Is Renting Out a Property in an HOA a Good Idea?
Owning and renting out your property that resides in an HOA can be beneficial, but is not without drawbacks. In this article we will explore the pros and cons of owning rental properties that fall within a Homeowners Association or Community.
On the Upside
Let’s start with the positives. Homeowners Associations can provide many services allowing for easier management and enjoyment of your property; landscaping, exterior building maintenance, and community amenities just to name a few.
One example, most HOA’s will provide landscaping services for the entire community as a portion of the monthly HOA dues. Not only does this take a chore off of your plate as a landlord, it also helps boost the attractiveness of your property for potential renters. When the entire community is well-kept, it makes a better first impression for applicants interested in your home. Outside of HOA’s you have little control over the aesthetic appearance of the adjacent homes and neighborhood overall. The dilapidated home a few doors down could negatively affect your ability to find a renter quickly, but in an HOA you don’t have to worry about the look of neighboring homes as much.
Exterior Building Maintenance
Another highlight of owning property in an HOA is the possibility of exterior maintenance being covered by the monthly dues. Certain associations will maintain the exterior of your property, from siding and walkways to gutters and roofs. A large amount of your repair budget can be eaten up by these expensive repairs, but if your HOA covers these costs it could actually save you money despite the cost of monthly dues (see our other blog, Budgeting for Repairs).
Does your home have a pool, gym, clubhouse, and a private neighborhood park? Most don’t – but in an HOA at least one or two of these amenities are often provided. When renters are searching for homes, the amenities provided can often make or break their decision to apply to a certain home. Let’s take a look at a specific HOA within Sacramento’s Arden-Arcade neighborhood, the Woodside Homeowners Association. Amenities in this community include on-site security, pools, tennis courts, landscaped grounds, and more. Renting a unit in this neighborhood is going to be much more attractive than a comparable unit without these amenities offered. This can lead to stronger pricing and can help to fill the vacancy quicker.
On the Downside
Although HOA’s offer many positives for renting and owning property, there are some downsides. Oftentimes HOA’s have restrictions on property modifications, and regular increases of monthly rates. Also some HOA’s have rent caps restricting rent amounts in the community, or set owner-to-renter ratios prohibiting investors from renting properties within the community altogether.
With a standard single family home outside of an HOA, you have the ability to make modifications in order to increase the value of your property. For instance, if you have a two bedroom, one bathroom home and you want to increase the home’s value by building an additional bedroom and bathroom, you can with the proper permitting. With a larger square footage and an additional bedroom and bathroom you will likely see dramatically higher rents. In most HOA’s however, this would be prohibited since it changes the look and feel of the community. In this instance, the Homeowners Association restricts your ability to improve your property and better capitalize on your investment.
Another drawback is the monthly HOA fee. To provide the attractive services and amenities discussed above, there are always a fees assessed, and the average HOA fee is $331 per month (according to this article). These are subject to increase year after year if the HOA Board sees fit. As a rental property investor, it is important to keep track of operating costs and find ways to keep costs low. To a certain extent, these monthly dues are not in the property owner’s control. For example, if the community and the HOA Board agrees on putting in an additional pool it is likely that your rates will increase, even if you do not agree with building the new pool. For this reason, some rental property investors may not like the idea of purchasing in an HOA.
Overall, investing in and renting properties that reside in HOA’s have both advantages and disadvantages. If it’s more attractive for you to have amenities and services provided, it may make sense to invest in HOA communities. On the other hand, if you prefer the freedom to modify your properties and operate under less restrictions, you might be better off outside of one. It ultimately comes down to what is important to you as a property owner.
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