According to the realty company Redfin, investors bought nearly one in seven homes sold in America’s top metropolitan areas in 2021. While many real estate investors are still looking to take advantage of the market in 2023, considering whether or not purchasing a home in a Homeowners Association (HOA) community can make for a difficult decision. From the benefits, fees, and potential drawbacks, here are just a few key elements worth knowing about before you sign the purchase agreement.
The value of HOA properties
For those wondering whether or not purchasing a home within an HOA community is worth it, several benefits are worth keeping in mind. For starters, the HOA “is to maintain and increase home values in the community along with sustaining a quality lifestyle,” according to RealtyBizNews. This often involves shared amenities, such as a fitness center, pool, parks, etc., along with rules and regulations that can make for a pleasant place to live — such as noise or pet restrictions that can help contribute to a calm neighborhood. Additional amenities might include shared landscaping and recycling, allowing residents to pay for what they already would’ve paid separately in one bill, making it convenient for many.
For those looking to invest in such a home, regulations in addition to amenities can be an appealing aspect for tenants, making for a great selling point. According to the Community Associations Institute, roughly 85% of residents who have an HOA are happy with it. To further highlight the popularity of HOAs, the University of California at Irvine found that homes with HOAs sold for 4% more than those without HOAs.
HOA fees and your obligations
While a home in an HOA community can offer several benefits, it’s essential to keep in mind that there are fees involved, which are to be paid to the HOA regularly (typically monthly, though there may be the option to pay a lump sum for the whole year). HOA’s can use these fees in myriad ways, which vary from one HOA to the next. Some of the most common ways to use HOA fees include the maintenance of community amenities and common areas. However, they may be applied towards other things, such as paying for the management company of the HOA, making major repairs on common areas, hiring bookkeepers/vendors and/or security guards, and keeping up with the insurance policy, to name just a few.
When it comes to your obligations regarding HOA fees, it’s imperative to realize that as the homeowner, you will be responsible for paying these fees yourself, as you’re automatically a part of the HOA upon purchase. With that in mind, you’ll also be liable for ensuring that your tenants are following the HOA’s rules and regulations. And that means screening potential tenants with extra care to ensure they’re the right fit. Additionally, since you’ll be the one liable, it’s essential to remember that if your tenants break any rules, you could be subject to any fines.
The potential disadvantages
Investing in a property part of an HOA community can make for a great living situation for the right tenants. However, as the investor/landlord, there can be a few potential disadvantages. For instance, you likely won’t have as much control over HOA properties as you would with a typical property due to HOA rules and regulations.
Since HOA rules can commonly involve limiting specific paint colors, lawn or holiday decoration restrictions, pet restrictions, etc., this can make several things out of your control. While some may prefer to have things this way, it can present a drawback should your tenant have an issue involving something that needs an HOA decision (rather than simply handling the matter on your own). Similarly, according to Hunt A Home, investing in such a property can also leave you with limited control over financial aspects, such as budget decisions and the dues involved. It’s also essential to remember that HOA bylaws can change and could disallow owners from leasing to tenants — thus leaving your investment up in the air entirely.
Investing in a property in an HOA community can seem like a daunting decision, though there are plenty of aspects worth keeping in mind. While the benefits can make for the ideal living situation for many tenants (and can benefit the homeowner via high property values), the potential disadvantages can leave many heavily considering the investment.