Tag Archives: Capital improvements

Benefits of Living in a HOA Community

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Millions of homeowners now live in communities governed by homeowner associations or HOAs.  In fact, it is estimated that one in six Americans live in a HOA community.  That statistic is probably higher in Orange County as so many of our beautiful subdivisions are HOA communities.

Buyers are often wary of purchasing properties that require HOA fees.  Many view HOA fees as another expensive monthly cost and find HOA rules and regulations to be too restrictive.  But, there are many benefits of living in a well-governed HOA as the intent of HOAs is to protect the value of the homes in the area.  While every buyer should weigh the cost of the fees and determine what amenities and services are included, here are some common benefits to being in an HOA community.

Property Value Protection

A HOA provides greater certainty that the community will remain visually appealing over time, by imposing and enforcing rules on architecture, landscaping, fences, signs, parking, usage of public spaces, and more.  The rules are designed to create parameters for aesthetic uniformity so that no house is an eyesore to the neighborhood.  In addition, the HOA is responsible for the physical maintenance of common areas.  While residents often find HOA rules to architectural enhancements to be thorns in the remodeling or construction process, they are put into place to protect the collective interest of the residents.

Recreational Amenities

One of the most attractive benefits to HOA fees are the amenities provided.  Many communities in Orange County offer gated access and around-the-clock security presence to provide added safety for the residents.  Others offer pools, clubhouses for rent, parks, gyms, basketball courts, tennis courts, community events and even private beaches!  Obviously, the more amenities offered, the higher the fees may be.

Property Updates

The HOA sets aside a reserve account for future capital improvements or repairs from unexpected damages.  The reserve account provides assurance that the properties will remain in good shape and may save homeowners money in the long run.  Many people recognize the benefit of owning a home but being able to share in some of the management responsibilities

Community Environment

When a community has an HOA, the residents of that neighborhood have agreed to a set of “good neighbor” rules fostering a greater sense of community.  Many HOAs also provide community events and socials to increase community bonding and communication among the residents.  While this benefit is difficult to quantify, it is highly desired especially by young families, and that desirability can be a factor in property values.

As a prospective buyer looking for a property, decide early in the process if the HOA lifestyle is a fit for you.  If so, do some research and determine how much you are willing to pay per month on HOA fees.  Also, research what amenities are provided in each subdivision to help you narrow your property search.  A seasoned real estate agent knowledgeable in the areas of your interest should be able to provide you with the information you need at the onset of your home search.

Real Estate Investment: What to Consider

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Without a doubt, the real estate game can be a lucrative investment strategy that produces positive return on investment above and beyond traditional investing, which is what makes investing in real estate so attractive.  But owning a rental property isn’t as easy as buying a house, renting it out and collecting the rent month after month.  There are many challenges, often financial, that can erode your returns.

The secret to getting great returns on real estate lies in understanding the fundamentals of what makes a great real estate investment within your own set of financial parameters and capabilities.  Here are a couple of important considerations to think about before you buy your first investment property.

1.  Are you ready to invest?

Investing in real estate isn’t for everyone.  Buying a property for the explicit purpose of letting others live in it doesn’t preclude you from taxes, insurance, HOA dues, and other recurring costs above and beyond the cost of the house.  And the financial commitment is only part of the equation.  Do you have the bandwith to make capital improvements, market the property, select tenants and deal with tenancy issues and repairs?

2.  What kind of property suits your investment needs best?

There many different strategies you could adopt when it comes to real estate investing.  Some people look for “flip” opportunities, buying a house cheaply, renovating it and selling it for a quick profit.  Others prefer the long-term stability of single-family rentals or multi-family units.  Others just want to bankroll other investors to earn a passive return.  There are so many opportunities in real estate, you just have to understand your own personal finances and see what fits your lifestyle best.

3.  What is the neighborhood like?

The importance of location is no less vital when it comes to choosing a real estate investment.  Often times, people buy investment properties in a different neighborhood from where they reside, and hence have less first-hand knowledge about the location.  Who are your potential tenants?  What kind of industries do they work in?  How are the schools in the area?  What is the crime rate?  Do your homework and make sure you are comfortable with the neighborhood of your investment property, keeping in mind that as the landlord/manager, you will likely be making many trips to the property.

4.  What are your investment expenses?

A common oversight of first-time real estate investors is underestimating their expenses.  Above the occasional unknown repairs that inevitably pop up, are you ready to shoulder expenses to cover:

  • Utilities
  • Garbage/sewage
  • HOA fees
  • Landscaping
  • Insurance
  • Vacancy costs
  • Scheduled maintenance
  • Capital improvements
  • Fuel (if you are driving frequently)
  • Marketing costs
  • Accounting
  • Legal fees

5.  What can you charge for rent?

Within the neighborhood of your interest, what are comparable units charging for rent?  After expenses, will you net positive cash flow on the property?  With every rental, there are months of vacancy from time to time.  Make sure when forecasting income, to build in loss for vacancy.

6.  Will you self-manage or hire a property manager?

Whether or not you should manage your property depends on your personality, resources, skills and availability.  A typical property manager may cost between 8%-12% of the monthly rent, but a good property manager should also decrease vacancy and maximize rents.  They also handle all the tenant issues and building repairs.  Some companies even manage construction projects on your behalf.

Even when property values are declining, investing in real estate can be profitable.  The long-term historical appreciation rate for housing is over 8%.  So if you buy low, even if prices go lower in the short term, you can still do very well if you hold the property for the long haul.  When you find your ideal rental property, keep your expectations realistic and make sure that your finances are in a healthy state that you can wait for the property to start producing cash flow.