What is a homeowners association?
A homeowners association is the organization that governs a condo, townhouse or planned community. Owners pay dues, and in return the association maintains the shared areas and enforces a set of rules that every owner, and every tenant, has to follow.
In a little more detail
The rules sit in two documents. The CC&Rs are recorded against the property itself and bind whoever owns it, and the bylaws set out how the association is run. Both come with the property when you buy it, whether or not you have read them.
For a landlord, the part that matters is the rental restrictions. Many associations cap the share of units that can be rented at any one time, set a minimum lease length to keep short-term rentals out, require the association to approve your tenant, or charge a fee for each move-in. Some prohibit renting altogether, occasionally with an exception for owners who were already doing it.
The dues are a fixed cost, like the property tax and the insurance, and they go up. A special assessment, which is a one-off charge for something large such as a roof or a parking structure, can arrive in a single year and take out the cash flow you had planned for.
You stay responsible for what your tenant does. A fine for a boat in the driveway, a pet over the weight limit or bins left out comes to the owner, not to the renter, so the house rules belong in the lease as an addendum.
- You buy a townhouse to rent out. The dues are $280 a month, the association allows rentals but caps them at 25 percent of the units, and it requires a lease of at least 12 months.
- You confirm there is room under the cap before you close, attach the house rules to the lease, and budget the dues as a fixed monthly cost rather than an optional one.
Things to watch
- Read the CC&Rs and the rental cap before you buy, not after.
- Ask for the reserve study and the recent minutes. A thin reserve usually means a special assessment is coming.
- Attach the house rules to the lease, because the fines come to you.
Record the dues as an expense against the property. They then show up in the Income & Expense (P&L) report next to the mortgage, the insurance and the tax, so the property's real monthly cost is in one place.
The Cash Flow Calculator puts the dues beside the mortgage, the tax and the insurance, so you can see what is left each month.
This is a plain-English explanation, not legal advice. Rules vary by state and city, so check your local law or talk to an attorney before you act on it.
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