[Dallas-Ft. Worth] Do renters really care about having HOA?

Question

I am a buy and hold investor focused in DFW area. I look for SFHs generally meeting these criteria: (1) great school district (Plano, Frisco, McKinney, Rockwall etc), (2) low tax rate 2-2.2%, (3) No HOA.

I know the vast majority of developments beyond ~2000ish have HOA. So, no HOA is usually synonymous with older. But I see HOA as a $50/month bill and occasional thorn in my side, and I'm not even sure a rental cost or decision would be based on HOA. Pushing HOA bills to the landlord is a stupid practice, but alas, thats where we're at.

To all the realtors out there, is having an HOA even a top 5 concern for renters? Am I foolish for only looking at no HOA props?

Kenneth McKeown · Answer

@Steve Sellers HOA should matter more to YOU than it should matter to your renters. I have a personal preference of not owning any homes with an HOA - or if I ever do, I will be super particular. But you're right - all HOA's are going to be paid to the landlord and now guess what? You as a landlord are back to paying rent. That's the entire premise I hate. There are plenty of opportunities for newer communities with no HOA's - you just have to look. Now the issue you're going to find is low tax rate - that's just not possible really in Texas lol.

Account Closed · Answer

I would never buy into an HOA again.  I have always owned fee simple, but bought a condo in Davis, CA during the crash in the 1990's.  The HOA fees went up about 35% in the first year.  Plus, I dealt with idiots who got on the board with an agenda and started bothering me about potted plants that were fine prior to that person naming herself the landscape warlord.  It's like you end up with a bunch of fellow investors you never chose, who change the rules constantly, you never know when or how much the fees will go up - and - you are praying the homeowners with an agenda who get on the board actually know anything about managing properties or huge budgets.  Never again.  Couldn't wait to get out of it.  Sold it after just a few years, even though it would have been a great rental income-wise.  Just wasn't worth the constant headaches.

Plus, normally, the HOA dues aren't justified when you look at the fact you aren't paying into your equity with that money, and if you put the same amount in the bank instead, you'd have way more money for repairs, etc.  In other words, people justify the cost saying the dues pay for roof repair, landscaping, etc.  But, odds are really good you could get those costs covered for far less money on a SFH.  And, you're trusting the people on the board will manage that money well.  Anybody can get on the board.  You just have to be a homeowner who wants on it.  Their background and education can have zero to do with property or finance management.  I find them scary.

And, condos are hard to get financed - in the case of condos, anyway, so they can be more difficult to sell.

Just my 2 cents.  I know a lot of investors get into them, but I don't like them. I've been too spoiled buying fee simple over the years.

Bruce Lynn · Answer

@Steve Sellers   I think it is really up to you and your opinion and experience.   I almost never recommend condos/townhome type HOAs for investors.  The HOAs tend to eat up your profits and give some amenities to the tenants...like pools and fitness centers, gated parking, yard care, neighborhood cleanup,  etc, that I don't think they are often really willing to pay for or better yet, pay extra.  So the way I often feel is that you are paying for some nice amenities for them and it is coming out of your pocket.   Now what I think you envisioned is the SFH type HOAs in places like Frisco.   Despite what others have said here, it is my understanding that almost all new SFH neighborhoods in Texas will have an HOA.   Not sure the reasoning behind that, but that's what I understand.  Obviously there are exceptions to every rule.

I don't think I've ever had a renter specifically say they wanted to live in a neighborhood with an HOA or no HOA.   That is different than homebuyers during the buying process.  I'd say in most cases I can tell the HOA neighborhoods from the non-HOA neighborhoods when I drive in.   Again there are exceptions, but I would say the HOA neighborhoods seem to be cleaner, neater, more uniform, more organized.  Lawns mowed, no cars in yards, fences similar and in good condition, uniform paint colors, etc.  Again there can be exceptions.  There are nice neighborhoods with no HOA and some HOAs are as tight or active and may not look as good or uniform as others.

