We have found a few possible vacant land deals, with the majority of them having HOAs fees associated with them. While they seem to be manageable for a short time, we don’t know if they will present issues trying to sell the land at a later time. How has everyone’s experiences been when working with a land on HOA fees? Thanks for any input!
@jwbalelo, I’ve had a few deals in HOA communities. One had a lien against the property for unpaid HOA dues, which unlike county/city property tax you’re generally not going to be able to discover yourself online, so that’s just something to keep in mind. Title company should find it, if you’re using one, but definitely watch for that if you’re self-closing.
I’ve encountered plenty of prospective buyers that would not touch an HOA property, so it probably does narrow down the pool of buyers somewhat, at least in some markets. It is ironic because proponents of HOAs will generally say that they like having one because “it protects property values;” however, in my experience at least, if you had two otherwise identical lots, one with HOA and one without, I believe the non-HOA lot would sell for a higher price.
My take, though: if the deal is right and the lot is buildable, there’s still going to be a buyer out there. Just watch your comps (make sure you are comparing to other HOA lots), and build any HOA dues that might be coming up soon into your financial analysis and cash planning.
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@jwbalelo this is always a dilemma for me. HOAs can definitely muddy the waters, sometimes a little, sometimes a lot. That muddying of the waters can actually create a lot of opportunities to work with motivated sellers… but the question is, is it a good opportunity or a time-and-money-wasting opportunity?
In the situations where I’ve find the opportunity is worthwhile, it’s been where there is A LOT of value in the lots themselves… enough value that I can deeply discount the lots to make up for the additional holding costs the new owner (or I) will have to pay for the HOA fees.
It also helps to see that the HOA is actually alive and functioning, evidenced by other houses that have been built in the HOA. If you find that the HOA is basically a non-existent subdivision that never took off, that’s usually a big red flag. But if there has clearly been some investment in the neighborhood and there are healthy signs of life and growth, that will give me some confidence that the lots will be sellable.
It’s easy to simply take a stance of “no HOA properties, ever” because a lot of them genuinely are more trouble than they’re worth… but they aren’t all bad. Since a lot of HOAs have this negative stigma around them, it can create a lot of opportunities for land investors who do intentionally seek out HOA neighborhoods, because most other land investors will ignore them altogether, even if there are good deals to be found there.
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@jwbalelo Take a detailed look at the history of lot sales within that neighborhood. If there are few to none, you will be a pioneer and need to buy the property really low. Clearly you will need to build in the HOA fee into the holding costs as well as grass cutting (many require you to keep all or a portion of the lot mowed). I recently rolled the dice on one. The neighborhood lot sales had been dormant for years but with the real estate boom, lots were starting to sell. We doubled our money.
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@robc If it is a good location, is well maintained and will provide enough net income after expenses I would just be sure that it is fee simple property. Try to get a copy of their yearly budget and maintenance scheduling from someone before you make a final decision to buy.
As for the HOA itself, as an owner, I have not found the overseers very “owner friendly”. HOA’s have maintenance responsibilities. If they are responsible for the problem you may encounter on your property my experience has been they do everything they can to just band-aid the problem and will not investigate to find the root of the problem. They shun, in my experience, their responsibilities wherever and whenever they can but, sure are on top of every minor infraction you my be responsible for.
Lastly, those who become board members usually do so because they want their own agenda taken care of regardless of whether it may be a violation of the rules. Favoritism also abounds.
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@jwbalelo I agree with everything said here and I’ll pile on. Assessments are HOA poison. Picture this: you belong to a golf club and you pay your dues like every other member. One day you get a letter from the club that says “Since the grass on the fairway on hole 16 died over the winter, we’re going to have to replace it and each member’s share of the cost is $5000. Assessments are just like that. When you’re buying in an HOA, ask if an assessment might be coming. In my experience they always come as a surprise and they’re for odd things that you, as the owner, don’t give two … well, some assessments I’ve been billed for are new paving on a section of the walking path, a new cow-catcher gate, repair cracks in the road in an undeveloped part of the HOA, etc.
They make the property harder to sell.
I would ask the seller for recent HOA financials, recent HOA correspondence and minutes of HOA meetings - maybe for the past two years. The minutes will disclose any proposed fee increases or special assessments lurking right around the corner. The number of members with delinquent dues will give an indication of current owner satisfaction with the project.
Lots of delinquent dues means trouble in the heavenly land of lots. But it might also provide buying opportunities with the beleaguered HOA. They generally have the power to foreclose to extract their pound of flesh. Lazy volunteer board members may take the path of least resistance and sell their lien rights at a discount?
Cold call the board members and chat them up. Make them feel important and they may tell you all kinds of good stuff you should know.