Top 5 Questions Every Investor Should Ask Before Buying a Home in an HOA

When considering an investment in a home within a community governed by a Homeowners Association (HOA), it’s essential to dig deeper than just the curb appeal and amenities.

HOAs play a significant role in the management and long-term value of a property and understanding the ins and outs of how they operate can be the difference between a sound investment and a costly mistake. 

Here are the top five questions every potential investor should ask before making a purchase in an HOA-governed community.

1. What are the levies and what do they cover?

One of the first questions to ask is about the levies. The levies are typically charged monthly and can vary widely depending on the community and the amenities provided.

• Why It Matters: Understanding the levy will help you assess the overall cost of ownership and whether the property fits within your budget. Additionally, knowing what the levy covers—whether it’s landscaping, maintenance of common areas, security, or utilities—will give you a clear picture of the value you’re receiving in return.
• Follow-Up: Ask about the history of levy increases. Steady increases could indicate good management, but erratic spikes might suggest financial instability.

2. Are there any pending special levies?

Special levies are additional charges levied on homeowners, typically for major repairs or unexpected expenses that the regular HOA fees don’t cover.

• Why It Matters: Pending or potential special levies can significantly impact your investment. For instance, if the HOA is planning a large project like roof replacements or major repairs to common areas, you could be on the hook for a substantial amount of money soon after purchasing the property.
• Follow-Up: Review the HOA’s financial health and reserve fund to assess whether the community is adequately prepared for future expenses.

3. What are the rules and regulations?

HOA rules and regulations, often outlined in the community’s Memorandum of Incorporation (MOI) or Constitution, govern everything from the appearance of your property to how you can use your home.

• Why It Matters: As an investor, you need to understand how these rules could impact your ability to rent out the property, make renovations, or even something as simple as parking. Restrictions that seem minor at first glance could significantly affect your investment strategy or resale value.
• Follow-Up: Ask for a copy of the MOI or Constitution and take the time to read through it. Look out for any rules that might be a deal-breaker or could impact the marketability of the property.

4. How is the HOA managed?

The effectiveness of an HOA often depends on how it’s managed. Some HOAs are self-managed by a board of homeowners, while others hire professional management companies.

• Why It Matters: A well-managed HOA is crucial for maintaining property values and ensuring the community runs smoothly. Poor management can lead to neglected maintenance, financial mismanagement, and conflict among homeowners—all of which can negatively impact your investment.
• Follow-Up: Inquire about the experience and qualifications of the management team or board. Review meeting minutes and speak with current residents to get a sense of how the HOA is perceived.

5. What Is the Community’s Financial Health?

The financial health of the HOA is a critical indicator of the long-term viability of the community. This includes the operating budget, reserve fund, and any outstanding debts.

• Why It Matters: An HOA with a solid financial foundation is better equipped to handle maintenance, emergencies, and unexpected expenses without resorting to frequent special levies. On the other hand, a financially troubled HOA could lead to higher fees, deferred maintenance, and a decline in property values.
• Follow-Up: Request the HOA’s financial statements, including the balance sheet, income statement, and budget. Look for adequate reserves and a history of sound financial management.

Final Thoughts

Investing in a property within an HOA-governed community can offer many benefits, from maintained common areas to enhanced security and community amenities.  However, it’s crucial to approach such an investment with your eyes wide open. By asking these five questions, you can gain a deeper understanding of the community’s management, financial health, and the potential impact on your investment. A little due diligence upfront can save you from significant headaches down the road and ensure that your investment is a wise one.