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Investment Properties and HOAs

Homeowners Association Paperwork on a DeskAs a Hanover rental property investor, there is a possibility that the issue 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, when Owners Associations are very common. The most significant thing to know about buying a property with an HOA is that they have both perks and cons.

The additional oversight and restrictions of owning a property with an Owners Association can be both an advantage and, sometimes, create a headache or two. As a result, before you invest in a rental with an Association, assess the pros and downsides. At that moment, you can make the best decision for yourself.

HOA Defined

First of all, you need to determine what an HOA is and what they do. HOAs get a lot of criticism and bad press, not all of which is accurate. This is due to the fact that HOAs exist principally to help maintain certain standards within the community. While the governing boards of some Associations are made of community residents, others are overseen by the community’s developers; some have professional management, while some don’t.

Many Owners Associations have governing documents referred to as covenants, conditions, and restrictions (CC&Rs), which display the rules and requirements for property owners in the community. When you obtain a property with an HOA, you officially become a member and are expected to pay any related Association assessments. These assessments are intended to maintain common areas and any other amenities the community may offer, such as parks, recreation centers, and so forth.

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 substantially, it is possible to purchase a single-family property with an HOA that gives a number of benefits.

In other words, some HOA communities offer beautiful, private amenities such as swimming pools, parks, playgrounds, tennis courts, or a recreation center or gym. Providing 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 simpler.

Another amazing feature of certain HOAs is that they may give a common area and sometimes even front yard maintenance. They may also have trash removal services or snow removal, depending on the community. Letting the HOA do even a couple of maintenance tasks may decrease the workload of a Hanover property manager.

Several people opt to reside in communities with HOAs because they are cleaner and maintained better. This does not only enhance property values, but it may also be a great draw for prospective tenants.

Potential Disadvantages

Of course, there are some probable drawbacks to owning a rental property in an HOA. Mostly, homeowners who are unhappy about their Association feel that way because they’ve either decided they don’t like (or don’t want to abide by) the community rules or don’t like paying their assessments. However, the major concern for property investors is that HOAs may sometimes impose restrictions on your ability to lease the property you own.

For instance, 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 generate headaches for rental property owners by requesting special assessments for unplanned costs or requiring property owners to conduct additional tenant screening. These are only some instances, 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.

Presume you want to acquire a property with an HOA. For that reason, 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.

In the end, selecting whether to purchase a single-family rental in an Owner Association depends on whether the pros outweigh the cons. It also depends on the individual community and HOA and how likely the governing board is to meddle in the leasing process. So, it is vital to interact with other property owners in the area, read the documents completely, and see exactly what you are getting yourself into. This is solid advice for any purchase, but specifically when buying a property with an Owners Association.

Do you want the local expert’s advice on a property or community? We can guide you! Contact Real Property Management Beacon to learn how we help rental property investors like you find profitable investments.

We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.