A HOA, or homeowners’ association, is a group of voted members who set rules for residents and homes within a certain neighborhood. This could be a small gated community, a complex, or a group of condos or townhomes. The purpose of a HOA is to govern the community, and oversee the upkeep of the buildings.
HOAs collect monthly dues from the property owners in the community. I’ve seen HOA dues of $300-$500 per month, but the amount you will pay depends on the association. The money goes toward things like painting the buildings, and maintaining landscaping within the community.
The problem in paying these dues for investors is that money does nothing for your equity, and it comes out of your monthly cash flow. You’re essentially giving that money to an association to take care of your lawn.
Another issue is that at any time, an HOA can change their bylaws. For example, an HOA might suddenly change its rules and decide to no longer allow properties in their community to be rented. As a real estate investor, that could cause a huge dilemma! It’s quite common actually; HOAs don’t want renters because it decreases the property value.
Not to mention, the HOA can make assessments, which are additional fees. This actually happened to me! I lived in a condo within a HOA, and they decided to replace all the roofs in our community. The monthly dues the HOA had collected didn’t cover the expenses, so I (along with everyone else in the community) had to come up with $2500 to replace the roof.
There can be a lot of headaches for investors in HOAs, but this is not a black and white issue. Ultimately, everything you do in real estate should come down to ROI. If you find a property that has a high ROI within a HOA, then it’s a profitable investment! Plug the fee into your ROI formula, and if you can still meet a minimum of 10% ROI, it might be a sound investment.
What is your experience? Do any of your rental properties belong to HOAs? I'd love to hear your thoughts. Come leave a comment on our YouTube channel!