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Although it's unwise to ever make a blanket statement about anything in life (except for death and taxes), here's a pretty safe one: It's usually not possible to negotiate HOA fees before you buy into an HOA community. It's more likely -- albeit still difficult -- to get fees to decrease once you buy in and are part of the HOA.
What is an HOA?
HOA stands for homeowners association. It's a legal entity structured as a private corporation that governs planned communities and condo association buildings. HOAs are set up by real estate developers to function as the sales center for the community. When the community sells out, community residents take over HOA duties and can often change the bylaws (called the Covenants, Conditions & Restrictions, or CC&Rs) and HOA fees.
All residents probably want to lower their HOA fee, and sometimes that might be worth looking into if you live or invest in one. But because HOAs pay for upkeep and repairs of common property, and in the case of condominiums, for building maintenance as well, the fees need to be high enough to maintain the common areas and amenities.
If the association isn't collecting enough in fees to cover the costs required to maintain the neighborhood or building, residents will be charged a special assessment to pay the price. It's typically better to pay set HOA fees that you can plan on instead of being hit with a surprise and often costly special assessment that you haven't budgeted for.
That said, your standard HOA fees might be too high. If they are, there are ways you might be able to lower them or at least prevent them from getting too high (fees tend to increase year over year, not decrease).
Reevaluate the contractors
The biggest expense HOAs usually have is paying the contractors who conduct the maintenance and repairs of the community or building. Landscaping costs, for example, could be the biggest line item expense for a neighborhood. So one way to get costs down would be for the HOA to shop around for a less expensive landscaper (or any contractor used) -- and either fire the old contractor and hire the cheaper one or use the information obtained to negotiate a lower price with the current contractor. Any money saved by doing this could go toward lowering HOA fees for everyone.
Look over unnecessary expenses
Some things the HOA has been paying for might be unnecessary, such as these expenses:
- Landscaping: Maybe the community doesn't need as extensive a landscaping plan as it has been using. Maybe high-maintenance plants and trees can be replaced with low-maintenance ones. There will probably be an initial expense to make the change, but this could lead to lower HOA fees moving forward.
- Property management: Some HOAs use volunteers to manage the community and don't use a property management company at all. If that isn't possible, it's still beneficial to look into the services your property manager handles and possibly take on some duties yourself to lower fees or shop around for a less expensive property manager.
- Insurance: Part of your HOA dues go to community HOA insurance that covers damage to shared spaces. These costs should be regularly evaluated, and if need be, the community might consider switching insurance companies to get a better rate.
- Putting off improvements: Some of the HOA expenses could be to pay for renovating the clubhouse, for example. If that's the case, maybe the community, to save on fees, will decide to put off renovations.
- Social events: Some HOAs have social committees who plan parties. That could be a place to cut expenses, depending on how many people attend those events.
Look at reserves
An HOA needs to have adequate money in a reserve fund to pay for routine maintenance and handle emergencies. An accountant should set up a schedule for the big picture, such as budgeting for needed repairs and maintenance 10 years out. If the reserves far exceed the planned expenses, that's a sign the fees might be too high and can be lowered.
Get residents to pay
Some residents might not be paying their HOA dues, which hurts the entire community. The HOA needs to have strict policies in place on how it deals with these deadbeat owners; otherwise, the HOA will probably never see that money.
The HOA needs to try to collect unpaid dues, and it has the legal authority to do so. The HOA can send demand letters and make collection calls. If that doesn't work, the HOA can file a lawsuit and possibly get a judgment against the homeowner. If that doesn't produce the money, foreclosure proceedings can be initiated. The foreclosure process for HOAs varies by state.
The Millionacres bottom line
Before you invest in an HOA community, it's best to do so assuming you can't negotiate down the HOA fees. You must consider the current HOA fees and determine whether they are too high to make the investment profitable. If the deal is still a good one with the current HOA fees, once you buy into the community, you have some power to possibly get the fees lowered, particularly if you join the HOA board.
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