Homeowners Association’s (HOA) are on the rise across the United States. One of the goals of a well-run HOA is to increase property value but there are differing opinions regarding whether these goals are being met. There are three different types of HOA’s in existence. First there is a voluntary HOA which is a more informal neighborhood association with no legal standing and small dues.
Next up are the mandatory HOA’s where you have to join, you can’t opt out, there are fees, it is a legal entity and you are required to follow a set of covenants, conditions and restrictions (CC&Rs). Last up is the condominium HOA which is similar to the mandatory HOA but the exterior of your home is common property –you are essentially co-owning your home with the HOA and there are even more restrictions. In 2014 59% of newly built homes were part of an HOA according to the U.S. Census Bureau, a figure that was up by 46% from 2009. As they continue to gain dominance in the property market lets take a look at how they could increase or decrease the value of an investment property.
HOA property value accelerator
A great HOA will utilize the monthly fees to maintain the shared areas of the neighborhood or complex like swimming pools, parking garages, fitness rooms, landscaping, elevators, clubhouses, sidewalks, security gates and tennis courts. They ensure that all of the properties keep up with their own maintenance and that everything is in mint condition. The regulations will stipulate things like what color you are allowed to paint the exterior of your home as well as how many cars can be parked in your driveway and street. They can set the height of fences and enforce restrictions regarding window coverings. These conformity rules are in place to keep up the neighborhood standard so all properties under that HOA umbrella experience an increase in the value of their homes. The homes tend to look identical but are exceptionally well maintained. Due to the perfect exterior the homes look more upscale and the HOA’s usually have security in place which makes for a safe neighborhood. There is often excellent pest control and basic maintenance is covered. In a condominium you never have to worry about replacing a roof, repainting your home, trash removal, landscaping your garden or any other exterior maintenance need as it is all covered by the HOA.
Related article: Planning & Budgeting for Property Maintenance on Your Investment Property
HOA drawbacks
If you are putting your house on the market and a seller is interested in buying the property they will (hopefully) begin to do research on the HOA to ascertain if it is a right fit for their personal needs. If the CC&R’s appear excessively restrictive you are not going to make the sale. This essentially will decrease the value of your property as buyers find they can’t abide by the regulations in place. These are some of the reasons people choose not to buy in a HOA complex:
- No cars outside on the street. If you are family that has children at college with their own vehicles where are they going to park?
- The buyer is a non conformist who is averse to rules. They don’t want others to make decisions for them and so might end up having to pay many fines and be in permanent confrontation with the HOA board.
- There are amenities that you pay for that you will never use.
- There is a no pet rule.
- One can’t afford the constant maintenance. A mandatory HOA is not going to replace your roof, paint your walls or mow your lawn but you have to keep up with it. If you are in a career where you are away a lot or unable to outlay the expense for the constant maintenance you are going to get into very hot water with your HOA.
- Some HOA’s can foreclose on your property for non payment of HOA fees and fines.
- The house you are interested in already has a dispute against it which you will inherit. E.g. the color of the house’s exterior etc.
- You believe in sustainable practices that are forbidden by the specific HOA. The rules might forbid you from installing solar panels or using environmentally friendly products in your garden or xeriscaping. (fertilizers, pesticides etc.) You might not be allowed to have your own vegetable garden.
- There is evidence of under management. No-one is interested in whether maintenance is done and the neighborhood could look a little run down and decrease the value of the property.
- You want to rent out the property. Some HOA only allow for a certain percentage of the homes to be used for renters so this might impact your ability to earn your income from your property.
Investment Properties with HOAs in Colorado Springs
Before buying a home in a HOA neighborhood you must make sure you know the rules and restrictions backwards. Also bear in mind that these rules can change at any time with new ones added by the HOA. Do your homework and find out from those living in the area about how disputes are settled with the HOA. In fact, sit in on one of the meetings to see if there are any control freaks who could create a negative environment.
HOA’s can really help with making sure your neighbor doesn’t paint their house neon yellow or hold raucous parties every night. They can also be restrictive to the point of suffocation. Investigate and know exactly what you are getting into with your new purchase. You’re entering into a new country with its own government and rules so make sure you know your citizen’s rights and responsibilities. Always check the fine print and talk to a Colorado Springs residential property management expert who can help you maintain required HOAs for properties you already own or want to invest in.
