If you are buying a primary home or investment property, and are trying to decide what the pros/cons would be of buying a single family property, an attached property (condo, townhome, rowhome) or units, here are some key things to consider about attached properties & HOAs.
Your desire to be more or less hands on skew whether these are pros or cons.
Affordability, less maintenance, security & amenities are often key considerations. For people who desire a property they can more easily lock & go a condo is usually ideal. For owners where there are weeks or months where you will not be living in the unit, having a secure building is a key selling feature.
I am going to focus on attached properties/ condos with shared components and not detached properties with HOAs. PUDs can also be attached with HOAs
The main thing is you lack control. You are 1 of many. If you are buying as an investment, your inability to control costs matters significantly. The upside is you have less maintenance & hands on work
Rules / what fees cover can change- how you can use the property may change over time as rules are voted in
Do you desire to be on a HOA board or run for President, so you have more influence in an unpaid job?
The HOA docs package is civil code required in CA to be ordered /delivered via escrow. The frustrating part is the docs can be slow to obtain and you are often 7-10 calendar days into your escrow before you see them. You will have a varied experience from building to building, whether the HOA will answer your questions in a timely manner, format/what is in the HOA docs. As Agents, we do not give you advice on them, and we often do not receive a copy. Ultimately, the answer is with the HOA or property manager
Do not rely solely on the listing, the Seller nor the Listing Agent for information about the HOA. They can be wrong or don’t know. You are the one who will have to live & work with the HOA or property management
HOA 101
You are apart of the HOA. I hear people saying they’ll sue the HOA, but you are apart of the homeowners for the condo complex / building and will be impacted by your own lawsuit
Every condo building is run differently. Some are professionally managed, others are self managed. Some hold scheduled frequent meetings, some rarely meet. How HOAs vote or are governed are all different
HOAs have covenants & restrictions known as CC&Rs. These are recorded against the property at the time of the HOA formation. This restricts your ownership, how you use the property
HOAs can also have other Rules & Regulations that are adopted after the CC&Rs are formed. Other docs may include financial, meeting minutes, notices, reports or bids for work
You can have multiple HOAs in a master planned community, each with their own set of rules & docs
Attached condo complexes typically have shared structural components- building/walls, roofs, sidewalk, main plumbing, sewer lines, main electrical panels, common areas, sidewalks, landscaping, parking, private road
HOAs typically cover exterior maintenance, the building/structure itself such as roofs, sewer lines, stucco/siding/wood, shared plumbing & electric main panels, pest control, master insurance. This is the draw for many people who want less maintenance. However not every HOA covers all of these items, you must verify what the fees cover in escrow directly with the HOA/ in HOA docs
HOAs can restrict your use in all manner of things
Pets
Parking
Rentals
Improvements (some HOAs do not allow hardwood flooring in units on upper floors). HOAs typically all work be done with permits, bonded/licensed contractors and projects to be approved by the Board. Some contractors will not work on condos due to access constraints, hours, insurance/compliance requirements
Noise
BBQs, how you use a patio/balcony/outdoor space
Ability to add features such as AC, solar
If the building does not keep up with improvements and maintenance, this is going to negatively impact your value. You can improve your unit, but if the exterior doesn’t match the interior, this may impact the pool of interested Buyers & Renters
Timing- you are beholden to the schedule / urgency of the HOA
Costs & Dues
When I see a low HOA monthly fee, I would caution Buyer Beware especially if the building is older and the structural components are reaching end of life or may be more prone to problems. If the HOA has not been collecting enough reserves for repairs & capital improvements, they have kicked the can down the road to the next homeowners. You’re going to pay for necessary repairs one way or the other
Conversely, a high HOA fee where a building doesn’t have a lot of amenities can mean the HOA wasn’t collecting enough in the past and is trying to build reserves, or the building is poorly managed. Many buildings with high HOA fees cover many amenities such as security, onsite 24/7 staff, luxury pool, clubhouse, dog washing station, gyms, entertainment facilities
One way to look at the HOA fees over time is could you save those monthly fees to cover costs more effectively in a single family and are the HOA fees so high your monthly payments push you to consider single family homes? The cost of borrowing 100k at 6% is $600/month
When HOAs have required repairs/replacement, and there is not enough money in the HOA reserves, they create special assessments. I have seen listings with financed additional monthly payments for the assessment over X period of months in addition to the regular monthly HOA fee, OR they are lump sum payments sometimes in the 5 figures per unit
If the HOA votes to update/remodel the lobby, hallways, gym, common facilities that you do not agree with, you will still be paying for it
You may have a vote but cannot control the contractors used, cost of the bids / negotiation
Any lawsuits, problems caused by a few owners, increase in costs can mean shared pain across homeowners. You can’t control what every owner or their tenants puts down their drains
Master insurance policies- how much the structure is insured for is not in your control
Does your building carry earthquake insurance?
