our community sounds like what you described with amenities like golf, skiing, pool, etc. that draw in vacationers.  I think any opportunity is worth looking at, and then make your decision.  I'm actively already looking for my next one in the same place.  Good luck and interested to hear how it goes.

Dennis M. · Answer

no no no , bad bad bad . . Don’t be dumb

David M Trapani · Answer

Depends on your market and cash flow. Generally agree with others here, avoid HOA's, gates, 55+ only or communities w/ "rules". Too much STR risk. Fewer restrictions the better. That said, operated one w/ HOA (condo) in San Francisco. Dues weren't crazy (by SF standards) about $400 mo & covered water, sewer & garbage. Expenses you're going to pay anyway. Huge world-wide STR demand for SF condo with views - it rented constantly.

Although that particular building permitted STR's, many HOA's or condos do not. Must be looked into before purchasing.

It's also true this can be a "hot button" with other residents, and yes, the board of directors can (and sometimes will) ban STR's down the road. SF has difficult STR ordinances. Another issue to consider at the City, County level. As it was located in a high demand area of SF, cash flow and appreciation were very good. After 4 years, City regulatory climate (and HOA board) were becoming more difficult. Ended up with a1031 to single family STR in fast growing community outside Cali.

Teri Feeney Styers · Answer

@Ryan Phillips pros and cons have been address above - but no one has mentioned financials. Does the HOA collect adequate monthly dues to cover their financial responsibilities? Do they have adequate reserves to replace/repair things as they wear out? Have they raised the assessments in small increments over the years to cover inflation - or are they overdue and may slap a big increase all at once?

Michael Baum · Answer

What @Avery Carl said. Down in Piegon Forge etc, a lot of cabins are in a development that has an HOA, but they are dedicated to vacation rentals and the HOA covers the extra amenities that you can offer.

Now, if you buy in a community with an HOA and it is not really a STR place, then I would say no way. To risky IMHO.

Avery Carl · Answer

It really just depends on the market. It does add an extra layer of complexity, but if it's in a vacation rental market where most of the homes in the HOA are vacation rentals, it's unlikely that the HOA is going to suddenly ban overnight rentals. I know in my market, there is enough tourism that a property will rent almost equally as well whether it's in a resort HOA or a standalone property with no HOA.

Jon Crosby · Answer

@Ryan Phillips HOA's are the biggest cash flow killers for STR's in my experience.  That being said, I own one and love that they handle my snow removal, exterior maintenance for our mountain townhouse.  The pools and ammenties are well received by our guests and help create a great experience.  So, I would just be cautious of the really high HOA communities and make sure you account for it in your cash flow analysis and pro formas.  Also, make sure you review the budget/ledger for the HOA to make sure there are not any major assessments coming in the near future.

Wise to invest in community with HOA?

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