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Investment Properties and HOAs

Homeowners Association Paperwork on a DeskAs a Wayzata rental property investor, the probabilities are that the concern of buying a property with a Homeowners Association (HOA) will come up sooner or later. This is certainly the case if you invest in single-family properties built in the last 20 years, where Owners Associations are very common. The important thing to consider about buying a property with an HOA is that they have benefits and downsides.

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. Hence, before you invest in a rental with an Association, evaluate these positive and negative aspects. You may then make the decision that is ideal for you.

HOA Defined

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

All Owners Associations have governing documents termed covenants, conditions, and restrictions (CC&Rs), which explain the rules and requirements for property owners in the community. When you purchase a property with an HOA, you promptly become a member and are liable to pay any related Association assessments. These assessments are needed to maintain common areas and any other amenities the community may offer, such as parks, recreation centers, etc.

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

Potential Benefits

Because HOAs can vary generally, it is achievable to purchase a single-family property with an HOA that comes with numerous benefits.

For instance, some HOA communities offer beautiful, private amenities such as swimming pools, parks, playgrounds, tennis courts, or a recreation center or gym. Awarding 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 simpler.

Another great feature of some HOAs is that they may offer common areas and sometimes even front yard maintenance. Depending on the community, they may even propose trash removal services or snow removal. Having the HOA perform even a few maintenance tasks can reduce the responsibility of a Wayzata property manager.

Numerous people prefer living in communities with HOAs because they seem to be cleaner and maintained better. This is not just boosting the property values, but it can also be a big selling point for prospective tenants.

Potential Disadvantages

Undeniably, there are also some prospective disadvantages to owning 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 prefer (or don’t want to obey) the community rules or don’t like paying their assessments. However, the primary concern for property investors is that sometimes HOAs will put restrictions on your ability to lease the property you own.

To give an example, 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 give 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 scenarios, but because every HOA is different, you may encounter all sorts of restrictions, big and minor. Association assessments will take a chunk out of your cash flows, and it’s not always viable to raise the rent enough to cover the amounts fully.

Assume you do decide to buy a property with an HOA. Therefore, 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.

At last, deciding whether to acquire 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 going to meddle in the leasing process. For this reason, it is crucial to communicate with other property owners in the area, read the documents carefully, and grasp exactly what you are getting yourself into. This is wonderful advice for any purchase, but mainly when buying a property with an Owners Association.

Do you want a local expert’s advice on a property or community? We can assist! Get in touch with Real Property Management Viking to learn how we help rental property investors like you find profitable investments.

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