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Investment Properties and HOAs

Homeowners Association Paperwork on a DeskAs an Ogden rental property investor, the possibilities are that the topic of buying a property with a Homeowners Association (HOA) will come up sooner or later. This is particularly relevant if you invest in single-family properties built in the last 20 years, where Owners Associations are very common. The most imperative factor to know about buying a property with an HOA is that they have both advantages and disadvantages.

The additional oversight and restrictions of owning a property with an Owners Association can be both an advantage and, sometimes, create a headache or two. Thus, before you invest in a rental with an Association, weigh the benefits and drawbacks. You can then make the best decision for yourself.

HOA Defined

Firstly, it’s critical to understand what an HOA is and what they do. HOAs get a lot of criticism and bad press, not all of which is justified. This is due to the fact that HOAs exist primarily to help maintain certain standards within the community. While the governing boards of some Associations are composed of community residents, 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 lay out the rules and requirements for property owners in the community. When you buy a property with an HOA, you automatically become a member and are required to pay any related Association assessments. These assessments are used to maintain common areas and any other amenities the community may offer, such as parks, recreation centers, and so on.

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

Potential Benefits

Because HOAs can vary significantly, it is viable to purchase a single-family property with an HOA that provides a variety of advantages.

For instance, 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 simpler.

Another fantastic advantage of some HOAs is that they may offer common areas and sometimes even front yard maintenance. They may even incorporate trash removal services or snow removal, depending on the community. Having the HOA perform even a few maintenance tasks can lighten the load of an Ogden property manager.

Numerous individuals choose to live in communities with HOAs because they are cleaner and maintained better. This not only improves property values, but it may also be a huge appeal for prospective tenants.

Potential Disadvantages

Yes, there are some possible drawbacks to owning a rental property in an HOA. Typically, homeowners who are unhappy about their Association feel that way because they’ve either decided they don’t like (or don’t want to comply) the community rules or don’t like paying their assessments. The primary concern for property investors, though, is that HOAs may sometimes put restrictions on your ability to lease the property you own.

For illustration, multiple 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 cause 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 cases, but because every HOA is different, you may encounter all sorts of restrictions, large and minimal. Association assessments will take a chunk out of your cash flows, and it’s not always feasible to raise the rent enough to cover the amounts fully.

Assume you decide to purchase a property with an HOA. In such a 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.

In the end, determining whether to acquire a single-family rental in an Owner Association depends on whether the pros outweigh the cons. It also relies on the unique community and HOA and how likely the governing board is to meddle in the leasing process. As a result, it is critical to speak with other property owners in the area, read the documents thoroughly, and know exactly what you are getting yourself into. This is good advice for any purchase, especially when buying a property with an Owners Association.

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

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