top things you need to know about understanding HOA

The Top 6 Things You Need to Know About HOA’s

#1: WHAT AN HOA IS, AND WHAT AN HOA DOES:

First and foremost, HOA stands for Home Owners’ Association.  An HOA is formed by the developer of the community in order to serve some basic functions for the community. The board is made up of volunteer owners who typically hire a manager to help oversee the community.  The most important functions of the HOA are to:

  1. Create and enforce rules for the community,

2. Own and Maintain Common Area or Commonly Owned Assets

#2: UNDERSTAND THE HOA’S RULES:

HOA’s can really vary in size and importance in the scope of your real estate purchase.  If you are purchasing a single family detached home where the HOA owns nothing or very little, it’s pretty easy: you need to make sure you are comfortable with the rules the HOA imposes on the home you are purchasing.  If you are purchasing in a San Diego high rise building – it is a very important aspect of your purchase.

#3: IT’S A TWO PART PURCHASE:

When you do purchase in a high rise building or into a complex with a great deal of common space, you are actually making a two-part purchase.  Your obvious purchase is the actual condo – the unit you are purchasing.  The less obvious and often overlooked portion is your purchase of a share of all the commonly owned aspects of the community.  This second piece is a significant asset but can also be a significant liability – and it’s important to understand.

#4: LOOK AT THE BIG PICTURE:

HOA dues can actually be a great deal.  Often times, when I speak to buyers, they just think of HOA dues as an expense they get nothing out of and they just look to minimize this “expense”.  A well-run HOA (and that part is key – “well-run”) is actually incredibly efficient. Owning real estate can be expensive.  Sometimes looking at the detached home with no HOA’s can look very appealing.  Don’t get me wrong – there are many great things about detached homes – but having no HOA is not one of them.  If you own a detached home and you unexpectedly need a new roof, new AC system, or a myriad of other things that can go wrong – who has to pay for that?  The owner may have to come out of pocket – big time.  On the other hand, a well run HOA will be maintaining their systems, have an understanding of when certain systems will need replacing, and will have saved accordingly.  All of the sudden those monthly dues don’t seem so expensive, do they?

#5: UNDERSTAND YOUR HOA’S RESERVES:

How do these associations know what to expect with these big capital expenditures?  They have reserve studies performed on a multi-year schedule.  Understanding your reserves and how well prepared they are is an important part of your purchase.  It is important in determining the value of the condo you are purchasing as well as to know how likely it is that you will be hit-up for a dreaded special assessment in the future.

#6: THE TOP FOUR KEY THINGS TO REVIEW IN YOUR HOA PACKAGE:

What Items are key to look for in your HOA docs?  The most important items to review in your HOA package are:

  1. The reserve study – as discussed above in  #5.  This is very important in your purchase.  Understanding this is different for every complex so you need a professional who can help you understand and feel comfortable with this.
  2. Meeting Minutes – It’s amazing how much you can learn about a complex from meeting minutes.  Sure, there are goofy         things in the minutes like how Sally doesn’t like how her dog and Fred’s dog don’t get along in the hallways, but there are   also real treasures and insights into the building in these minutes.  You can learn things such as maybe one of the systems is failing, or certain units have a problem with this or that (maybe even only in the middle of the night), or of a pending special assessment or rule change.
  3. The formation documents, Covenants Codes and Restrictions, and Rules and Regulations – you want to know what rules you are buying into.  Can I bring my three great dane’s?  Can I rent out my place on the weekends on AirBnB?  Seriously, you need to understand these rules.
  4. Any special letters from attorneys disclosing certain pending litigation, assessments, rule changes, or special circumstances.

Understanding all of this can be daunting.  You NEED an expert in your corner to know you are making the right purchase. If you’re looking at investing in a San Diego high-rise condo or another property type with an HOA, contact us to learn about which HOA will be the best fit for you.

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