Investment properties are a great way to supplement your income. This is especially true for rental homes in communities that are regulated by a homeowners association (HOA). They offer a variety of advantages for you and your tenants, such as high property values, high-quality amenities, and much more.
But before you buy a single-family home in an HOA-regulated community, there are some things you should keep in mind.
What is an HOA?
A HOA or homeowners association is a private organization within a community or subdivision. Anyone who owns a property within the community is automatically considered a member of the association. The HOA is run by a Board of Directors, whose responsibility is to establish and enforce rules and regulations and oversee the day-to-day operations such as collecting HOA fees, maintaining common areas, and so on.
If the investment property is in a condominium, it is likely regulated by a condominium owners association (COA) or a condominium management company.
How do I know if my property is in an HOA community?
There are more than 370,000 HOAs in the United States. This means that there’s a high chance that your rental property is part of an HOA-regulated community.
When purchasing an investment property, your real estate agent or property manager should provide you with a disclosure statement that includes information regarding any restrictive covenants. Essentially, this means that they should tell you if the community has an HOA.
It’s worth mentioning that not all neighborhoods allow homeowners to rent out their properties to tenants. It’s common for HOAs to have restrictive covenants that limit what homeowners can do with their properties. So, if you’re planning on buying a property for the sole purpose of renting it out, be sure to check if the community allows it in the first place.
What should I know about being a landlord in an HOA community?
Being a landlord in an HOA-regulated community can be challenging. Before you rent out your property, here are some things you should know:
#1 As the landlord, you’re liable
You are responsible for ensuring that your tenants follow the rules and regulations of the HOA. If your tenants fail to follow the Covenants, Conditions & Restrictions (CC&Rs) or bylaws, you as the homeowner will be held liable. This means that if your tenant fails to pay their dues, the HOA Board of Directors will fine you. That said, it’s always wise to strictly screen your tenants to ensure that they’ll follow the rules religiously. A property management company can help you with this.
#2 You have to pay fees yourself
As a homeowner, you’re automatically considered a member of the HOA. Hence, you need to pay your monthly dues.
HOA fees vary from one association to another, however, the national average is $200. It isn’t a small amount, so be sure to include that in your budget. Remember that tenants aren’t responsible for paying HOA fees because they aren’t homeowners. Even if you increase the rent, you will still have to pay the fees yourself.
#3 You need to take care of the home’s curb appeal
The HOA Board of Directors takes curb appeal very seriously. This is because their primary purpose is to ensure that property values remain high — and what better way to do this than by enhancing the community’s curb appeal?
As the homeowner, you’re responsible for making sure that your home always looks good from the outside. For example, your HOA may have rules against building storage sheds. In this case, you’ll have to find clever ways to cover it up or get rid of it completely. If you don’t follow the rules, you risk being fined.
Since you won’t be there at all times, it’s important to tell your tenants about this. HOAs tend to be strict when it comes to curb appeal. Many HOAs have rules against putting up political posters or painting the home a certain color.
#4 You should be prepared to play by the HOA Board’s rules
Be prepared to play by the Board of Directors’ rules — even if you don’t agree with them. Before renting out your home, be sure to go over the governing documents. Familiarize yourself with the rules and regulations so that you and your tenants can follow them. If certain rules are unclear, you can always ask any member of the board for clarifications.
Remember, the best way to avoid being fined is by following the rules.
#5 You should be your tenant’s voice
The Board of Directors may be running the show, but that doesn’t mean you don’t have a voice. HOAs are required to hold regular meetings where homeowners can express their concerns and recommend policy changes. So, if there are things that are troubling you or your tenants, bring them up during the meeting or approach a member of the board.
Similarly, if your tenants have complained to you about, say, their neighbor’s noise, you can raise this concern to a board member or talk to the neighbor one-on-one. Remember, there’s a chance that your tenant won’t be comfortable with confronting the neighbor, as tenants tend to think they’re in no position to.
Is buying a rental home in an HOA community a bad idea?
HOAs are hard to deal with. This is because they have rules that prevent you from using your property the way you planned on using it. Additionally, they are against many home improvement projects, especially the ones that affect the exterior of the home. This means that you’ll have to double-check before you can build anything.
However, that doesn’t mean that HOA communities are awful. While they come with strict covenants, they’re designed to drive up property values — something that you should be interested in as a property investor.
Besides, a rental home in an HOA community can easily be managed by a property management company. If you don’t have the time to take note of the HOA’s rules and regulations, a property manager from Luxury Property Care can do this for you. They’ll make sure that your tenants abide by the rules so that you don’t get in trouble.