Why we use an HOA in our build-to-rent developments!Jun 03, 2021
Why is there an HOA involved in a FIG build-to-rent project?
HOA's have a negative connotation almost across the board. It's right there with "IRS" and other three-letter entities that you love to hate. But in this case, the HOA ends up being a tremendous asset for the subdivision. That's what we want to address here today.
If you've lived in a community with and without an HOA, you can see the difference. We all hate to get that notice from the HOA that your fence is the wrong color... or you can't park there...
You don't want to be told that but you definitely want your neighbor to be called out by the HOA! Because they don't know where to park... and they don't have a good enough taste to decide what color to paint their house. Somebody's got to police this stuff.
We all think that we know better, but in this case, one set of uniform rules for the entire community ends up being the investor's friend.
Take a look at fourplex communities back built back in the 1970s and 1980s. Look at what the majority of them look like today. You know what they look like. There are cars parked everywhere, junk on the lawn, roofs need to be replaced, the color is faded... it looks really shabby.
That's what we're trying to avoid by having an HOA in place.
One of the key components of doing this is having a master insurance policy. As an investor, if you have an attached unit (apartment-style fourplex or townhouse style fourplex), you can't take the chance that the person that owns the unit attached to you doesn't have insurance. You can't risk the fact that they might not maintain the exterior of their property.
The HOA does all of this in a FIG build-to-rent community. We make sure there's a master policy in place so that, if the building catches on fire (even with a big deductible) it gets paid. The building gets repaired and it's guaranteed because they keep the policy in place and enforced.
What if the shingles start curling? Let's say there are eight doors in a row (two fourplexes). The roof starts looking really old and tired. You need to have reserves and a budget in place to make those kinds of improvements that need to happen over time.
Otherwise, what do you get? You get those old residential multifamily complexes built in the 70s and 80s that nobody really wants to live in anymore... at least for the price that you need to get to command a respectable return on your investment.
This is why the HOA exists. To guarantee that the community is preserved and that it looks the same over time so that tenants actually want to live there.