Risks of buying in HOA’s Episode #264

Hello! Welcome to Todd miller TV. Question of the day is: You bought an investment property in the Condo Association and then you came to find out when you tried to rent it that they don’t allow renters. What do you do? So, the first question is, How did this happen? Well, the way it happened was, when you buy anything in the HOA you get a copy of the HOA package required by State law. You have to have it before you purchase a property. And you have to actually sign a sheet of paper saying you read it, you agree with it, you comply with all the rules. But these things are huge and I should have brought one but they’re like this thick. They’re like no kidding about and inch thick. It’s you know, maybe 150-200 pages and there’s no way people will read through the whole thing. So, what most people do is they go “Yeah, great, I got it, now what?” And they signed it off. So, you’re stuck with it now, and you have a problem. So there’s 2 thing you can do, really. One thing is you can try to get an exemption from the HOA. You can say “Hey look, here’s the deal, hardship, whatever, I bought it, didn’t realize.” And then you write a letter and then they go to their board and most of the times that gets rejected. They go, “Nope, we’re not gonna do it.” The other thing you can do is you sell it. You know. Because that’s really the only other option you have. If you put a tenant in there, they’re gonna figure that out and then they’re gonna start fining you. So let’s talk about what happens if they fine you. Typically the fine for something like that is like $100 a day. So let’s say that you get $1,000 a month rent, and you’re paying another $150 a month in HOA fees, so you’re netting $850, plus you have some taxes, insurance, and things like that. And then you’re paying it $3,000 a month in fees to your HOAs because you rent it. So it’s probably not a good financial decision to do that. And you’re gonna have to pay it. If you’re not gonna pay it, then when you try to sell the house there’s gonna be these outstanding HOA fees that are ridiculous. So, that’s/you know/so rule number 1 is to do your due diligence upfront; the 2nd thing is is if you’re saying “Well, why didn’t mu agent explain this to me?” It’s not your agent’s job to figure this out. It’s jut not. I mean the agent’s not gonna through the HOA and read it. And unfortunately, there’s no database that says “Hey this is allowed, and these don’t.” It’s not very searchable, easily searchable field in the MLS, you just hav to research it and it’s really the agent shouldn’t be doing that because, the problem is as if, you as the buyer put on your agent for them to do diligence on, then what’s gonna happen is they’re gonna/you know, you can’t rely on that. You should be doing that due diligence yourself. It’s actually un-ethical for the agent to make representations that are not obviously like that to a person about things like if they say “Oh, no, that across the street, they’ll never build on that land or that’s not gonna be a Walmart.” They shouldn’t be saying those things. They should just be telling you where to go to find out. That’s really what they should be doing rather than being the source of information. So, a quick example, this actually happened to me one time. This was a number of years ago. I was buying an investment property and I said “Hey, I’m not gonna make this mistake, I’m gonna make sure I buy it in an appropriate place with a lot rentals. I looked in the MLS and long behold, there’s stuff listed as rentals, there’s stuff that’s under contract as rentals, it’s leased, I go They clearly allow with because all these people do it in the MLS. I get the HOA documents, they’re that thick, I signed the sheet, I sent it back to the seller, buy the property, get in there, get all fixed up and go to put a renter in there, and I get a phone call going “Hey, you can’t rent!” and I’m like “Whoah!” I said “Wait! What do you mean? I just looked at the MLS there’s all these other places.” They go “Yeah but..” We got to a point where we stopped and said “Anybody who purchased this after this date, you can’t rent. Only people previously that have owned are grand-fathered in.” And I went back and look to ensure enough everyone of those people, when I looked at the people that were renting and I looked when they bought it, they don’t bought it previous to that date. So, eventhough it looked like you can do it, it won’t allow it for new owners and that was actually written in the HOA documents which I didn’t read. So, it can/you know/if an agent can make a mistake, you can make a mistake as a buyer, and that’s just one of the thing that happens that’s you know, if you’re buying in an HOA, single family home or condo, it doesn’t matter, ’cause there’s single family home neighborhood where they have that same restriction in there, some of the high-rises have restrictions where you can have a tenant but they have to be atleast 6 months at a time, you can’t do like vacation rentals and things. So the bottomline is, read the HOA docs, make sure you understand what you’re doing, and then, when all is said and done, you’ll be more informed and you’ll be better able to make a decision. So anyway, that’s my update for today and hope to see you on another video. Thanks.