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Investment Properties and HOAs

Homeowners Association Paperwork on a DeskAs a Webster Groves rental property investor, the probabilities are that the question of buying a property with a Homeowners Association (HOA) will come up sooner or later. This is especially true if you invest in single-family properties built in the last 20 years, where Owners Associations are very common. The most important thing to remember when buying a property with an HOA is that they offer both advantages and disadvantages.

The additional oversight and restrictions of owning a property with an Owners Association can be both an advantage and, sometimes, create a headache or two. Subsequently, before you invest in a rental with an Association, examine the advantages and drawbacks. Afterward, you may choose the best selection for you.

HOA Defined

The first step is to figure out what an HOA is and what they do. HOAs get a lot of criticism and bad press, not all of which is valid. This is because HOAs exist mainly to help maintain certain standards within the community. While the governing boards of some Associations are made up of community residents, others are overseen by the community’s developers; some have professional management, while some don’t.

All Owners Associations have governing documents called covenants, conditions, and restrictions (CC&Rs), which spell out the rules and requirements for property owners in the community. Once you purchase a property with an HOA, you quickly become a member and are required to pay any related Association assessments. These assessments are used to maintain common areas and any other amenities the community may offer, such as parks, recreation centers, and all that.

No two Associations are comparable, so it is recommended to do your research and examine the specific HOA documents for any property you want to buy.

Potential Benefits

Because HOAs can vary widely, it is smart to purchase a single-family property with an HOA that contains numerous benefits.

By way of explanation, some HOA communities offer beautiful, private amenities such as swimming pools, parks, playgrounds, tennis courts, or a recreation center or gym. Awarding a renter access to these amenities (if allowed by the governing documents) can be a big selling point for a rental house, something that may make finding and keeping tenants simpler.

Another significant benefit of some HOAs is that they may give common area and sometimes even front yard maintenance. They may even suggest trash removal services or snow removal, depending on the community. Permitting the HOA to handle even a few maintenance tasks can minimize the pressure of a Webster Groves property manager.

Lots of people choose to live in communities with HOAs because they are cleaner and maintained better. This is not only beneficial for property values, but it can also be a great selling point for prospective tenants.

Potential Disadvantages

There are undoubtedly some possible disadvantages to owning rental property in an HOA. Mostly, homeowners who are unhappy about their Association feel that way because they’ve either decided they don’t like (or don’t want to obey) the community rules or don’t like paying their assessments. Yet, the main concern for property investors is that sometimes HOAs will place restrictions on your ability to lease the property you own.

For example, numerous Associations are now prohibiting owners from using their investment properties as vacation or short-term rentals. Some HOAs even restrict or prohibit long-term rentals in the community. There may also be rules about how long the property owner must occupy the house before renting it to others.

An HOA can also give headaches for rental property owners by requesting special assessments for unplanned costs or requiring property owners to conduct additional tenant screening. These are just a few illustrations, but because every HOA is different, you may encounter all sorts of restrictions, large and small. Association assessments will take a bite out of your cash flows, and it’s not always achievable to raise the rent enough to cover the amounts fully.

Assume you intend to buy a property with an HOA. That being the case, you’ll also need to budget extra funds for special assessment costs, which don’t come up too often but can be large amounts, especially if the community is older and in need of repair or replacing big-ticket items.

In conclusion, weighing whether to purchase a single-family rental in an Owner Association depends on whether the pros outweigh the cons. It also depends on the particular community and HOA and how likely the governing board is to meddle in the leasing process. That’s why it is imperative to communicate with other property owners in the area, read the documents attentively, and identify exactly what you are getting yourself into. This is solid advice for any purchase, especially when buying a property with an Owners Association.

Would you want the local expert’s advice on a property or community? We are here to assist! Contact Real Property Management Specialist to learn how we help rental property investors like you find profitable investments.

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