Table of Contents
When buying real estate, there are plenty of factors you will need to consider before buying a property. However, one of the factors that often finds itself in a controversial position is the presence of a homeowners association.
Homeowners associations are becoming increasingly common among new real estate communities and while their purpose is certainly good for property owners and the overall community, in practice they can often come with their own unique problems that may outweigh the positives for some investors.
So, what is a homeowners association, and should you buy a property that is part of one? Let’s take a look.
But first, if you plan on buying a property that is part of a homeowners association, you want to discuss those details with a mortgage broker to make sure their policies won’t interfere with your financing or investment goals. That is why we want to offer you a free strategy call at the link below today.
A homeowners association (HOA) is a private organization that consists of elected volunteers dedicated to maintaining the quality of life and property values in a particular community.
These are typically formed once the community is completed by the real estate developer and serves as a non-profit organization. It is possible to start a homeowners association in an existing community, but it is much harder as you would require the cooperation of most or all of the property owners in the area.
The board members of the HOA are tasked with developing and rules, regulations, and budgets for how they will maintain the best interests of the community. They may also decide to host community events as a means of fostering a sense of community among local residents.
There are two main forms of HOAs that you should be aware of:
Often, by buying a property in a particular neighborhood you are required to become a member of that community’s HOA. This means that you will have to pay their fees and abide by their rules and regulations. This is because the HOA is often tied to the title of the properties it covers, making membership mandatory.
Not all HOAs have mandatory membership. Some do provide you with the option to opt out of membership, however as a result you are not going to receive the same benefits that it provides to its members such as lawn maintenance and community events. Neighborhoods with voluntary HOAs often have less uniformity than ones with a mandatory HOA.
What Does a HOA Do?
HOAs perform a variety of tasks for the community. These can will vary between associations but often include tasks such as:
- Landscaping a Maintenance Assistance
- Community Security
- Shared Neighborhood Amenities
- Garbage Pickup
These come at the cost of the monthly fees members pay to the HOA.
Discover Residential Property Management With This Step By Step Guide
Pros and Cons of HOAs as a Real Estate Investor
There are a few major advantages and disadvantages you will need to consider when investing in a community with an HOA.
Pro: Protecting Property Values
The biggest advantage of buying a property that is part of a homeowners association is the fact that their primary purpose is to help protect and nurture the property values of homes in the neighborhood. That means properties that are part of an HOA are often going to experience a much more reliable level of appreciation and it will be easier to build equity in these properties.
Con: Fees Disrupt Cash Flow
While buying property in an homeowners association can be incredibly beneficial for the appreciation of a property, it can make it much harder generate meaningful cash flow. Homeowners associations operate off of the funding they receive from their members each month – cutting into your profits.
As well, these fees are not set in stone and can be reassessed based on the needs of the community and your adherence to HOA guidelines. That means your costs can suddenly be raised based on the needs of the board and in this case, you may make even less money or potentially lose your cash flow entirely.
Pro: Help Maintaining the Property
Homeowners associations can serve as helpful assets when it comes to property management and property maintenance. Due to the rules set out by the HOA, its very uncommon for you to wind up with rowdy tenants in these communities. They also often will provide their own form of neighborhood security, meaning that you will have a decreased risk of suddenly needing to respond to a home security emergency.
HOAs will also often take on the role of assisting with lawn maintenance and cleaning services such as power washing, neighborhood cleanup after storms and exterior repairs such as fence repair, roof maintenance and more.
Con: Restrictive Rules and Regulations
HOA rules and regulations can often be seen as restrictive to residents and investors. Guidelines will often include limitations on any visible changes you may want to make to a property and restrictions on the number of cars that can be parked on the property.
They may also impose restrictions specifically impacting rental properties in the HOA by not permitting renters to attend certain community events within the neighborhood. This can result in your tenants feeling isolated and dissatisfied on the property.
Remember: Ask About HOAs Before You Buy Property
Whenever you go to purchase a property, make sure that you take the time to ask if the property is part of a homeowners association. If so, you should then inquire about the specific homeowners association bylaws and guidelines that they have in place. You should always be confident that you are making an informed decision when it comes to buying an investment property and you do not want to suddenly find yourself blindsided with a mandatory HOA agreement after you are already contracted to purchase a property.
As well, you will want to make sure that if you choose to buy that you are using a lender that is going to take your HOA fees into consideration so that you do not wind up accidentally defaulting on your mortgage. To learn more about how HOAs may impact your buying experience, give us a call at LendCity. You can reach us at 519-960-0370 or you can visit us online at any time at LendCity.ca Alternatively, click the link below to book a free strategy call with our team today.