An HOA can be deal breaker for many properties. Not all HOAs are created equal and it’s important to perform your due diligence about the solvency of the particular HOA for any property that you’re interested in purchasing. In fact, mistakes relating to HOAs can be more costly than missing a repair on a home inspection (although you should do both). For example, we’ve seen investors buy townhomes in complexes where the HOA restricts rental properties. So the investor closed on the property only to discover that they could not legally rent it. They had to sell the property for what they paid, which resulted in a loss after closing costs. That’s a rookie mistake and one we hope you avoid by performing your due diligence about the HOA.

Your first step is looking around the complex, look at the common areas and verify the condition and make sure that the complex is well maintained. The exterior condition of the buildings and landscaping is often an indicator of how the rest of the property is maintained that you can’t see (like electrical, plumbing, etc).

Call up the Homeowners Association (HOA) to learn what the monthly HOA fee is and what it covers. This can range widely from solely upkeep of the common areas, to all exterior repairs, water, and trash. The more services you get, the more you pay.

When you’re on the phone with the HOA, or other times the property management company for the HOA, you are also going to ask them to provide you several documents. You are going to want to see:

CC&Rs – Covenants, Conditions and Restrictions outline what you can and can’t do with your property. For example, these can restrict the color you can paint your house or condo, if pets are allowed in the property, whether you can put up holiday decorations or plant a garden, how many cars you can park in your driveway, etc. This is also where you should discover any potential restrictions on rentals. The CC&Rs are not often amended so make sure you will be comfortable with their requirements before moving in, because changing them would be difficult.

Budget & Financials – Make sure the association has a healthy reserve that’s inline with the age of your buildings. For example, a 25 year old complex should have a large enough reserve to replace every roof within the next few years, and still have money left over for regular expenses. The association must be capable of making necessary repairs as they become needed in the future as well as handle larger deferred maintenance.

Special Assessments and Reserves – Do not put yourself in a situation where the HOA does not keep sufficient reserve funds to make repairs as they occur. If they do not budget for these repairs the HOA will likely issue a special assessment to the homeowners. That means more money out of your pocket for services that you thought were covered!

Insurance – The HOA will have an insurance policy to cover disasters such as fires. However, these policies will not cover your own personal possessions should they be damaged. Make sure to take a copy of the insurance policy to your insurer and see what you must do to protect your belongings.

Meeting Minutes – HOA committees meet with varying frequency, a good HOA committee will meet regularly. Look over the meeting minutes to learn what the hot button issues are within the HOA. Make sure that issues such as maintenance are being taken care of and not being pushed off until a later date.

Looking at these documents will get you started but always consult a knowledgeable real estate agent to assist you in the process and help you cover your bases.

Though living in a complex with an HOA can make life easier by reducing the burden of upkeep, the process of buying a property and the due diligence required is by no means easy.

➡️ Chapter 28: What are real estate contingencies?