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What Are the Pros and Cons of an HOA

June 1, 2011 by Contributor filed under Uncategorized No Comments
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Dear Doug: What are the pros and cons (and hidden costs, if any) of buying a home in a subdivision or area that has architectural standards and homeowners dues (versus many older neighborhoods that do not have these)? KR

Dear KR,

I get comments on that question a lot. The “pros” of having an HOA- Home Owner Association- are that it helps keep the neighborhood consistent in appearance. The HOA’s have rules that vary considerably. They also vary in the way they are enforced or not enforced. Some have rules governing exterior paint colors, storm door styles, front fence rules, lawn height rules, flag rules, basketball hoops in driveway rules, no commercial vehicle parking rules, and on and on. This does help keep the neighborhood in good shape and consistent in appearance, which in turn can help the resale of the homes. On the other hand, some people can not stand being told what colors they can paint their doors, or the front of their houses. And, if their favorite team is playing, they want to fly that team’s flag. Can’t do that in a strict HOA. Can’t have the plumbing company truck you drive parked in your driveway, either. So, HOA’s do take away some personal choices,but chances are very good that your neighbor won’t be painting his home pink anytime soon, devaluing your property!

Overall, most people seem to like the HOA idea, when written and enforced in moderation. The rules tend to protect the good of the whole. Of course, when buying a home, you have to ask yourself if you can live by the rules of the HOA of any particular neighborhood that you are considering.

One final point; when you make an offer on a home in an HOA and it is accepted–you have certain rights. Your purchase is contingent on you getting a copy of the HOA rules and regs, and your acceptance, before you complete the purchase. You’lll be delivered the HOA package (same as with a condo doc package), prior to settlement. You then have three days to kill the deal and get your deposit back if you don’t like the rules. You don’t even have to explain why. Good luck!

Dear Doug:I’ve had a rental property for a number of years and have claimed depreciation for taxes. If I sell it, do I have to pay that back? EM

Dear EM,

That depends. The answer, in most cases, is yes.The IRS will “recapture” the depreciation that you took on the rental property when you sell it, and, that will be at a different rate than the capital gains tax which is currently 15 percent. I say “it depends,” because you could sell your rental property using a 1031 Starker Exchange, and take the proceeds, place them with a “qualified intermediary”, and then buy another rental property. You would not have to pay any taxes at that time. You would be basically trading a house for a “like kind” property, and delay paying taxes, and delay paying any recapture of the depreciation that you took. To take it one step further, after a year or more renting it out, you could move in it, convert it to your primary residence, and not pay any capital gains tax for up to a $250,000 gain–or a $500,000 gain, if married. However-the bottom line answer is: I know enough about tax strategies to be dangerous, so consult a tax adviser. Ask me about bricks and mortar, and values and “comps”. I know enough to know that I don’t know enough to advise you. So, please consult a tax adviser..then call me when you need to do that 1031 Tax-deferred exchange, and find a “like kind” replacement property!

Douglas Frank holds a BA degree in English from Rutgers University and is a licensed realtor with over 20 years experience. Doug works with Prudential Carruthers Realtors in Fairfax, Virginia. He also has his Home Improvement License and owns a number of investment properties including houses, townhomes, and condos . Doug and his wife and two sons live in Fairfax, Virginia. (Opinions expressed here are … only opinion!)

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