HOA Communities Can Teach You a Thing or Two
HOA communities can teach you a thing or two about taking care of your investment.
People that have been involved in real estate and know about HOAs often want to run the other way. The HOA communities are notorious for the board of directors that make decisions that affect individual owners. Owning in a community like that subjects someone to the standards set by the governing documents and HOA board.
These communities typically aren't very welcoming to renters/remote investors and lenders consider it less stable the less owner-occupied units there are.
This isn't an article about living in one of these communities; Rocket Homes did an article about that here that included some of my contributions:
What can an HOA teach us about building upkeep? One of the items an HOA has to do is set dues that the membership pays. This isn't really an arbitrary number. This is something determined by a rigorous process called a
A reserve study looks at all the components the HOA will be obligated to replace, assigns the expected lifespan, and calculates replacement cost. This is basically the CapEx obligation the community has.
Apartment owners often use a rule of thumb to estimate CapEx requirements during purchase. Few know the remaining life in equipment or even the full list of equipment in the building they own. This ends up leaving an apartment owner in a position to make decisions when faced with urgent problems and limited information. How much equipment is close to needing replacement? Does this system have other things that will be a problem once the job starts? The HOA's reserve study helps a community understand where they stand and make informed decisions. This is important enough information that states typically require an HOA to do this study periodically. This information would do us as apartment investors a world of good and allow much better decision making related to the investment. This is part of the inspiration for the Owner's Manual service that I created for apartments. The reserve study doesn't guarantee the HOA is doing preventive maintenance to see the full life-span of their equipment, but it does give them a tool that many apartment owners don't have. Take the time to go through the equipment in your property and figure out when replacement is expected. Attribute a price estimate to these items and see where you stand in your reserves. Alternately, you can find this on the "Replacement Schedule" page of your owner's manual. This is not as detailed as an HOA reserve study, but it will contain expectations on equipment and other large capital items you need to operate your building.