A homeowners' association (HOA) is an organization responsible for handling upkeep of common areas and amenities, and sometimes governing community covenants. The HOA may only be responsible for handling common area landscaping and cleaning, or it may include covenants regarding acceptable use of your home or even the color it can be painted. If your rental unit is part of an HOA, or you're considering buying investment property governed by an HOA, you need to watch out for a few things.
Are You Allowed to Rent the Property?
HOAs have the power to ban or limit rentals within the community. Some HOAs refuse rentals entirely, as it wants control over the people moving in and out of the community. Other HOAs place limitations on rental units, only allowing a set number within the governed area at a time. Talk with the HOA and confirm you can rent out your property prior to making the investment. You can avoid hassle for your tenants, fines from the HOA and potential legal action when you get clarification upfront.
Who Pays HOA Fees and Fines?
The HOA has monthly fees that go to maintaining common areas, amenities and buildings, and other costs incurred by the community. You need to detail who pays the HOA fees in the lease agreement. Due to the fines associated with being late on HOA fees, most landlords opt to pay for the fees directly and adjust the monthly rent price to accommodate for this cost.
You also want to establish a set procedure for HOA fines incurred by the tenant. If the tenant is responsible for all fines, write the notification and payment procedure within the lease. Also make sure to include a copy of the HOA covenants with the lease, and go over it with tenants prior to the lease signing. You don't want tenants pulling out of a lease within the first month because they aren't comfortable living under specific HOA covenants.
What Happens If the HOA and Tenants Have a Dispute?
If the tenants break an HOA covenant or the HOA decides it isn't a big fan of renters, the two could end up having a dispute. Create clear communication channels between yourself, the tenants and the HOA to head off major problems before they lead to fines, eviction or legal action. Write the penalties for breaking HOA rules into the lease so your tenants are aware of the consequences.
What Happens If the HOA Changes the Rules?
The HOA board may decide to change rules, which includes whether rental properties are allowed within the building or community. If you're worried about the HOA's feelings toward renters, attend board meetings and make your opinions known. Even if they don't listen to what you have to say, attending the meetings gives you a heads up on major changes coming down the pipeline. You won't be caught unawares if major rule changes prevent or restrict renters from living in your HOA property.
An HOA can be a great selling point for a rental when it comes to well-maintained common areas and amenities. However, an HOA also has the potential to be your worst nightmare when it comes to making money off your investment property. Keep these considerations in mind when you're dealing with an HOA-governed community to weigh the risks versus the rewards.
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