HOA Lease Restrictions - Do They Help or Hurt?
Today I had a transaction that went awry for us. The buyers are investor clients of mine, and their plan was to purchase the property (a foreclosure and bit of an eyesore in the subdivision) to possibly flip. Once our offer was accepted, I went to work on the questions that come up during the Due Diligence period.
First question was to determine if the property can be leased. I researched the Internet to locate the HOA contact. It is a local community management company. I called their office and received the name of the specific person handling the particular community. She was out of the office, but she did respond to my email inquiring about leasing in the subdivision. She replied promptly with a document outlining the lease restrictions in the subdivision.
After I read through the document, I found a clause that was specific to purchasing foreclosured homes in the subdivision. My buyers would be able to purchase the property and lease it under this specific clause. However, my buyers would not be able to sell the property to another investor afterwards without proving undue hardship to the HOA. My buyers really wanted to execute the strategy of buying the property and selling to another investor after getting it repaired and occupied with a tenant.
Ultimately my buyers declined to go forward with the transaction as it did not fit their strategy.
Now take a close look at this property. It boarded up, developing a moldy smell inside, and then there are the HOA restrictions for investors who will buy the property, do the repairs and get it occupied. And it seems to me that the subdivision would be better served by having an occupied property in good repair.
In this case I think the HOA needs to go back and look at their Leasing Restrictions. Plus the HOA is apparently under funded as the subdivision's pool was not open this summer due to funding issues.
Are the HOA Leasing Restrictions helping or hurting?
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