This blog post was inspired by a fellow Active Rain blogger, Karen Kruschka of Prince William, Fairfax ,Stafford County VA Real Estate Service. She had an excellent blog post about whether HOAs created value for investors. Being a member of a HOA myself I believe the answer is yes, but with conditions. Let me explain.
Home Owners Associations are designed to create a uniform set of standards for residents to abide by and, in exchange, residents will typically enjoy a consistent quality of life through that uniform environment. Residents will pay a monthly, quarterly or annual fee and this fee is used to cover the cost of maintenance of common areas, garbage collection, security and other "common area" expenses, such as water, electricity and in many cases a property manager. It should also include a "savings" component so that the community can hedge against future large capital expenditures, such as road repaving, common area facility renovations, etc. If HOAs are managed properly, the value of your community will be protected and will have a generally higher value than similar properties "outside of the gates." There are exceptions, as I will now explain.
If a HOA is not managed properly there are some serious implications that an investor can experience. First, if the rules for the aesthetic upkeep of properties in the community are not adhered to or enforced, then the values of the surrounding properties can be negatively impacted. Who would want to buy a home next to one that needs a complete overhaul!? Second, if a significant number of members of the HOA don't pay their fees or are in severe arrears, the financial health of the community can be put at risk. This can cause the basic needs of the community to be neglected, such as maintenance of common areas and community facilities, but can also turn off prospective investors to purchasing a home in a financially dysfunctional community.
It is important that you choose an agent that will point out these important aspects of home ownership to you! Knowing that your HOA is being properly managed and is in good financial health will ensure that the value of your investment will continue to grow!