What You Need to Know about Homeowners Associations
If you’re considering a buy to let condo in the United States, you should know that most condo buidlings have a homeowners association (HOA). They can be your best friend, or your worst enemy. They can save you a fortune, or cost you a load of money. Here are ten things you need to know to ensure your investment remains profitable.
1. What is a homeowners association?
A homeowners association is a collective of people comprising of all the condo owners in the building. When you purchase a property you must join the HOA and abide by it's rules.
You must also pay the homeowners association fees. And this money goes towards repairs and common areas such as reception halls or elevators should they break. This means an HOA is typically managed like a small business.
2. Learn the rules
HOA rules are referred to as covenants, conditions and restrictions (CC&Rs). Each homeowner’s association is different, so before you purchase a condo, it’s important to figure out the rules.
For example, if you need a TV satellite attached to the side of the building, but it’s against the CC&Rs, you can rule out the property right away. That said, there’s usually a process to change restrictions. So it’s equally important to find out when meetings are held and make sure you can attend or have a proxy to represent you.
3. Learn the fees
Every HOA charges differently. Typically, higher end properties have more expensive fees, so be sure to include the monthly condo fees in your your financial calculations. Questions to ask the HOA include:
What do my monthly dues cover exactly?
How are fee increases decided?
How often do fees typically rise and, historically by how much?
How much money does the HOA reserve fund hold?
Also, ask for a record of any special assessments carried out on the building recently.
Request the latest copy of the year end financial accounts to ensure the association is solvent and not subject to any lawsuits or code violations.
4. Factor fees into your calculations
Now you have the hard numbers, it’s important to factor these into your cost projections. Take a look at the historic rate of fee increases to calculate both short-term and long-term implications of this expense into your numbers.
5. Look out for existing violations
Make sure the unit you’re interested in purchasing isn’t already in violation of any HOA rules. For example, let’s say the previous owner painted the condo a neon pink which you loved and decide to keep. But if the colour is against HOA rules, it would be your responsibility to rectify the situation. In this respect, it’s much like checking for liens on a property title. The new owner has an obligation to put things right.
6. Check out catastrophe insurance
Just one typical expense of HOAs should be catastrophe insurance. If by some small chance, mismanagement has led to an insufficient insurance policy, or perhaps renewal has failed, this can prove a costly oversight. If the location is a known hotspot for blizzards, hurricanes or earthquakes, make especially sure you’re covered.
7. Check for signs of under-management
Managing a homeowner’s association takes time and effort. And some HOA’s are under-managed. For example, sometimes no-one in the building wants to fix a backlog of managerial oversights. Situations where presidents and board members are assigned randomly can also cause problems. So, always make sure you get a good understanding of the managerial hierarchy.
8. Sitting in on a meeting
If possible, see if you can attend an HOA meeting before you purchase. Failing this, see about obtaining a copy of the minutes from the last meeting (ideally the last several meetings) to see what was discussed and gather intelligence in general.
9. Check environmental practices
For many, recycling and other environmental factors are important. And each homeowners association abides by different rules, with different levels of conscientious behaviour. Check whether there’s recycling, composting or environmentally friendly chemicals used to maintain that immaculate garden. Make sure you check any practice important to you to avoid nasty surprises later.
10. Prepare to be at the mercy of the HOA
Because of the nature of homeowners associations, your temperament as a person is something to consider. For example, if you know you don’t take “being bossed around” very well, you may consider preparing yourself for some potentially antagonistic situations. In doing so, it’s much more likely meetings and other interactions go in a productive direction. In short, be prepared to put your diplomatic hat on from time to time. mmackay
If you’re considering a buy to let condo in the United States, you should know that most condo buidlings have a homeowners association (HOA). They can be your best friend, or your worst enemy. They can save you a fortune, or cost you a load of money. Here are ten things you need to know to ensure your investment remains profitable.
1. What is a homeowners association?
A homeowners association is a collective of people comprising of all the condo owners in the building. When you purchase a property you must join the HOA and abide by it's rules.
You must also pay the homeowners association fees. And this money goes towards repairs and common areas such as reception halls or elevators should they break. This means an HOA is typically managed like a small business.
2. Learn the rules
HOA rules are referred to as covenants, conditions and restrictions (CC&Rs). Each homeowner’s association is different, so before you purchase a condo, it’s important to figure out the rules.
For example, if you need a TV satellite attached to the side of the building, but it’s against the CC&Rs, you can rule out the property right away. That said, there’s usually a process to change restrictions. So it’s equally important to find out when meetings are held and make sure you can attend or have a proxy to represent you.
3. Learn the fees
Every HOA charges differently. Typically, higher end properties have more expensive fees, so be sure to include the monthly condo fees in your your financial calculations. Questions to ask the HOA include:
What do my monthly dues cover exactly?
How are fee increases decided?
How often do fees typically rise and, historically by how much?
How much money does the HOA reserve fund hold?
Also, ask for a record of any special assessments carried out on the building recently.
Request the latest copy of the year end financial accounts to ensure the association is solvent and not subject to any lawsuits or code violations.
4. Factor fees into your calculations
Now you have the hard numbers, it’s important to factor these into your cost projections. Take a look at the historic rate of fee increases to calculate both short-term and long-term implications of this expense into your numbers.
5. Look out for existing violations
Make sure the unit you’re interested in purchasing isn’t already in violation of any HOA rules. For example, let’s say the previous owner painted the condo a neon pink which you loved and decide to keep. But if the colour is against HOA rules, it would be your responsibility to rectify the situation. In this respect, it’s much like checking for liens on a property title. The new owner has an obligation to put things right.
6. Check out catastrophe insurance
Just one typical expense of HOAs should be catastrophe insurance. If by some small chance, mismanagement has led to an insufficient insurance policy, or perhaps renewal has failed, this can prove a costly oversight. If the location is a known hotspot for blizzards, hurricanes or earthquakes, make especially sure you’re covered.
7. Check for signs of under-management
Managing a homeowner’s association takes time and effort. And some HOA’s are under-managed. For example, sometimes no-one in the building wants to fix a backlog of managerial oversights. Situations where presidents and board members are assigned randomly can also cause problems. So, always make sure you get a good understanding of the managerial hierarchy.
8. Sitting in on a meeting
If possible, see if you can attend an HOA meeting before you purchase. Failing this, see about obtaining a copy of the minutes from the last meeting (ideally the last several meetings) to see what was discussed and gather intelligence in general.
9. Check environmental practices
For many, recycling and other environmental factors are important. And each homeowners association abides by different rules, with different levels of conscientious behaviour. Check whether there’s recycling, composting or environmentally friendly chemicals used to maintain that immaculate garden. Make sure you check any practice important to you to avoid nasty surprises later.
10. Prepare to be at the mercy of the HOA
Because of the nature of homeowners associations, your temperament as a person is something to consider. For example, if you know you don’t take “being bossed around” very well, you may consider preparing yourself for some potentially antagonistic situations. In doing so, it’s much more likely meetings and other interactions go in a productive direction. In short, be prepared to put your diplomatic hat on from time to time. mmackay