What sets off your alarm bells when dealing with HOAs?

I sent out a mailer recently and I am getting a decent response rate so far, but many of the responses are coming from one HOA in particular that encompasses a dozen or so different subdivisions. The numbers on the deals are all very similar and the margins would be slim, but potentially worth it if I could complete a handful of them. However, these sellers are all SUPER eager to sell. They want nothing to do with the properties anymore and my spidey sense is tingling.

I called the HOA and they didn't seem too disagreeable, but I have heard a couple complaints from sellers about the HOA fees and the like. I know HOAs can be a pain to deal with, and I'm willing to do the work if need be, especially since I am offering literal pennies for the property. The subs are mostly vacant and raw land, with a few really nice homes interspersed throughout. Looks like a nice place, just hasn't quite caught on yet.

Anyone have any experiences similar to this? I wanted a good response rate and now I'm concerned that the response rate is too good! Are HOAs worth it? Anything I can look out for?

I think it's a GREAT question @DanielC. HOAs are usually a hassle in some respect (especially for what we do), but they aren't always an automatic "no". Sometimes their mere existence create a TON of opportunities that wouldn't otherwise be there, and the problems they create aren't insurmountable.

Sometimes it takes a few phone calls to people in the neighborhood and even local builders who have built homes there. I think a high cost of annual dues is usually the most common culprit that people have an issue with, but sometimes it's an even bigger, foundational problem, or even a hidden issue (like, maybe the water supply for the entire neighborhood has dried up or gone bad... and all the properties suddenly plummet in value because they can't be used for their intended purpose).

Sometimes the HOA's rules and restrictions just don't align with the needs of the area (perhaps only certain types of high-homes are allowed... but those aren't the types of homes that are needed in the area, because the local population wants more affordable housing or mobile homes, etc).

If you are worried about the high response rate, you could mitigate the risk by just making your offers even lower than usual.

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I once bought a property in an HOA. I read the bylaws and they didn't say anything about parking RVs or travel trailers there so I assumed that was allowed. One of my potential buyers emailed the president to ask about it and he said they were not allowed. Not sure where he pulled that from but I have a hunch he just didn't want his neighborhood turning into an RV park. The bylaws also said that any dwelling would need to be approved by the board but the president was unable to give me any sort of criteria for what is needed to be approved. I started to get the feeling that the HOA was just an exclusive club type of thing that bases their approval decisions off of no particular criteria but whether or not they like your dwelling plans...or whether or not they like you. I would watch out for that sort of thing. I'm definitely going to be more wary of HOAs moving forward.

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@DanielC I'm sure there is a ton of uncharted opportunity in HOAs, because when an investor is asked to choose between grabbing $5k sitting on the ground or grabbing $10k in a box full of snakes, they almost always choose the former.

As someone who lives in an HOA and sees the kind of nonsense that goes on (and they're pretty good compared to others I've heard of), you can count me out as a competitor in that territory of investment.

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Whenever I see a lot of properties for sale in a large HOA community like you're talking about, I usually try to steer clear. Selling maybe more difficult since you're going to have a lot of competition. I've seen a lot of properties listed for so cheap that the amount of effort you'd be putting in just wouldn't be worth it. If that's the case then I'd suggest you really take your time and figure out why so many people are getting out. The other thing I'd consider is how much cheaper can you sell the property? If you can undercut your competition by 50+% maybe your potential buyers would be willing to overlook some of the issues with the HOA. I've flipped two adjacent lots in an HOA. Their rules were pretty relaxed and they allowed RVs and mobile homes. The property was also on the coast so it was more desirable. I had to sell it for half of what everyone around me was selling for, but by the end I had 10+ people who were very eager to buy.

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@Dan - those are great points (both about the selling competition within the HOA and the ability to undercut that competition).

I would agree, those factors can play a huge role in deciding whether or not to pursue an HOA deal.

Any time I see the presence of a gate, it's a big red flag for me. Even if everything else about an HOA seems fine, a gate presents all kinds of problems, whether it's my ability to access the property, or my future buyers, or anybody else who needs to get to it. Not to mention all the maintenance issues that can arise from simply having a gate that constantly breaks down and is out of service.

I think gates can make sense, but the situations are rare (like a neighborhood filled with Hollywood movie stars or something). For the vast majority or people and properties, a gate restricting access to an entire neighborhood is completely unnecessary.

Similar to gun control, if anyone really wanted to do harm to a person or property in a gated subdivision, a gate isn't going to stop them.


@jxp5140 - I've had many similar experiences. Especially with the smaller HOAs, there is definitely some favoritism and personal bias that plays a much bigger role than it should.

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