first - what is a home owners association? a real estate developer will generally set up a home owners association in a master planned community. this association will determine rules or covenants for the people who live there, generally to keep the look of a community consistent and to make sure that everyone keeps up the neighborhood - removing trees that are dead, not keeping a recreational vehicle parked for an extended amount of time or changing the paint color unless approved. the HOA will also collect assessments from the home owners in order to maintain common areas. The developer will generally be a member of the HOA until an agreed upon number of homes are sold. A recent development in Colorado is that an association must be managed by someone or an entity with a CAM (community association manager) license. This is generally necessary because the management of the HOA handles funds from sometimes a sizeable amount of people and those need to be properly accounted for and disbursed to protect the owners who live within the community.
another consideration in properties with home owners associations, is whether or not a traditional lender can provide financing. there are instances, such as the case, with non-warrantable condos where a portfolio or alternative financer would be required. a non-warrantable condo could exist for example if there are more owners within a community who do not occupy their property as their primary residence than people who do. this information is provided by the homeowners association. some banks find these loans riskier than a community that is a majority owner occupied. if you do find aproperty within one of these subdivisions, also consider your exit strategy. will your end buyer be able to get financing? or does this limit your pool of buyers?
real estate investing is all about whether or not a deal makes financial sense, unlike your primary residence where there is an emotional element: a desire to be in a certain neighborhood, near a certain school, a property with blue shutters, whatever the case may be. homeowners association dues can be pricey, especially in communities with extra amenities such as clubhouses, pools, fitness centers or golf courses. homeowners dues could rise. these liens also take a superior position to any loan should you not pay them which would be of great concern to your lender. when evaluating a property, it is always wise to think of multiple exit strategies. should this house not flip, what do i do? if the market changes, how do i deal with this property? think of these items: will you be able to rent out the property if needed? would i be able to re-finance my hard money loan?
we are here to help and call attention to these issues as they are discovered. not only do we have experience as being a hard money lender to colorado investors buying properties with home owners associations, but we have developed projects and set up these homeowners assocations, been directors of their boards of directors. if you ever have any questions, we are here to help!