I've never seen a study about values over the long haul....like HOA neighborhoods appreciate 1% faster than non-HOA neighborhoods....that would be nice to know.   Or over time do you get better rents?   I'm guessing that is the case, but purely a guess.   On the flip side some tenants may not be as interested or familiar with Rules and Regs of HOA neighborhoods, so you or your property manager/realtor may need to catch them up to speed.  If you are not actively keeping up with the property and your tenant doesn't either, then you can have issues.  Some HOAs want grass mowed frequently or no weeds or no flags and lots of other no(s).  So that can be an issue.   Also as someone else mentioned sometimes they don't allow RENT signs, so depending on where that is, it can be an issue.

To each their own and I've seen lots of investment strategies work...some people want to buy newer houses in the hottest neighborhoods and cities.   Chances are you'll get an HOA there.  Some investors like older cheaper houses.  Probably better chance in all the cities you mentioned of not having HOA.  Some people like multi-family and chance are then you are the HOA.  You'll be the rule maker, not the rule follower.    My thought is $400-$500/year is probably ok...much higher than that and that's probably where you want to live rather than where you want to invest.

Best wishes and good luck.

Steve Sellers · Answer

This "built into rent" part sounds hard to substantiate, or at the least it's a second order effect. Rents are so flat across Collin & Rockwall county for your standard issue 3/2 or 4/3 SFH from 5-20 years of age and there are many variable fixed costs (+/- .5% change in property tax, from $0 to $60/mo HOA fee).

I don't see any agents chiming in to say "HOA subdivisions have higher rents and less vacancy". So I think I'm still justified in focusing effort on identifying deals without HOA, rare as they may be. Appreciate your input Anthoney.

Ronald Rohde · Answer

The reality is that 90% of SFR has some form of a common organization. Whether it is an HOA or condo association is a matter of law and I see many stories critical of different legal structures. Subdivision HOAs often have pretty low annual dues, but can still be quite severe in compliance.

Condo HOAs can also be SFR, attached townhomes, or the more common perception of vertical apartment boxes. These are the most restrictive due to the forced interaction and daily common area usage.

Bottom line, read the Deed Restrictions, read the CCRs, everything you need to know is contained in those due diligence documents and should be appropriately priced in.

Steve Sellers · Answer

@Lucia Rushton thank you for the insight. Makes sense.

Harrison Sharp · Answer

not really, one of my properties is in Plano with no HOA and it will just attract a different type of tenant (more working class). As long as you have a quality property for the type of tenant you’re trying to attract and there is demand it will get rented.

Account Closed · Answer

Echo what @Harrison Sharp said. Factor it into the deal, but don't focus heavily on it. In those suburban communities, HOAs are more readily part of the lifestyle. People like their well-maintained homes in nice school districts with manicured lawns. If you were investing closer towards Dallas (like Richardson or Dallas proper), I could see a justification for avoiding HOAs because renters may not want the hassle of abiding by all the stringent rules.

Lucia Rushton · Answer

@Steve Sellers. There are varying degrees of HOAs, their guidelines and how much they enforce their restrictions. And then it’s the actual people in the neighborhood and on the board.  So many variables that unless you are in the high end market where grass needs to be 1/2in high at all times - it should come down to the numbers and if the cost of the HOA fits in your budget.

In my opinion, yes I advise my clients that a good property in a subdivision with an HOA “ should “ attract stronger applicants.

Anthoney Hanks · Answer

Hello!  First, so far I have not had a client look to rent have concerns about the HOA. That cost is usually built into the rent to cover the cost. Plus, they usually get access to amenities of the subdivision. I have run into an HOA that did not allow leases.

Me personally I would rather have a property in an HOA because they help (supposedly) the appreciation. Usually better areas to live.

Best in your future endeavors!!

[Dallas-Ft. Worth] Do renters really care about having HOA?

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