Most real estate investors probably don’t think about how to deal with a homeowners association (or HOA, for short) before buying an investment property in a planned residential community that has one. Homeowners associations serve an important role in many communities as they are established for the purpose of maintaining a higher quality of life for all residents within the community. However, they can still cause real estate investors some serious headaches in certain situations.
Knowing how to deal with HOA can help a real estate investor avoid possible problems and get the most out of the association in real estate investing. Here are some tips to consider for dealing with homeowners associations and to make your ownership experience less stressful and more enjoyable.
Understand the HOA Rules
Every homeowners association has a set of rules and regulations that all residents must follow. The first great tip for real estate investors to deal with homeowners associations is to make sure to review and understand the HOA’s rules before buying an investment property in a residential community (like a condo) as these rules control what they can and can’t do with the real estate investment property.
Related: Follow These Steps to Learn How to Buy a Condo
Different states have different HOA’s rules. A real estate investor should expect limitations on the colors of an investment property or the type of vehicle allowed to be parked in the driveway. However, some homeowner associations will go further, prohibiting keeping trash cans in front of the house and even parking your car with an inch of tire on the grass. Knowing all the HOA’s rules will help real estate investors avoid breaking them and suffering the penalties that follow.
Understand the Duties and Responsibilities of the HOA Board
Real estate investors should review the documents that describe the homeowners association’s powers, limits, and obligations towards all residents. Before buying an investment property in a planned residential community, consider asking the HOA these questions:
- How can HOA’s rules be modified?
- How is the HOA Board elected (or removed)?
- What powers does the HOA Board hold?
- How are HOA meetings called?
- What are the consequences of any violations of the HOA’s rules?
In general, the Board of Directors is responsible for all matters concerning common areas of the residential community. In some communities, the Board may delegate the daily management functions to an outside property management services company. However, the HOA Board still remains the ultimate control and responsibility.
Related: Professional Property Management Is Not Always a Bad Idea Despite Its Costs
Understand Your Duties and Responsibilities
When buying an investment property like a condo, real estate investors should also understand the Covenants, Conditions, and Restrictions (CC&R). These documents outline the rules for all residents, such as how to maintain the outsides of the investment property and what they can and can’t do in public inside the residential community.
All residents must follow the HOA’s rules included in the CC&R in addition to paying HOA’s fees and assessments on a monthly basis, as these costs are for repairing and maintaining common areas within the residential community.
The HOA’s rules operate pretty much like a contract between the HOA and each real estate investor owning an investment property within the community. Breaking any rule could lead to legal actions; therefore, another great tip for real estate investors is to also understand the penalties for violating HOA’s rules. In some cases, homeowners associations can force a foreclosure on the real estate investment property.
Get What You Pay for
Some real estate investors get so caught up worrying about breaking HOA’s rules that they forget why the homeowners association exists in the first place. The homeowners association is maintained by the HOA’s fees, which all residents pay to keep the residential community working smoothly.
A great tip would be to take a look at your community and make your own observations. Are things in a good working order? Does your condo look appealing? Real estate investors paying monthly HOA’s fees expect good work from the homeowners association and should demand more when needed. This requires becoming more involved, but it leads to getting what you paid the HOA for.
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Get to Know Your Neighbors
Another great tip for dealing with an HOA is to band together with your neighbors. For a real estate investor to enjoy the best real estate investing experience in a planned residential community, getting to know neighbors is important. This will give the investor more leverage if he/she ever needed to address a concern with the homeowners association. An HOA may be difficult to influence, especially if a real estate investor is standing alone. Thus, the more voices brought to a cause, the more likely the HOA is to listen.
Knowing your neighbors on a personal level also provides another advantage. There are times a real estate investor might accidentally violate a rule. If you are a stranger to others, they may choose to take the association’s side or even report you. However, if you are a well-known neighbor, they will most likely speak to you first so you have a chance to correct the situation before the HOA becomes aware of it.
Stay Involved With the HOA
When owning a condo, the best way to exercise your rights in the residential community is to get involved with the HOA. The best way to do this is by attending meetings regularly. By doing this, real estate investors stay aware of what the HOA is planning and how it’ll affect them in the future.
A real estate investor might come to realize that some members attend these meetings and join the Board only because they have nothing better to do. In this situation, the real estate investor has to have a voice before the residential community is run by a dictatorship. Another great tip for real estate investors is to actually become members of the HOA Board.
Pay Your HOA’s Fees on Time
In real estate investing, paying HOA’s fees on time is a great tip not only because it will make dealing with the homeowners association much easier, but also because it will keep you on good terms with the HOA, and if you ever argue with the association, you’ll have a better chance of being taken seriously.
Another reason why real estate investors should keep paying HOA’s fees is the fact that homeowners associations have the power to foreclose on a condo and sell it for less than what it’s worth. Some homeowners associations even kick you out of the residential community if you fail to pay HOA’s fees on your real estate investment property.
Related: Real Estate Investing for Beginners: Avoid These Mistakes When Buying a Foreclosure
Take Legal Action
The last great tip for the real estate investor is to remember that if things get out of hand, you and your neighbors still have the power to change things – either through voting in new Board members or through legal actions.
When it comes to the law, if the HOA’s rule is reasonable and has a rational relationship to the association’s interests in protecting the real estate property and its owner, then it’s most likely going to be enforceable. If not, on the other hand, the real estate investors are advised to speak with a competent real estate attorney who understands this kind of real estate investing case.
Conclusion
Homeowners associations can be beneficial for real estate investors owning a condo in a residential community. Despite this fact, a real estate investor should always be prepared to deal with an HOA to ensure a successful real estate investing career. The previous tips are some of the best to consider before owning an investment property in a planned residential community.
For more tips on anything real estate, check out Mashvisor’s blogs and guides, and don’t forget to start your trial to be able to use Mashvisor’s investment property calculator to find and analyze the best investment properties in the US.