When investing in a home that is falls under the authority of a Home Owners Association, it is sometimes difficult to know what you are getting into in the deal. The HOA’s tend to have an air of mystery about them, and it can be tough to break through to get to the real facts. Before you invest, it is important to understand why it matters and what you can do.
Why It Matters
It is important to investigate HOA-related investment deals thoroughly for a number of reasons. The first is that the HOA will not automatically tell you the things you need to know to make an informed decision. After the sale, you will find out everything you wish you had known before the sale.
For instance, there may be costs that the owner of a property is required to share with the other members of the Home Owners Association. These costs may have nothing at all to do with the property you are investing in, but they affect you because you become liable for a share of them the moment you sign that contract.
If a new clubhouse is being put in, a rundown home is being taken over and refurbished or the Home Owner’s Association has run into some legal fees, you might be on the hook for a part of it. The HOA is not likely to be forthcoming with this information, but they will certainly tell you once you are locked into ownership. Then, they may require you to pay these costs before you sell the home to someone else.
What You Can Do
Start each investment in an HOA home with a fact-finding mission. Ask directly for information from the HOA administrators. Request minutes to HOA meetings so that you will know the current problems facing the group. You can also ask the homeowner if you are buying from an individual, or ask neighbors near the home what is going on in the HOA.
Do your due diligence in terms of the HOA financials as well. Try to get a look at the monthly financial reports, recent annual budgets, information on overdue assessments, and any long-term plan that is in place for the HOA’s financial future. Find out if there is any legal trouble in the HOA. Finally, get a copy of the rules and regulations the Association requires its members to sign and follow. With all this information, you will have a better idea of the financial situation and demands in the HOA where the property you are interested in is located.
At the end of this search of the facts, you can assess the possibility that you might have to pay high costs between the time you buy and sell again. You will have a better idea of whether the property will be an outstanding investment, a mediocre one, or a downright loser. It is well worth the time and effort to learn all you can in this real estate investing situation.