Pros and Cons of an HOA

In our last post, we spoke about the different property types we can invest in. Within that, there are homes that are located within Homeowner’s Associations (HOA’s)

In this post we will cover the:

Pros and Cons of owning rental property within an HOA Community

We generally see Townhomes and Condos within HOAs nearly 100% of the time. Single family homes are falling into this category more and more as well. Especially newer construction.

When it comes to HOAs, there is a maintenance fee involved. This pays for the services and amenities that are provided to the homes and residents of the community.

HOA Payment

Usually the fee is paid monthly, but some do it quarterly. If the payment is not made within 30 days of the due date then a late fee is accessed. I’ve seen the late fee range from $25-$50.

PROS (what do we get for our $’s)

Generally for that fee the HOA will handle:

  • Management (who generally handle the below items)
  • Landscaping of the grounds
  • Real Estate taxes on all common areas
  • Maintenance of pool(s) and/or gym
  • Building Insurance (Hazard)
  • Roof Maintenance
  • Gated entry and/or Security

NOTE: the amenities listed above you see most of the time with Townhomes and Condos. Single family homes often don’t have building insurance and roof maintenance and are responsible for the landscaping on their property.

Other amenities are: (but not as common)

  • Cable
  • Water

CONS (rules and regulations)

  • Buyer Approval
  • Tenant Approval
  • Lease restrictions (# of times per year, no lease first year, minimum length of lease)
  • Pet Restrictions (weight limit, breed restrictions, # of pets)
  • Vehicle Restrictions (no commercial or RV or even no motorcyles)

Weighing the Pros and Cons

As you can see, there are plenty of benefits for owning in an HOA.

You don’t have to worry about the lawn and hiring landscapers. You only need walls in insurance if they are providing the building insurance. You have access to a pool that you do not need to maintain and in some cases you are not paying for water or basic cable.

However, you also have to deal with the restrictions and rules of the community that are listed above.

Most require an interview with management to reside in the community. So any potential tenants will have to go through that process in addition to whatever tenant screening we do as landlords. That process usually tacks 2 or more weeks on before they process the application.

Cost of HOA

HOA dues can range from $30 a month to $600 a month. It all depends on the community.

Anything on the higher end tends to be a country club or golf course community.

From my experience $150 to $400 is the sweet spot with single family, townhomes an condos in regular communities.

Generally the more that is being provided by the HOA the higher the fee. Many times you will see single family home communities with a lower cost HOA than townhome an condos because insurance and roof maintenance is not included.

Example

I own a townhome that has a $359 monthly HOA due. For that payment maintenance of the entrance gate, the pool and the clubhouse is provided. As well as building insurance, roof maintenance, cable, landscaping and the payment of real estate taxes on the common areas.

To be honest, I am not a fan of higher prices HOAs. It’s a large cost that eats into your potential cash flow. However, if I’m getting a decent value for that than I’m willing to accept owning a property with one.

Bottom line

Your going to have to pay insurance and landscaping costs on a property that is not within an HOA community.
So estimate those costs and compare them to what you get from an HOA to help make a decision on whether a property is for you.

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