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Is a Homeowner’s Association Right for You?

  May 7, 2014  |    #Make Money

We moved into our condo seven years ago. We were very excited, as this was our first home purchase; it was a blank canvass; it was below our budget and met our architectural aesthetic. Another reason why we were so excited was because we bought into a condominium. Neither of us particularly loves yard work, painting and fixing things. David’s handy, but I’m not. I led a cushy life when it comes to home repairs and maintenance and it’s not fair for David to do it all. So, naively, this is one of the reasons we bought into a condominium with a homeowner’s association (HOA) and a property management company. We thought that among all of them they would handle most home maintenance issues.

We had a rude awakening. We quickly learned that too many people who lived in our building at the time assumed that it was always someone else’s job to take care of things. The building looked tired and run down. The reserve account had a significant negative balance. The board at the time was highly dysfunctional. Our new home needed a lot of help and we weren’t prepared for that. Chalk that up to us not doing our homework.

Over the last seven years, we learned something pretty surprising about ourselves. When we need to get involved, we get involved. When we decided to make an offer on our condo, we knew the HOA’s finances left a lot to be desired, but we gave that a pass because of what we presumed were the benefits.

It took us eight months to get involved and it was a sharp learning curve. Because of the mismanagement of the board at the time, David, another guy in our building and I followed the required steps to have the sitting board president removed. David and our partner in crime each took a position on the board. Because of being in financial services, David became the treasurer. After his three year term plus some months, I was nominated to the board as treasurer for a three year term.

Over the last seven years, we turned the finances around. We increased the reserve balance by 84 percent and made the operation account operational. We managed several major projects that included resurfacing the parking lot and renovating the lobby and rooftop pool and patio. Units in our building started to appreciate even before local and national real estate increases.

Some of the criticism of HOAs is that they can be too stringent with rules and regulations, particularly with individual unit’s design and style. HOAs can be too aggressive with obtaining homeowner dues. While some of this criticism is fair, there are often multiple sides to every story.

Our building has over 100 units and about 300 people associated with the building at any given time. This includes owner-occupants, renters and landlords. That’s 300 different personalities, 300 opinions, 300 intentions and 300 backgrounds.

Through our experiences, we’ve learned what to expect from an HOA and what not to expect from an HOA. We’ve learned who is right for an HOA and who is not right for an HOA. HOAs justifiably receive a lot of criticism, but there’s a lot that’s expected of them and they are managed by volunteers with professional and personal lives.

Every association member has an opinion about their HOA board, but often only a handful will volunteer their free-time to be on the board. Most of the rules that are enforced are rules that were voted on and approved by a majority of members of the association a long time ago or the vote was made by the board in a public hearing. To change HOA bylaws and declarations is costly due to attorney’s fees.

HOA board members have a fiduciary responsibility to the HOA. To not enforce the by-laws, declarations and rules & regulations of the HOA can be considered grounds for breaching that responsibility. Therefore, HOA boards can’t simply pick and choose the rules they wish to enforce.

What HOAs Are

HOAs are non-profit “common-interest-developments”. That is they are a voluntary grouping of individuals with shared property ownership. HOA boards and management companies manage common areas and are responsible for maintaining the value of the HOA, which includes bank accounts and property values.

The benefits of living in an HOA include getting more for your money. For example, many people can’t afford their own pool if they were solely responsible for it. With a shared property, more people can own a pool. Granted it’s shared with others, but it’s still a private pool. HOAs often alleviate regular home-owner responsibilities for common areas, such as painting and repairs, shoveling sidewalks and maintaining grounds.

What HOAs Are Not

HOAs are not your mom and dad. Just because you live in an HOA doesn’t mean you can use common areas without cleaning up after yourself. Just because there’s a company to clean and mow the grounds, doesn’t mean you don’t have to clean up after your dog. Just because there is a cleaning company, doesn’t give you have the right to spit your gum out in the hallway.

HOAs are not free. “Shared expenses” does not mean “no expenses”. As we mentioned, when we moved into our building the finances were a mess and the building was run down. Painting, cleaning, remodeling and restructuring were necessary, but there was no money to pay for all the necessary work. If anything was going to be done to protect or improve property values, people needed to work up a sweat or write a check.

The confusion comes when people think the HOA will pay for it. Well, the HOA is you. The cost to perform necessary maintenance or upgrades comes from the people who voluntarily join the HOA. If you’re not willing to pick up a brush or donate a Saturday, be prepared to write a check.

Our building is currently considering necessary, but major, invasive structural improvements to the tune of about $3 million. Our reserve account is stronger today than it was years ago, but because of the mismanagement of the reserve account years it doesn’t have adequate funds to finance this project. We were surprised to find out that some people were surprised to find out that they would have to fund this project with their own money. They thought the “HOA was going to pay for it” like the HOA is Daddy Warbucks. This change in perception has ironically changed some people’s opinion of whether or not this project is necessary.

Who’s Right for an HOA?

An HOA is great for people who want to and are comfortable with sharing the benefits and expenses of a shared community. HOA’s are great for people who want to contract out certain homeowner responsibilities, such as property maintenance and repairs. People who want certain amenities, but can’t afford them on their own should consider an HOA.

Much like neighborhoods across the country, HOAs provide a sense of community. Now that we’ve turned our HOA around, we have regular building parties and other community events. We have new tenants who have breathed new life into the building and it’s great to watch the building evolve.

Who’s Not Right for an HOA?

HOAs are not good for people who neither want to get involved nor are willing to pay for what’s necessary to maintain the property. People who would be inclined to neglect their individual home because they don’t want to or can’t pay for maintenance and repairs should not consider an HOA as a “cheaper” option. People who want a free-ride should not consider an HOA.

People who need all the control or don’t like to involve others in the decision making should not consider an HOA. HOAs require flexibility, negotiating and partnering. It’s a democratic process for something very personal.

As with anything, there are positives and negatives with being a part of an HOA. Weigh the pros and cons and thoroughly research any HOA you consider. You don’t want to have buyer’s remorse on a several thousand dollar purchase.

Ultimately, though, understand that an HOA isn’t a cheaper alternative to an individual home. Believing this could be a costly mistake in the long run.

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