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Investment Properties and HOAs

Homeowners Association Paperwork on a DeskAs a Chubbuck rental property investor, the odds are that the issue of buying a property with a Homeowners Association (HOA) will come up sooner or later. This is particularly the case if you invest in single-family properties built in the last 20 years, where Owners Associations are very common. The essential point to note about buying a property with an HOA is that they are associated with both advantages and downsides.

The increased 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, think about these benefits and downsides. You may then make the option that is appropriate for you.

HOA Defined

Initially, it’s imperative to know what an HOA is and what they do. HOAs get a lot of criticism and bad press, not all of which is fair. This is because HOAs exist mostly to help maintain certain standards within the community. While the governing boards of some Associations are formed of community residents, some are overseen by the community’s developers; others have professional management, while others do not.

All Owners Associations have governing documents named covenants, conditions, and restrictions (CC&Rs), which explain the rules and requirements for property owners in the community. When you purchase a property with an HOA, you instantly become a member and are needed to pay any related Association assessments. These assessments are utilized to maintain common areas and any other amenities the community may offer, such as parks, recreation centers, etc.

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

Potential Benefits

Because HOAs can vary broadly, it is feasible to purchase a single-family property with an HOA that comes with a variety of perks.

For instance, some HOA communities offer beautiful, private amenities such as swimming pools, parks, playgrounds, tennis courts, or a recreation center or gym. Providing 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 simpler.

One more wonderful advantage of some HOAs is that they may offer common area and sometimes even front yard maintenance. Contingent upon the community, they may even incorporate trash removal services or snow removal. Letting the HOA take control of even a few maintenance tasks helps alleviate the work of a Chubbuck property manager.

Numerous individuals appreciate residing in communities with HOAs because they seem to be cleaner and maintained better. Not only is this excellent for property values, but it can also be a huge appeal for prospective tenants.

Potential Disadvantages

Obviously, there are also some possible downsides to owning a rental property in an HOA. Usually, homeowners who are unhappy about their Association feel that way because they’ve either decided they don’t prefer (or don’t want to follow) the community rules or don’t like paying their assessments. However, the major concern for property investors is that sometimes HOAs will put restrictions on your ability to lease the property you own.

For instance, 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 generate 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 few instances, but because every HOA is different, you may encounter all sorts of restrictions, big and little. Association assessments will take a chunk out of your cash flows, and it’s not always viable to raise the rent enough to cover the amounts fully.

Assume you do opt to purchase a property with an HOA. In such a scenario, 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.

Lastly, selecting whether to purchase a single-family rental in an Owner Association depends on whether the pros outweigh the cons. It also depends on the particular community and HOA and how likely the governing board is to meddle in the leasing process. This makes it vital to chat to other property owners in the area, read the documents cautiously, and understand 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 want a local expert’s advice on a property or community? We can assist! Communicate with Real Property Management Pocatello to learn how we help rental property investors like you find profitable investments.

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