blog 7 imageInvestors Need to Know THIS Before Buying a Rental in an HOA

As an investor looking to purchase property in a Homeowner’s Association there are several things you should consider about the Association before purchasing a rental unit:

The Association Governing Documents and Rules and Regulations.

  • Rental RestrictionsThe documents will define any Rental limits that exist and that you will be expected to follow. This is particularly important when purchasing a condominium or townhome.
  • Tenant Requirements.
  • Your tenants will not only be required to abide by your rules and regulations in your lease but will also be required to abide by the Rules and Regs of the HOA. Fines will be sent to the owner when a tenants violates any HOA rules.

Other Homeowner Relations

As an investor in an HOA, it’s particularly important for you to blend in with the rest of the Owners. A significant amount of complaints I receive stem from issues with tenants. Homeowners in an HOA know which units are rental units and they often keep a close eye on those tenants to determine if/when they break the rules. If you can ensure your tenants abide by the rules then it will make things much easier for you to manage your property.

The Financial Report

  • As an investor your objective is to maximize income and minimize expenses/turnover. To help minimize future unexpected expenses you need to request the following prior to purchasing the unit:
  • Budget.
  • This will give you a good picture of the Common areas in the HOA that require annual maintenance and shows where your HOA fees will be spent during that year.
  • Balance Sheet
  • Look for money in a Reserve Account. This would indicate the HOA is saving for future capital expenses which will help you reduce the risk of future unexpected HOA special assessments.
  • Ask manager or selling agent if a Reserve Study has been completed.
  • Income/Expense
  • Every board should receive a financial packet on a monthly basis. Typically, it will show YTD Income/Expenses compared to the YTD budget. The variance of the two gives some insight into the financial health of the HOA. For example:
  • Income less than budget indicates some level of delinquency in the HOA.
  • Expenses over budget indicates there were some type of unexpected expenses throughout the year.
  • The combination of lower than expected income with higher than expected expenses will often lead towards a special assessment if the two are not properly corrected.

HOA Minutes

  • The board and owner meetings are subject to having their meetings recorded by written minutes. They should be available to a buyer upon request to the seller or selling agent.
  • Annual meeting minutes
  • These minutes will have good insight onto the major items of concern of the majority of the homeowners as annual meetings often turn into a complaint forum for owners.
  • Board meeting minutes
  • These minutes will offer better perspective on the issues that the board has to resolve on a daily/weekly/monthly basis. They tend to reflect the property specific issues of the HOA. Typically these meeting minutes are more detailed than the annual meeting minutes.

hoa rulesHOA Boards Are Not the Enemy

Most HOA board members try to make the best decisions they can for the community. Generally speaking, if there is a rule, there is a reason. But going beyond the rules, they are making decisions for your home that may be looking 5, 10, or 30 years out. Keep this in mind when searching for a property.

For a townhome, super-low association fees may not allow for enough reserves to replace the roof in 20- 30 years. However, the cost of roof repair per unit will be much lower in a multi-level condominium. There are too many variables to cover in today’s blog, but the key takeaway here is to know what you’re getting into before investing in an HOA governed community.

Apex Ventures’ HOA Managers Are Here for You

We manage condos, townhomes, single family homes, and duplexes. Apex Ventures Real Estate and Property Managers are the HOA managers you can trust. If you have any questions regarding your upcoming purchase, or if you’d like a REALTOR who is familiar with HOA’s to represent you, give our team a call at 615-255-2703 or submit a request here.