HOA Properties - should you generally avoid?

Question

Hi all, I realize this is a broad question but I just wanted to get some general input. Do smart investors generally avoid HOA properties? WSJ had a article over the weekend about how HOA foreclosures are on the rise. Thanks!

Kyle Mccaw · Answer

@David Choi

HOA properties are a mixed bag. I love my neighbors being in an HOA—I’m just not always sure I want to be in one myself.

The upside is that an HOA forces properties to be maintained to a certain standard. That can protect the neighborhood and help long-term appreciation. In a non-HOA neighborhood, you have much less control over the guy next door deciding his front yard is a good place to store three broken-down cars.

For investors, though, be extremely careful before buying in an HOA. Read the governing documents before your option period expires. Some have strict rental caps, minimum lease terms, tenant approval requirements, or even outright restrictions on leasing.

I wouldn’t automatically avoid an HOA. I’d just make HOA due diligence every bit as important as the inspection and rental comps.

Traci McKinley · Answer

From a property management standpoint, the key is understanding the association's rules, approval timelines, rental restrictions, and enforcement practices. A well-managed HOA can protect property values, while a poorly understood one can create unnecessary delays, violations, and frustration for both owners and tenants.

Janice Carter · Answer

@David Choi From my experience as a real estate broker and property manager, I have observed that the subdivisions with the most neglected homes are usually those without an HOA or where the HOA exists but doesn't enforce its bylaws. Many of those neglected properties are also investor-owned. For that reason, I would rather own a rental in an HOA-governed community that has a cap on investment properties and I would also want to confirm that the HOA is actively enforcing its bylaws, not just collecting dues. Like anything else, it comes down to evaluating the specific HOA rather than avoiding them altogether.

Jim Johnson · Answer

I wouldn't avoid HOA properties across the board. We've managed both HOA and non-HOA properties, and there are well-run associations just as there are poorly managed ones.

What matters more is doing your due diligence. I'd want to review the financials, reserve study, meeting minutes, pending special assessments, and the association's enforcement history before making a decision. A healthy HOA can actually help protect property values, while a poorly managed one can create unexpected costs and operational headaches.

Richard F. · Answer

COA/HOA properties should not be considered unless you have an actual, clear, understanding of the specific governing documents for the project you are interested in, and a very thorough understanding of the Financial documents, including most importantly the Reserve Funding Plan. Many states do not even require a Reserve Plan, although most project By-Laws do suggest it in some manner.

Failure to understand any of these documents can cost you many thousands of dollars in the next fiscal year of the project, or several years down the road. Board members frequently do not fulfill their fiduciary duty to properly plan the finances to accomplish their mandate to maintain, protect, and preserve ALL common elements. Board members, in many cases, can change the rules with regard to allowing, or limiting, rentals within the project. Many Board members believe "their job" is to "keep the monthly fees low", and defer maintenance items as they age, or hire low quality contractors that often do not solve problems.

There are SOME good, well run projects out there, but if you don't read and understand the critical docs and reports, you cannot tell one from another until it is too late. And never, ever, compare the monthly fee of one project, to a "similar" project in the area, or any "average" number, as that is a completely useless exercise. Every project is different, with different Boards, different amenities, different configurations and construction types, different definitions of "common areas" and "owner responsibilities". There simply is NO comparison.

Mike Fisher · Answer

I don't avoid HOA rentals, but I underwrite them as a landlord, not just as a buyer, and that changes what I look at. I have invested in Chicago-area rentals since 1991 and manage in the south and southwest suburbs, so here is the operational side the acquisition checklist above misses.

The three things that bite landlords specifically:

1. Rental caps and waitlists. A lot of associations limit the percentage of units that can be rented, sometimes with a waitlist you have to join before you are allowed to lease. Buy planning to rent and you can find the cap is already hit, so you are sitting on a unit you cannot legally rent yet. Get the current rental status and your grandfathered rights in writing before closing, because a board can amend the rental rules after you own it.

2. Fines and violations land on the owner, not the tenant. If your tenant sets the trash out on the wrong day or parks where they should not, the HOA fines the owner of record. Your lease has to incorporate the HOA rules by reference and pass those fines through to the tenant, or you absorb them. I attach the rules as a lease addendum and have the tenant sign it.

3. Approval timelines slow your turnover. Many associations require tenant registration or an approved lease before move-in. That lag is dead vacancy, so build it into your turn math and start the HOA paperwork the day you have an approved applicant, not the day they want the keys.

One more that people skip: on a condo, read the master insurance policy, not just the reserve study. Know whether it is walls-in or bare-walls and what the master deductible is, because that deductible can get passed back to you on a shared loss, and you size your own dwelling and liability coverage around it.

Net: a well-run HOA with honest reserves is fine to own, and the foreclosure stories in the news are usually the deferred-maintenance, underfunded projects Richard described. Just underwrite it as an operator too, not only as a purchase. Happy to compare notes. I run MF CashFlow Property Management out of New Lenox, IL through M Property Group LLC and deal with all of this weekly.

David Choi · Answer

Thank you for all the helpful input! You are all confirming my concerns about HOA properties/condos.

Theresa Harris · Answer

There are pros and cons of HOA- and for HOA are you including condos? Neighoubrhoods with a HOA (ie single family home, person fully owns their own property) are one thing. condos (strata properties) are another. Condos may cost less to buy, but the condo fees are quite high and eat up a lot of money each month. Single family homes may cost a bit more, but you have your own property and the monthly costs (proportionately) will be less. When I was looking for my last rental, I looked at a condo and single family home. The single family was about $60K more (both were in the same area, similar age and comparable in terms of rent), but after running the numbers, the condo cost more because of the condo fees each month. Plus with condos, rules can change, fees can increase, etc.

HOA Properties - should you generally avoid?

HOA Properties - should you generally avoid?

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