The Real Truth Behind An HOA Investor Community

There is much debate surrounding the topic of an HOA investor community. Investors’ interest in a particular community means that properties there are attractive, even lucrative. However, pitfalls are still associated with having too many investors buy homes in one neighborhood.

What is an HOA Investor Community?

An HOA investor community is a planned neighborhood with many investor owners. In many cases, these investors even take up a majority of the association’s owners. Investors don’t live in the community; instead, they rent out the units or homes to tenants.

Most investor communities don’t start that way. More often than not, developments are planned and constructed with the initial goal of selling them to potential homeowners who will live there. Once the developer surrenders control of the HOA, homeowners take over—serving as volunteer board members and running the community.

Somewhere along the way, though, investors can enter the picture. Investors may be interested in a community if the opportunity to profit is great enough. For example, a coastal community might attract investors because visitors will look for a place to stay while on vacation. Other times, the community is located in or close to a big city, attracting many new residents looking for a place to rent.

The Effects of an HOA Investor Community

An investor community might seem like a good thing at first glance. After all, if investors are interested, the community holds a lot of value. However, it can face several pitfalls if a community becomes overrun with investors.

Here are the negative effects of an HOA investor community.

Skyrocketing Prices

The presence of investors could lead to higher prices overall. This applies not only to rental prices but also to prices outside of the community. While property values may also rise, the cost of living will shoot up with them. Local prices will also increase as more people choose to vacation or live in the area.

Indifference Regarding Maintenance

Investors don’t tend to care about community maintenance. As long as they can still attract tenants and collect rent, maintenance is likely the furthest thing from their minds. This is because investors don’t reside within the community. Therefore, they are not personally affected by the lack of maintenance or repairs. They might even push for the bare minimum in maintenance to score a higher profit.

Unwilling to Contribute to Reserves

With a significant HOA presence,  an HOA’s reserves may also suffer. For the same reason they are unwilling to pay for maintenance — to secure a larger profit — they are equally reluctant to make reserve contributions.

Reserves play an essential role in an HOA community. These funds will cover the cost of major repairs and replacements once assets reach their end-of-life. Homeowners must make regular contributions to this fund, which is usually included in the computation of dues. Investors might fight dues calculations or increases, though, if they affect their bottom line.

Higher Risk of Injury

Due to deferred maintenance and repairs, there is a higher risk of injury among HOA investor communities. Investors don’t want to spend money on maintenance and improvements because they will earn less revenue. However, poor maintenance can lead to property damage and accidents, which can ultimately expose the association to liability.

Outvoted on Policies That Benefit Owners

When an HOA community has too many investors, the board might not get the required votes to pass a policy that would benefit the association and its members. Having a high percentage of investors essentially means giving them the power to control the association. Investors won’t vote against themselves, so resolutions or amendments they deem disadvantageous to their personal agendas likely won’t get passed.

In worse situations, investors might even actively vote against policies benefiting resident-owners. They could do this to push out the remaining owners from the community and buy up their properties. Of course, there is a higher chance of this if the location is quite lucrative.

Resident-Owners Will Suffer

In the end, the resident owners will suffer the consequences. Deferred maintenance, low reserves, skyrocketing prices, and getting outvoted will all negatively affect them. Soon enough, their only exit strategy will be to sell their properties and move out of the community before things worsen to the point of no return.

Regulating Investors in an HOA Community

Homeowners associations are not powerless against investors. There are some things that an HOA board can do to preserve their community and keep investors in line.

Budgeting, Collections, and Added Fees

When crafting the annual budget, board members should factor in the expenses associated with investors. This includes allocating a higher amount for maintenance, repairs, and insurance.

The HOA board should also ensure that owners and investors pay their fees on time and in full. Investor-owners don’t receive special treatment, so the board should take the appropriate enforcement action for delinquent dues. This includes charging late fees or interest, placing a lien on the property, and even initiating foreclosure proceedings.

Finally, an HOA should consider imposing an additional fee if owners wish to rent out their homes or units. This fee can cover the cost of potential damage and the risk of injury. Of course, the HOA board should check state laws to see if imposing such a fee falls within its legal authority.

More Frequent Inspections

Board members should conduct frequent inspections to ensure the community remains in good condition. Renters don’t typically exercise the same caution and care as resident-owners. As such, many investors and, therefore, renters in the community could suffer more property damage.

Enact Limitations or Rental Restrictions

An HOA should consider limiting the number or percentage of investors or renters within the community. Another way to do this is to prohibit owners from renting their homes within the first X years of ownership. This will discourage investors, particularly HOA investors with multiple renters.

However, remember that state laws may also play a role in this. For instance, while California law allows HOAs to place a rental cap, it does not allow HOAs to require owners to live in their homes before renting.

If an HOA wishes to enact rental restrictions, it must duly amend its governing documents to reflect these restrictions.

Ensure Tenants Follow the Rules

Homeowners must follow the association’s rules or face certain penalties. The same should apply to renters as well. If a renter violates a rule, they should face the same consequences, such as paying a fine and temporarily suspending their privileges. Of course, this also means renters receive the same right to a disciplinary hearing.

If one renter is causing trouble for the HOA, an HOA board might feel tempted to punish all other renters, especially if they all have the same investor-landlord. However, this might lead to legal complications due to its discriminatory nature.

Can HOA Disclose How Many Renters in a Community?

In general, an HOA is not obligated to disclose the number or percentage of rentals in the community. However, such information may be available within association records. Homeowners have a right to examine certain records, though the procedures and requirements vary according to state laws and the governing documents.

HOAs and Rental Homes: The Final Word

An HOA investor community can threaten resident owners, especially when a large percentage are in a single association. To prevent experiencing the pitfalls, an HOA should regulate investors and rentals in accordance with state laws. Taking action early is also paramount, as having too many investors could prevent an HOA from securing the votes it needs to make changes.

An HOA management company can help associations regulate investors and rentals. Look for the best one in your area using our online directory!

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• HOA Rental Restrictions: What Are These And Can An HOA Restrict Rentals?
• Investing HOA Reserve Funds The Right Way
• Should The HOA Disclose The Name Of A Complainant?