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Investment Properties and HOAs

Homeowners Association Paperwork on a DeskAs a Meadowlakes rental property investor, the possibilities are that the question of buying a property with a Homeowners Association (HOA) will come up sooner or later. This is particularly the case if you invest in single-family properties built in the last 20 years, where Owners Associations are very common. The most important thing to remember about buying a property with an HOA is that they have both positive and negative sides.

The increased oversight and restrictions of owning a property with an Owners Association can be both an advantage and, sometimes, create a headache or two. So, before you invest in a rental with an Association, consider these pluses and minuses. You can then make the best selection for yourself.

HOA Defined

At the start, it is recommended to learn what an HOA is and what they do. HOAs get a lot of criticism and bad press, not all of which is legitimate. This is because HOAs exist mostly to help maintain certain standards within the community. While the governing boards of some Associations are made up of community residents, others are overseen by the community’s developers; some have professional management, while others do not.

All Owners Associations have governing documents called covenants, conditions, and restrictions (CC&Rs), which spell out the rules and requirements for property owners in the community. After purchasing a property with an HOA, you instantly become a member and are must pay any related Association assessments. These assessments are required to maintain common areas and any other amenities the community may offer, such as parks, recreation centers, and so forth.

No two Associations are identical, so it is imperative to do your research and examine the specific HOA documents for any property you want to buy.

Potential Benefits

Because HOAs can vary widely, it is achievable to purchase a single-family property with an HOA that accompanies multiple benefits.

As an example, some HOA communities offer beautiful, private amenities such as swimming pools, parks, playgrounds, tennis courts, or a recreation center or gym. Giving a renter access to these amenities (if allowed by the governing documents) can be a big selling point for a rental house, something that may make finding and keeping tenants easier.

Another wonderful aspect of some HOAs is that they may provide a common area and sometimes even front yard maintenance. Depending on the community, they may even provide trash removal services or snow removal. Letting the HOA handle even a few maintenance tasks may reduce the workload of a Meadowlakes property manager.

Numerous individuals like residing in communities with HOAs since they seem to be cleaner and maintained better. This is not only improving property values, but it can also be a major draw for prospective tenants.

Potential Disadvantages

Obviously, there are also several possible pitfalls to having a rental property in an HOA. Typically, homeowners who are unhappy about their Association feel that way because they’ve either decided they don’t want (or don’t want to obey) the community rules or don’t like paying their assessments. Yet, the primary concern for property investors is that sometimes HOAs may set restrictions on your ability to lease the property you own.

Let’s say several Associations are now prohibiting owners from using their investment properties as vacation or short-term rentals. Some HOAs even restrict or prohibit long-term rentals in the community. There may also be rules about how long the property owner must occupy the house before renting it to others.

An HOA can also cause headaches for rental property owners by requesting special assessments for unplanned costs or requiring property owners to conduct additional tenant screening. These are just a couple of situations, but because every HOA is different, you may encounter all sorts of restrictions, major and minor. Association assessments will take a chunk out of your cash flows, and it’s not always possible to raise the rent enough to cover the amounts fully.

Assume you choose to buy a property with an HOA. Due to this, you’ll also need to budget extra funds for special assessment costs, which don’t come up too often but can be large amounts, especially if the community is older and in need of repair or replacing big-ticket items.

Lastly, deciding whether to purchase a single-family rental in an Owner Association depends on whether the pros outweigh the cons. It also depends on the particular community and HOA and how likely the governing board is to meddle in the leasing process. This makes it critical to talk to other property owners in the area, read the documents attentively, and know exactly what you are getting yourself into. This is excellent advice for any purchase, especially when buying a property with an Owners Association.

Do you want a local expert’s advice on a property or community? We are here to serve you! Communicate with Real Property Management Highland to learn how we help rental property investors like you find profitable investments.

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