Ask the HOA Expert: HOA Know How
Written By: Richard Thompson
Thursday, November 29, 2018
As a member of the HOA, you will pay fees to support management and maintenance. High rise condominiums and HOAs with clubhouses, pools and parks typically have higher fees than those with few common elements. If the HOA does not have and fund a reserve study 30 year plan for major repairs and replacements for common elements like roofing, painting, asphalt, decks and fences, a special assessment will be charged to each owner that can run into many thousands of dollars. Since boards of HOAs that donrsquo;t follow a reserve study tend to react rather than plan, these special assessment can happen with little notice and the financial obligation will fall on all owners, including new ones. HOA KNOW HOW: Review and understand the current budget and reserve study. If you are considering buying into a HOA that does not have a reserve study, move on. Itrsquo;s a special assessment waiting to happen.
HOAs can be great when the finances are handled well. Sharing the cost of costly amenities makes them more affordable for all. However, when one or more owners do not pay their share, either the rest must make up the slack or services cut. There is no government bail-out for HOAs. All must pay or all must suffer the consequences. HOA KNOW HOW: Ask for the current amount of delinquencies and number of owners that are delinquent. If the is over 5 of the annual budget, walk away.
In addition to maintaining common elements, HOAs also have certain rules and regulations that must be followed. Those rules may include architectural and design restrictions, which control the look of your unit or house or life>
Get the Big Picture.
While the home or unit you are considering may be newly remodeled and picture perfect, as an HOA owner, you have an undivided financial interest in all common elements. HOA KNOW HOW: Look at all the buildings and common elements, not just the unit you are interested in buying. Do you see deferred maintenance like peeling paint, dilapidated roofing and fences and broken up paving? If so, you are either buying into a soon-to-happen special assessment, or a board with its head in the sand which will fail to maintain your biggest investment. Either way, this is not good news for your property value. This is particularly important in common wall HOAs.
How the Board Does Business.
Inquire how often the board meets should be at least quarterly. Get copies of board meeting minutes for the past year and read them to determine the kinds of issues the board is dealing with. When you read the minutes, do you see evidence of board action to protect and maintain the common elements? If you see a board pattern of ldquo;does littlerdquo; in the minutes, like Nero, the board is fiddling while the HOA burns. HOA KNOW HOW: Walk away.
If the HOA is self-managed, this is a BIG RED FLAG. This means the fate and maintenance of your largest investment is in the hands of untrained part time volunteers. HOA KNOW HOW: If you are the kind of person that loves a challenge and willing to dedicate many hours of volunteer time to steer board business, this may be the place for you. If you are not, walk away.
As lenders become more aggressive in setting rental limits to HOA loans, rental restrictions are becoming more common. They come in two flavors:
1. Limited Restrictions. Only a certain percentage or number of the homes or units can be rented. The board/manager must administrate this moving target.
2. Total Restriction. All owners are restricted from renting. While the most fair approach, a slow real estate market can force certain owners into a difficult position if they canrsquo;t sell or rent. HOA KNOW HOW: If your objective is to buy and rent the home and there are rental restrictions, move on.
HOA Insurance Coverage.
Investigate the specifics, particularly if youre in an area prone to flood, earthquake, tornado or hurricanes.
Consider the HOA Life>
Do you hate being told what you can do with your property? HOA KNOW HOW: If the HOA has extensive architectural and design control, walk away.
A homeowner association can be your best friend when it prevents your neighbor from painting her house neon pink, but your worst enemy when they fail to properly maintain the common property or impose overly restrictive rules. Make sure you know exactly what you are getting into before you sign the dotted line.
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