Homeowners’ associations (also known as an HOA) can make things complicated. Some find them desirable to keep properties nice and support neighborhood character. Others have had a different experience, they can be notoriously difficult to deal with.
This can be particularly complicated if you are purchasing a home with the intent to rent it out.
Here are some things to consider:
What Restrictions Does the HOA Place on Rentals?
It’s very common for HOAs to place restrictions on renting out a property. Before purchasing a property, review the development’s rules. In some cases, only the owner can occupy a property in a HOA. You can obtain the rules from the HOA or from the real estate records in that county. It’s also a good idea to talk to the board of directors.
One of the most common restrictions limit the number of homes that may be rented at a time. This can often results in a wait list, minimum lease terms, and requirements that the tenant to register and pay a deposit.
In some communities, tenants may not be allowed to use some of the facilities or attend community events.
The restrictions vary by community, so it’s very important to check before purchasing the property so you are not stuck with a home you cannot rent out. Short-term rentals such as AirBnB are even more likely to be banned.
What Does a HOA Fee Typically Cover?
Most HOAs charge fees or dues. These may vary in amount. They typically cover the cost of maintaining common areas and community facilities. Some single family home communities may not have common areas and may not charge fees. All condo associations charge fees to cover the maintenance of the building.
Fees may also cover common utilities such as garbage disposal. Some communities may have their own cable TV or internet. In gated communities, they cover the wages of gate guards. Because of this they can vary drastically, from a couple of hundred dollars to as much as $1,500 a month.
Special assessments may occasionally be levied, particularly with condos, to cover repairs that the association doesn’t have reserve funds to cover.
Who is Responsible For the HOA Fee: Landlord or Tenant?
In legal terms, you are almost always responsible for the HOA fees. Be aware that HOAs can (and do) foreclose on a home for nonpayment of fees, fines, or special levies. Some associations may also charge an additional fee to the tenant, on top of what you pay.
This means that you need to take the HOA fees into account when charging rent. You may also write the lease so that the tenant pays the fee to you. This has the advantage of transparency, in that the tenant understands how much of what they are paying is the HOA fee (and may be more likely to complain to them rather than you when it goes up).
Home owners’ associations tend to have a lot of rules. This might cover the color you can paint the exterior, the number of pets allowed, whether you can keep a boat on the property, etc.
The HOA typically levies a fine when rules are violated. It is very important to make the tenant responsible for any fines that are not related to the structure of the building. No tenant alterations should be made without approval. For example, if your tenant has a non-working vehicle parked in the driveway, the HOA will try to charge you the fine. The lease needs to specify that the tenant is responsible.
Make sure that you provide your tenant with a copy of the governing documents and have them sign off on them in addition to the lease.
It’s important to be transparent about the fact that the house or condo is governed by an association. Some tenants will find this a selling point. Others may strongly prefer to avoid dealing with home owners’ associations, especially as tenants can seldom apply to be on the board.
Renting out a home in a HOA neighborhood is complicated, but it can be done in most cases. The important thing is to check the rules before you purchase the property, so you know if, and how, you can rent it out.