Owning a condominium or a townhouse in a complex that is run using a Homeowner’s Association (HOA) can be frustrated by rules and regulations adopted by its HOA; however, owning an HOA property also provides investors with a number of distinct advantages. Today, we’re going to help alleviate some concerns you might have when it comes to investing in an HOA property.
Pros of Investing in an HOA Property:
- Almost every complex governed by an HOA charges monthly fees that go towards the general and administrative expenses involved in managing the property. These funds also make possible a number of desirable amenities such as workout rooms, swimming pools, and movie rooms. Investing in an HOA property governed by a Board of Directors means that you or your tenant do not have to perform much of the upkeep associated with the property, which leaves you more time to focus on future real estate investments.
- HOAs will also help you in terms of stabilizing the rental value of your property. Many HOAs limit the number of properties that can be made available as rental units at any given time, which helps keep the supply low (and the price up).
- HOAs can also act as pseudo-property managers. For example, if your complex does not allow pets, the HOA will alert you if your tenant is keeping a pet in your unit. This extra level of oversight can be a real plus for absentee landlords. Note, that you are also responsible to let the tenant know of the rules in advance as you are responsible if they break any.
Cons of Investing in an HOA Property:
- The monthly dues payable to the HOA are the main drawback of investing in HOA properties. However, with proper budgeting this obstacle can be easily overcome; simply add this expense to your mortgage, property taxes, and other monthly expenses.
- Some people do not want to live in a community governed by an HOA because they can be perceived as overbearing, or simply because some people don’t like to be constrained by HOAs rules.
- Most HOAs use a system of fines and penalties to make sure that members follow the rules explicitly, and your tenant’s actions can make you liable for these fees.
- Just as the limitation on rental units can be a positive to investing in an HOA community, it can also be a negative. If you are not able to obtain the necessary approval to lease your unit, it may cause strain on your cash flow. However, many associations have exceptions, such as hardship provisions, that can allow you to circumvent the usual restrictions. You need to check with the HOA’s policies regarding leasing before investing in these types of rental properties.
The bottom line is that when you are looking for an apartment, condominium or townhouse to purchase, make sure that you find out all of the restrictions put in place by the HOA so you know what you are signing on for when you agree to the purchase. Also, be aware that HOA policies can change over time, subject to the elected board of directors and the overall sentiment of the voting community; HOAs are their own form of private government.
While there are many other factors to consider, the above points should help get you thinking about the pros and cons of investing in HOA properties.