HOAs Unlocked - Revealing Hidden Truths

HOAs are a touchy subject...they are adored by some, and abhorred by others.

The reality is, that HOAs can be a boon or a bane, depending on various factors.

Understanding the benefits and drawbacks of owning a property in an HOA is a crucial step that will inform a property purchase and help set realistic expectations for ownership and satisfaction.

Below are several less obvious considerations and anecdotes about HOAs that may surprise you.

To kick things off, let's uncover a few facts that many prospective homeowners may overlook or misunderstand when purchasing a property in an HOA:

Due Diligence: Before purchasing a property within an HOA, it's imperative to conduct thorough due diligence. This includes comprehensively understanding the HOA's authority, financial status, and historical background.

Surprisingly, approximately 70% of HOAs nationwide are categorized as having deferred maintenance and underfunded reserves. If the HOA's reserves are inadequate, repair or capital expenditure costs will fall on the homeowner, over and above the monthly HOA fee.

Restrictions: HOAs often impose restrictions that potential buyers might overlook. These can range from property rentals and pet ownership rules to house color schemes, driveway parking, and holiday decorations.

It's important to note that these restrictions can evolve. If you're purchasing a property due to a specific limitation or right, be aware that this could change during your ownership.

Case In Point - I’ve seen newer developments in high-tourist areas tout nightly rentals as a part of the attraction for people to own a residence in the development. It sounds good - you buy the property to use as a vacation residence, then when it is not in use by yourself or your family, it is rented out nightly to vacationers willing to pay a king’s ransom for a luxury experience at a high-end development with access to resort-like amenities. Well, the HOA can, and has, moved to ban short-term rentals completely, leaving those who purchased units to generate significant income restricted to less profitable, and less frequent, monthly rentals.

Unpaid Fees: In some cases, HOAs may require new homeowners to cover unpaid fees from previous owners. As a buyer, you should require written information from the HOA to ensure no violations, outstanding fees, or code compliance issues related to the property.

Don't let the above information get you down..there are many upsides to buying a property in an HOA:

Consistent Property Values: HOAs play a significant role in maintaining community living standards, which can boost property values and enhance the appeal of properties within the HOA.

Amenities: HOA membership often provides access to desirable amenities such as fitness centers, swimming pools, and clubhouses.

Community Involvement: Purchasing a property within an HOA can foster a sense of pride and engagement among homeowners. The opportunity for involvement is plentiful, and having a voice in community governance can enhance the ownership experience.

Since you can't appreciate the sunshine without the rain, below are a few more things to consider, and they may (again) surprise you:

HOA Fees: It's no secret that mandatory HOA fees can be hefty. HOA fees have nearly doubled in some coastal areas in recent years, primarily due to rising insurance rates.

Now, I know what the adventurous side of you may be thinking...what if I paid cash for the property, and I plan to roll the dice and elect to self-insure rather than pay a hefty premium for an insurance policy? Well, you may be out of luck..homeowners associations can typically require homeowners insurance as part of their governing documents or bylaws.

Risk of Lien: Homeowners who fail to pay their HOA fees risk having a lien placed on their property, or worse, facing foreclosure.

Potential Mismanagement: Like any organization, HOAs can fall prey to mismanagement. This can lead to financial instability and homeowner dissatisfaction. Consider this - a corporation that purchases 51% of the condos or residences in a property can effectively seize control of the HOA, potentially forcing remaining owners to fund improvements that primarily benefit the corporation's rental units.

I hope the information above is helpful to you. This HOA-quick-dive was not meant to scare anyone out of buying a property in an HOA, but rather to equip buyers with information that empowers them to ask the right questions.