Investing in Real Estate that is Attached to an Association?

By Peter Rizzo

Life Settlements in a Retirement Account? Think Again.

This can be an exasperating or great experience depending on your knowledge going in. Here are a few tips to help you understand what you are getting yourself into:

When buying an investment property in an association, the minute both parties come to terms on the contract, buyers are usually given a packet of association documents that rival the thickness of the Mueller report.

The clock then starts ticking, and depending on where you are buying the property, the buyer has so many days to accept or reject the association documents and financial reports.

From my experience, both professionally and personally, by the time you get through the first page of the declarations and look at all the pages you have to go, you realize the association won’t change the documents just for you, so, you decide you like the property, accept everything and just go for it.

This could be a fatal mistake leading to both financial misery and the ability to sell your property in the future. So, here are some tricks to keep your sanity and protect your asset:

1. Before you make your offer, ask the realtor you are working with, what they know about the association. (If you are representing yourself, this is the time to do some due diligence). If they don’t know anything and don’t offer to do any research, kick them to the curb. Top realtors will go or send representatives to the association meetings in their market area. You’d be surprised what you learn at an association meeting. It will help you understand how well-run the association is and the feeling in the community towards the board.

2. If you are going to read anything, be sure to read all the rules and regulations. With the onset of VRBO and AirBNB, most boards are at war with the concept and have instituted rental regulations or are in the process of changing by-laws to address this situation. A condo that I own, allows VRBO, but changed the by-laws to institute a fine system to penalize the owner if a renter breaks the rules. This particular development fines the owner $1000 for the first offense, $2000 for the second offense and $5000 for the third. This is something you are going to want to know if you are buying the property for a rental.

Secondly, you will want to know what terms are required for rentals. Do the rental terms require a thirty day minimum, six month minimum, etc. It would be disappointing to think you can rent it out by the week, but, find out it’s a minimum of thirty days. Find out the parking regulations. This is often overlooked, but, critical. You might have a three-bedroom condo that you expect to rent to three people with vehicles and only two parking spots except for temporary visitors. When one of their vehicles gets towed, you know who they will be calling.

This one might seem silly, but you want to find out what the flooring requirements are. Most associations that allow hard surface flooring on the upper levels, have a very expensive underlayment requirement to dampen the sound. If you have a lower level condo, you will want to know this so it doesn’t sound like the river dance troupe is performing above you. If you are buying an upper level unit, you will want to know what your flooring options are moving forward. Lastly, don’t be afraid to email the president or other board members to ask if there are any issues you should know about before buying.

3. When looking at the financials, see what the association fees cover and what is not covered. If they seem higher or lower than other area association, try to find out why. Some cover many more items and are building up a healthy reserve, so their fees may be higher. Where others that are lower might be constantly assessing homeowners and trying to keep their fees low for marketability. If you are buying a new property and the developer is running the association, make sure the fees are not artificially reduced and will cover the expenses when the homeowners take over.

These are just a few tips to help you when buying an investment property that is attached to an association. A well-run Homeowner’s Association enhances the value of your property. If you take time to understand the rules and regulations, you are more likely to have a positive experience. Not knowing what you are getting into can lead to unwanted surprises and disappointments.

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