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What to Consider Before Investing in a Rental Home with an HOA

Homeowners associations in America don’t have the best reputation.  They have a history of complaints of abuse, mismanagement, and wasted finances, and things don’t seem to be changing. However, there are some benefits to investing in a home that is part of an HOA.

The best thing to do is, before you invest in a rental property in the Montgomery County region, investigate whether the property is part of an HOA.  After all, as the property owner you are liable for the tenants that reside in your home and pay a monthly rent.  This means any violations of the homeowners association’s rules and regulations by your tenants may fall upon you in the form of hefty fines.

Today we will look at some of the things you should consider before investing in a property monitored by an HOA.  This way, when it comes to deciding whether an HOA is right for your property investment needs you will be better prepared to make a knowledgeable decision.

 

Common HOA Complaints from Income Property Owners

Many Complaints Arise From People Who Are Part of An HOA Homeowners Association

As mentioned earlier, there is no lack of complaints against homeowners associations across the country.  Some of the most common ones include:

  • Wasting of association funds
  • No access to official records
  • Poor communication
  • Hostility towards homeowners or tenants
  • Manipulation of elections
  • Withholding of facility or service use
  • Poor maintenance of common grounds
  • Secret meetings
  • Violation of Fair Debt Collection practices

That being said, not all HOAs are bad.  And, if you take your Montgomery County investment properties seriously and research everything before signing on the dotted line and placing tenants in your home, an HOA may actually help maintain the value of your property and thus your monthly rental rates.

 

HOA Questions To Help Guide You

Here are some of the most important things to consider before purchasing a rental property that resides in an HOA.

What Services Does the HOA Provide?

Each HOA will have its own set of specific services it provides your community, though there are some general things every quality HOA should offer.  These basics include:

  • Administration services
  • Financial services
  • Customer service
  • Communication
  • Maintenance

It is a good idea to get a detailed list of everything the HOA says it is responsible for before buying a property.  You might also consider questioning the HOA’s level of involvement in the community to ensure it is following through on its obligations and staying proactive.

 

What is the HOA’s Financial History Like?

Take a Look at the HOA's Financial History to See How They've Used Money in the Past

Though every HOA differs in terms of daily procedures, homebuyers are entitled to see their potential HOA’s financials to ensure the HOA is not in the red.  You can receive this document via the homebuyer or directly from the HOA.  It will likely include things such as:

  • The balance sheet
  • Yearly revenue from monthly dues
  • Reserve fund balance
  • Notice of pending lawsuits
  • Information regarding recent assessments
  • Percentage of homeowners behind on their dues

Unfortunately, reading complex documents such as an HOA’s financials can prove challenging.  You might need to have someone you trust in the finance industry to help you decode all of the numbers.

 

How Do The Common Grounds Look?

HOAs are responsible for maintaining the common area of the community.  Do not simply focus on the property you are looking to purchase.  Rather, get a look at the community as a whole.  If a neighboring yard looks disheveled, chances are the HOA is not implementing its rules and regulations as strictly as you may like.

Because first impressions are so important, it is crucial the entire community looks well groomed.  No prospective tenant will want to lease from you if the neighboring homes are not up to par on their curb appeal.  Plus, if you are paying what can sometimes be hefty monthly HOA dues, you should be sure the HOA fulfills its part of the deal and maintains the grounds.

 

What is the HOA’s Method of Communication?

Communication and Community Are Key With Homeowners Associations To Ensure Voices Are Heard

A large part of what HOAs do is communicate with the board members and community homeowners.  A reputable homeowner’s association will effectively communicate the community’s needs in a variety of ways to make sure everyone involved in the community is up to date.  This includes phone calls, emails, live chats, and even a website for homeowners to know what is going on in the neighborhood.

 

How Does the HOA Assessment Collection Work?

One of the most disliked things about HOAs is their collection of monthly assessment dues.  Often inflated, many homeowners have no clue how their monthly dues are being used to help the community.

HOA assessment money is important for the stability of the community.  It helps to pay for the common grounds all residents enjoy as well as extra activities put on by the association for the benefit of the residents.  In addition, this money also pads the reserve funds that cover the cost of any major repairs to the community.

It is the responsibility of the HOA to collect assessments from homeowners.  And, if you own a Montgomery County rental property, it is likely you are paying the monthly HOA dues as a benefit to your tenants.  As a homeowner you are entitled to know that the community’s money is being put to good use and is used responsibly.  In fact, there are laws in place protecting residents from shady HOAs that use the assessment money poorly.

You should learn before making a property purchase how the HOA handles its finances and do your best to ensure the HOA is fulfilling its obligations to the community with that money.

 

Does the HOA Have The Following Traits?

Though it can be hard to judge the overall feel of a homeowners association without having actual experience with them, it is important you do your best before purchasing an investment property.  Try talking to the board members to get a feel for who they are and what their roles on the board entail. Or, try to converse with prospective neighbors and see how they like the neighborhood and what they think of the HOA.

Here are the most important things your future homeowners association should do for the community:

  • Respect all homeowner interests
  • Enforce the democratic process where all opinions are heard and weighed equally
  • Offer community services and amenities to all residents
  • Maintain the community’s values
  • Enforce the rules and regulations
  • Meet the financial obligations set forth in the CC&Rs
  • Conduct ethical behavior in all matters with transparency to all community residents
  • Balance the community’s needs and those of individual homeowners

 

In the end, where you plan to purchase your Montgomery County rental property is a big deal.  And, when you throw in the possibility of the property being in an HOA community, there is even more to consider.

If you are looking to purchase a rental property that has an HOA representing the community, make sure to do your research thoroughly.  You are financially obligated to an HOA once you invest in a property that has one and you want to make sure that you are happy with how the HOA conducts its business, maintains the value of your neighborhood, and enforces the rules, especially the financial ones.

In addition, if you are looking for an experienced property management company to help you manage your Montgomery County rental property, contact Bay Management Group today.  Not only can we help you with all things property related, we help manage your tenants and ensure they are following the HOA rules and regulations perfectly.  By enlisting the help of Bay Management Group, your concerns about HOA properties will disappear.