What happens when your building gets dropped by the carrier? I would recommend you spend some time talking to insurance agents in San Diego on what areas are prone to being dropped.
Lending
You will likely have a higher a mortgage rate for a condo unless you put 25% down known as the condo rate premium
Whether your building will accept FHA or VA loans on units for sale depends on whether the complex is approved for these loans
There are many reasons a Buyer cannot obtain a Fannie Mae/Freddie Mac mortgage aka non warrantable condo building. These conditions are usually transitory, but some can impact the building for years. This means that the loan options for the building are portfolio which typically require much higher down payments at higher mortgage rates
If 1 owners owns too many units in a building
If you’re buying as an investor and the owner occupancy rate is too low
The building /HOA is in litigation. Many new construction buildings go through construction defect litigation with the developer within the statutory 10 year limit
Structural defects on 1 or more units or the building
Too many owners in default on HOA dues
If the Master HOA doesn’t have insurance or inadequate insurance
Investment
You cannot easily control costs, improvements, aesthetics, amenities. For example you cannot just add electric car chargers, solar, covered parking, BBQs without HOA approval that may be desired amenities by tenants
You may have a vote, but not control over who’s running the HOA, property manager. HOAs by structure are inefficient
Most condos will not cash flow without a significant down payment
You have more rental unit competition especially in high condo/apartment supply areas such as Downtown, Mission Valley, UTC and less differentiation/ more commoditized
Condos can be less desirable as rental or resale when more supply or affordability increases where privacy, yards, garages and storage are desired
Limited value-add or ability to add income streams to property such as building ADUs or ability to re-develop the lot
Cloud Condos
Cloud condos are condo lots with multiple units, where the units may be attached or technically detached by an air gap between units, not share any common walls, but the exterior is attached via stucco or are flush at the facade
The key feature is they have NO HOA
Having no HOA poses many potential issues as you have no HOA fund/no reserves for doing repairs.
No money nor requirements to paint or maintain the exterior
Shared sidewalks, driveways, drainage, landscaping, railings, fencing, walls, gates, sewer lines. Who pays when the sewer line backs up affecting only some units?
No master insurance policy- what happens if someone falls on the steps or a walkway or fire with no master policy for rebuild and your neighbors are underinsured or have no insurance?
In many cases, HOAs may have CC&Rs and other rules the prohibit solar, satellite dishes and antennas.
These restrictions and rules have been overridden by state and federal laws which may grant more rights to the HOA members.
There may also be circumstances where state or federal laws can be overridden by HOAs. One example is handicapped parking spaces that were required when the developer maintained an on-site sales office that has now closed.
Since the property is no longer open to the public there is no need to maintain handicapped parking spaces. This can add much needed parking into the resident or guest pool.
This article starts by saying Realtors can't (shouldn't) provide advice on these matters and neither can I but it's worth noting that the Docs sometimes contain rules that are incorrect so do your research.