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Investment Properties and HOAs

Homeowners Association Paperwork on a DeskAs a Santa Clara rental property investor, the likelihoods are that the subject of buying a property with a Homeowners Association (HOA) will come up sooner or later. This is especially the case if you invest in single-family properties built in the last 20 years, where Owners Associations are very common. The most vital thing to remember about buying a property with an HOA is that they come with upsides and downsides.

The added oversight and restrictions of owning a property with an Owners Association can be both an advantage and, sometimes, create a headache or two. Consequently, before you invest in a rental with an Association, evaluate these plusses and minuses. After that, you may choose the best selection for you.

HOA Defined

It’s first and foremost necessary to comprehend 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 due to HOAs exist mostly to help maintain certain standards within the community. The governing boards of some Associations are composed of community residents, while others are overseen by the community’s developers; some have professional management, while others do not.

All Owners Associations have governing documents called covenants, conditions, and restrictions (CC&Rs), which present the rules and requirements for property owners in the community. When you obtain a property with an HOA, you immediately become a member, and you are accountable 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, and so forth.

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

Potential Benefits

Because HOAs can vary widely, it is possible to purchase a single-family property with an HOA that comes with a number of benefits.

For example, some HOA communities offer beautiful, private amenities such as swimming pools, parks, playgrounds, tennis courts, or a recreation center or gym. Giving 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 a common area and sometimes even front yard maintenance. They may also offer trash removal services or snow removal, depending on the community. Permitting the HOA to manage even a few maintenance tasks can reduce the work of a Santa Clara property manager.

Multiple individuals prefer to live in communities with HOAs because they appear to be cleaner and maintained better. This is not only beneficial for property values, but it can also be a big upside for prospective tenants.

Potential Disadvantages

Owning a rental property in an HOA, of course, comes with a few disadvantages as well. Mostly, homeowners who are unhappy about their Association feel that way because they’ve either decided they don’t like (or don’t want to follow) the community rules or don’t like paying their assessments. However, the biggest concern for property investors is that sometimes HOAs will place restrictions on your ability to lease the property you own.

As an illustration, 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 bring 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 instances, but because every HOA is different, you may encounter all sorts of restrictions, huge and minor. Association assessments will take a chunk out of your cash flows, and it’s not always possible to raise the rent enough to cover the amounts fully.

Let’s say you decide to purchase a property with an HOA. Due to this, 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.

In the end, opting whether to acquire 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. Accordingly, it is important to communicate with other property owners in the area, read the documents properly, and distinguish exactly what you are getting yourself into. This is great advice for any purchase, particularly when buying a property with an Owners Association.

Do you need a local expert’s advice on a property or community? We can help! Contact Real Property Management Southern Utah to learn how we help rental property investors like you find profitable investments.

We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.