HOA Buying Units

Started by PatW2 • 7 replies • 2001 views

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PatW2 (Washington)
Posts: 9

Posted:

In our 80 Unit Townhouse complex, we have 3 empty units due to foreclosures. The banks are slow to pay their HOA dues, and have been unable to resell the units... even at 60% loss.

Since these have been sitting empty for nearly two years, it got me thinking that it might be better for the Association to buy the Units and rent them until the housing Market improves. I think it would be easier to have our Management Company and HOA deal with the Units directly, than dealing with the banks. Plus our HOA has more than enough funds to make the purchase, but I haven't heard of any other Associations doing this.

Is this wise idea? Has anyone heard of any other HOA's buying empty units?

Thx!

MelissaP1 (Alabama)
Posts: 13,836

Posted:

NOT a good idea...Here's the reality. The HOA has to maintain the property and become homeowners. This means they have to raise money to buy the houses from the bank. This can costs thousands of dollars. The houses probably still have a mortgage on them the HOA will have to assume. Can your HOA afford making house payments monthly regardless if there's a tenant or not? The HOA will have to fix up the houses to make them liveable and continously maintain them. Another cost that has to come out of the HOA budget. What if you purchase them and want to sell them? The HOA has to pay the realtor fees and still repair them for sale. Can your HOA afford mortgage payments until the homes sell? The HOA isn't exempt from paying the HOA dues on these properties either. Just because the HOA may own them, doesn't mean they don't have to keep paying the HOA dues...Management companies won't maintain the property for free either. Expect to get their bill for managing.

Let me put this in perspective. The HOA would have to pay to get the home out of foreclosure. That could be up to $5K each. The homes could be valued at $100K but mortgage remaining is at $120K. Even if the mortgage is $100K, that is atleast $900 a month mortgage payment for each home. $2700 a month to own those homes just for mortgage. You have to add on the cost of electric, dues payments, repairs, management fees, and other costs of ownership. Your HOA could be paying out of their budget easily up to $5K a month to own these homes.

A HOA is ONLY funded by it's owners FOR it's owners. If the HOA feels they can afford to spend the thousands of dollars involved in this investment... Go for it. However, like most HOA's this isn't going to work for them. It's just best to keep waiting for those houses to sell on their own and start collecting anew from the new owners...

Former HOA President

BradP (Kansas)
Posts: 2,640

Posted:

If the units have been through foreclosure there is no mortgage amount to assume, the HOA would simply owe whatever the negotiated purchase price is that they purchase the units for from the bank. I think in the end the HOA has to decided whether they want to get into the rental business. The units aren't selling so prospects of you being able to sell aren't great. You should be able to get a good deal on them, but not sure it is worth the headaches.

PatW2 (Washington)
Posts: 9

Posted:

It's my understanding there's more risk with a house, versus a Condo/Townhouse. With a Condo/Townhome, the HOA is already responsible for all the maintenance that goes on outside the Unit. Inside the unit, maintenance is minimal.

Plus, when their selling at $60,000 dollars for a 1,200sq ft 2Bed/2Bath Unit it's starting to look more attractive. That's down from $180,000 in 2007, at the height of the market.

I know things work differently around the US, but in our housing market Condo/Townhomes are not selling at all. At the same time rents in the area are at a all time high. Plus. I'm also concerned that keeping these units on the market continues to devalue all the homes in our community. My idea behind purchasing these units was to give the HOA a long term investment, while helping to stabilize the valuation of our homes.

Most of our homeowners feel trap, because they cannot sell their units in this market. Despite multiple attempts to sell units, no has been success since the housing market crashed in 2007.

GlenL (Ohio)
Posts: 5,491

Posted:

It also raises a host of questions such as who gets to vote those units, who pays the taxes, interior maintenance etc. It may also be a violation of your Articles of Incorporation and at least under our documents it would require 100% vote of the homeowners for the COA to acquire the property. Finally do you cap it at three or does the COA buy out anyone who wants out. If you decide to try this, use an attorney and make sure all of the i's are dotted and the t's crossed.

Studies show that 5 out of 4 people have problems with fractions

JeffR7 (California)
Posts: 251

Posted:

Pat this might be the best thing you do for your HOA or might be the worst. If it makes financial sense sure it's a great idea, but if this was such a great deal these units would've probably sold already.

You need to do very careful due diligence on these unis and analyze your data. You may need to talk to several good agents to understand if the price is right. If the bank is trying to sell at a 'market' rate it may not make sense.

If they've been sitting empty for a while your better bet might be to just sue the bank for not paying your monthly assessment.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Your also forgetting to factor in many factors. Most HOA's are against rental property. Rental property argumentally devalues HOA property. How would this work if the HOA is then owner of rental property? The number of rental property, non-payers, and debt of the HOA is a factor is allowing people to get loans. FHA has a form to be filled out evaluating the health of the HOA. They consider these 3 factors if they want to continue making FHA loans available to purchasers. If not, then it's MUCH MUCH harder for people to get loans. This is something most people don't know. You have less loan options available, the less people qualify to buy.

The HOA doesn't have 60K X 3 units = 90K sitting around does it? A HOA can apply for a loan. However, the banks have to consider too the health of the HOA and it's ability to pay back loans. Plus a HOA isn't just you, it is ALL the neighbors/members/owners. Do you think a majority of the owners would vote for their HOA to get a $200K loan on their behalf to become landlords to property that is that devalued and hard to sell? If they were worth 180K and now can be purchased for 60K, that's not a great investment. They aren't going to sell at the 180K any time soon. Rent can't exactly be profitable as a HOA is a non-profit. They'd have to charge rent about the same rate of the loan payments.

Believe me, I've been where your sitting. It sounds good on the surface but dig a little deeper. If it's that good of a deal, then you purchase them. Maybe even consider owning them with others. Just don't make it a HOA ownership deal. It's just NOT a good thing for the HOA to own these properties.

Former HOA President

PetunkaM (Florida)
Posts: 1,009

Posted:

'Is this wise idea? Has anyone heard of any other HOA's buying empty units?

Thx! '

Pat,

in Florida, the rental market is very, very strong. If the HOA can buy the units and make a profit it is something to consider. However, since you have not mentioned any financial details –other than the possible purchase price- all this is just a talk.

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