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Investment Properties and HOAs

Homeowners Association Paperwork on a DeskAs a Buhl rental property investor, the possibilities are that the subject of buying a property with a Homeowners Association (HOA) will come up sooner or later. This is particularly true if you invest in single-family properties built in the last 20 years, where Owners Associations are very common. The most significant thing to keep in mind about buying a property with an HOA is that they include both pros and cons.

The enhanced oversight and restrictions of owning a property with an Owners Association can be both an advantage and, sometimes, create a headache or two. Therefore, before you invest in a rental with an Association, examine these advantages and disadvantages. You can then make the decision that is right for you.

HOA Defined

At first, you need to understand what an HOA is and what they do. HOAs get a lot of criticism and bad press, not all of which is deserved. This is because HOAs exist mainly to help maintain certain standards within the community. While the governing boards of some Associations are made up of community residents, others are overseen by the community’s developers; some have professional management, while others do not.

The majority of Owners Associations have governing documents named covenants, conditions, and restrictions (CC&Rs), which show the rules and requirements for property owners in the community. When you acquire a property with an HOA, you promptly become a member and are needed to pay any related Association assessments. These assessments are required to maintain common areas and any other amenities the community may offer, such as parks, recreation centers, and so forth.

No two Associations are similar; thus, it is vital to do your research and examine the specific HOA documents for any property you want to buy.

Potential Benefits

Because HOAs can vary greatly, it is possible to purchase a single-family property with an HOA that accompanies numerous advantages.

For illustration, some HOA communities offer beautiful, private amenities such as swimming pools, parks, playgrounds, tennis courts, or a recreation center or gym. Allowing 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 easier.

Another excellent feature of some HOAs is that they may offer common area and sometimes even front yard maintenance. Depending on the community, they may even cover trash removal services or snow removal. Letting the HOA handle even a few maintenance tasks can reduce the commitment of a Buhl property manager.

Many individuals prefer living in communities with HOAs because they tend to be cleaner and maintained better. Not only is this excellent for property values, but it can also be a huge attraction for prospective tenants.

Potential Disadvantages

Unquestionably, there are also several potential drawbacks to possessing a rental property in an HOA. Generally, homeowners who are unhappy about their Association feel that way because they’ve either decided they don’t want (or don’t want to obey) the community rules or don’t like paying their assessments. Yet, the main concern for property investors is that sometimes HOAs may set restrictions on your ability to lease the property you own.

Let’s say numerous 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 trigger 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 couple of illustrations, but because every HOA is different, you may encounter all sorts of restrictions, huge and little. Association assessments will take a chunk out of your cash flows, and it’s not usually feasible to raise the rent enough to cover the amounts fully.

Imagine you opt to purchase a property with an HOA. In that situation, 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, determining whether to purchase a single-family rental in an Owner Association depends on whether the pros outweigh the cons. It also depends on the specific community and HOA and how likely the governing board is to meddle in the leasing process. This makes it necessary to communicate with other property owners in the area, read the documents wisely, and know exactly what you are getting yourself into. This is good advice for any purchase, particularly when buying a property with an Owners Association.

Would you like a local expert’s advice on a property or community? We are here to assist you! Contact Real Property Management Magic Valley to learn how we help rental property investors like you find profitable investments.

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