The Ins and Outs of Homeowners Associations

The Ins and Outs of Homeowners Associations-Professor-BaronAbout 20 to 30 percent of home buyers purchase properties within common-interest developments, commonly referred to as homeowners associations (HOAs).

Before weighing the pros and cons of owning a property in an HOA community it’s important to understand what HOAs are, how they are governed and how they affect a homeowner’s bottom line.

Here are some basic facts home buyers should know.

What is a common-interest development?

In a common-interest development individual owners typically share some parcel and the buildings on that parcel as co-owners. A common-interest development would generally be a condominium building, a town home community or lofts, or could be a single-family home community, private neighborhood or other similar arrangement. Buyers in the development or building agree to live by the community rules and regulations.

These regulations mean that as an owner you have certain rights and restrictions as outlined by development documents commonly called CC&Rs (covenants, conditions and restrictions). The CC&Rs govern your allowed ownership, use and behavior at the property — everything from use of your unit to parking restrictions, insurance, architectural rules, paint colors, storage of RVs or boats, pets, allowed inhabitants and more. These rules and regulations can be changed, subject to approval by a majority of the owners.

How are HOAs governed?

To interpret and enforce the rules and regulations, most HOAs elect a board of directors who follow the regulations of the community and make prudent financial and operational decisions. As an owner, you get to vote for the board members (this process is usually outlined in the community bylaws).

However, most owners in a typical community don’t go to board meetings and don’t get involved in the operations of the community. And that’s fine, as there’s no requirement for an owner to vote or otherwise be involved. Most owners only show up to meetings when HOA fees are raised or if they are affected by a particular issue. Keep in mind though, if you have an issue or disagree with a restriction in your community, you should attend the board meetings and work with the HOA toward finding a solution that the majority of owners can agree with.

Are there financial risks with HOAs?

HOAs are nonprofit organizations, but their complex financial and legal operations can sometimes cause owners significant financial pain in the form of unexpected dues increases and special assessments. Unfortunately, few buyers know how to evaluate HOA documents ahead of time, which could help mitigate the considerable risks.

Many people don’t like having to follow rules and decide to avoid living in an HOA-governed community altogether. But don’t forget, the HOA makes sure your neighbors don’t park cars in their front yards and/or that a neighbor doesn’t paint a house pink or carry out other nuisance behaviors — any of which could easily occur in an area not governed by an HOA.
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6 Renovation Tips for New Landlords

If you’re new to investing in real estate, you’ll probably be really excited when you close escrow on your first purchase.

6 Renovation Tips for New Landlords-Professor-BaronThat’s great because real estate investing can be a very good way to improve your long-term wealth picture. However, if you are an average real estate investor — as 99 percent of us are — that excitement will turn quickly to the realization that a lot of hard work is coming to your plate, especially when it comes to renovating your new investment property.

Here are some items you should be aware of so you can better prepare for your future as a real estate mogul.

Budget money and time wisely

As your closing come close, you are probably putting together a starry-eyed list of all the improvements you’re going to make on a shoestring of a budget. Of course the repairs will also be completed in 30 days so you can rent the property out and start earning some income. Not going to happen! Once you get going and realize improvements cost much more than you thought and take longer to complete, you’ll be doing some major revisions to your estimates. Be cautious when estimating a low-priced and quick-turnaround renovation, as that rarely ends up being the case.

Expect to invest your sweat equity

To better educate yourself and minimize budget overruns, plan on spending a lot of time at the property from the day you close escrow until about one month after it is occupied by renters. Why? Because it’s a lot of hard work — getting bids, waiting for deliveries, reviewing work, doing work, shopping for supplies (and more supplies), advertising your property, reviewing rental applications. You’ll be doing it all at your new property. It may start out fun but will not end that way; however, you are in this for long-term wealth building, and that’s why you are willing to invest your time and energy in hopes of a better retirement.

Don’t take the first bid

You must get several bids to ensure that you’re getting a fair price for any contracting work. The more expensive the job, the more bids you should get. This is going to be exhausting and time consuming. However, doing your legwork can lead to better and/or less expensive bids in the long run.

Focus on paint and flooring

If the paint and flooring in your property don’t look nice — and they usually don’t — fix them! It’s going to cost some money, but hopefully you’ll get a little more rent when you make these improvements.

Paint:
Use a bright and neutral color, and paint all the walls the same color and sheen. When you have to do touch-ups down the road, it’s nice to just have one color in the property, and you can always have a can of that color on hand.

Flooring:
Your flooring options include carpet, tile, wood laminate and vinyl. Tile is best for kitchens and bathrooms due to water and moisture issues. Wood laminate is best for elsewhere due to its durability and easy cleaning. Carpet is not good for rentals as it stains easily, and every new tenant wants new carpet. Shop around: You can find some good laminate deals, and it’s relatively easy and inexpensive to install.

Check for plumbing and electrical issues

Properties that are more than 20 years old usually should have the water valves and electrical outlets replaced. So round up a few plumbers and electricians and get some bids. Do this while the property is empty. Water valves, supply line hoses, washing machine and dishwasher hoses and drains pose the biggest leak and flood risk. Change them all out. Electrical outlets and covers are not as big a risk, but usually look really bad with many coats of different color paint on them. An electrician can change out a whole house of outlets and on/off switches in half a day or less.

Don’t go for the lowest-priced supplies

When you get bids and are reviewing costs at a home improvement store, don’t just pick the least expensive supplies. Those items will never stick when you are actually making the decisions on what to contract for and purchase for your rental. You’ll end up buying the more expensive stuff, creating a budget headache that could have been avoided.

These basic tips should be supplemented with your investigation and seeking guidance from experienced real estate investors in your area. They’ll have other good advice, too. Just don’t think being a real estate investor is an easy walk in the park. It’s more like a marathon in the hot sun with a lot of hard work. But this hard work and determination will make your eventual success even more rewarding!

Have questions? Just leave me a comment below and I’m happy to help you!

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