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Investment Properties and HOAs

Homeowners Association Paperwork on a DeskAs an Elkins rental property investor, the likelihoods are that the question of buying a property with a Homeowners Association (HOA) will come up sooner or later. This is especially true if you invest in single-family properties built in the last 20 years, where Owners Associations are very common. The biggest thing to bear in mind about buying a property with an HOA is that they come with both benefits and drawbacks.

The added 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 pros and cons. You can then make the decision that is right for you.

HOA Defined

First, it’s important to understand what an HOA is and what they do. HOAs get a lot of criticism and bad press, not all of which is deserved. This is because HOAs exist mainly 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 lay out the rules and requirements for property owners in the community. When you buy a property with an HOA, you automatically become a member and are required to pay any related Association assessments. These assessments are used to maintain common areas and any other amenities the community may offer, such as parks, recreation centers, and so on.

No two Associations are alike, so it is very important 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 possible to purchase a single-family property with an HOA that comes with a number of benefits.

For 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 great benefit of some HOAs is that they may offer common area and sometimes even front yard maintenance. Depending on the community, they may even include trash removal services or snow removal. Having the HOA take over even a few maintenance tasks can lighten the load of a Elkins property manager.

Many people like living in communities with HOAs because they tend to be cleaner and maintained better. Not only is this better for property values, but it can also be a big draw for prospective tenants.

Potential Disadvantages

Of course, there are also a few potential disadvantages to owning a rental property in an HOA. Most of the time, homeowners who are unhappy about their Association feel that way because they’ve either decided they don’t like (or don’t want to follow) the community rules or don’t like paying their assessments. However, the biggest concern for property investors is that sometimes HOAs will place restrictions on your ability to lease the property you own.

For example, many 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 create 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 few examples, but because every HOA is different, you may encounter all sorts of restrictions, large and small. 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.

Suppose you do choose to buy a property with an HOA. In that case, 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.

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

Would you like a local expert’s advice on a property or community? We can help! Contact Real Property Management First Choice to learn how we help rental property investors like you find profitable investments.

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