Beware of Investing in Condos, Townhomes or Single Family Houses in a HOA

beware_investing_in_hoasDiscover the hidden dangers of investing in Condos, Townhomes and Single Family Houses that are in Associations. You'll learn the pitfalls of investing in HOAs (also known as homeowners or condo associations) as well as how to navigate challenges and still profit.  This is important information for anyone considering purchasing a condo, townhome or single family home in an HOA.


Challenges of  Condos

A condo might make sense for a developer who is trying to build more units per area; but for real estate investors buying individual condos can be a massive problem. A lot of things can go wrong and there are extra costs that go beyond the costs associated with purchasing a normal family home.


  • Dues

The first extra cost is the monthly HOA dues. The HOA collects monthly dues every month to assist with maintenance of the properties within the association. Association members can vote to increase dues to rebuild or improve things in the community.

I purchased a townhome within an HOA that had dues of $75 a month. This was a really good price and very appealing to buyers because it was a lot cheaper than other HOAS in the area. The HOA increased the fee up to $150 a month in order to cover the cost of a large fence around the property, but they never even built the fence.


  • Assessments

The next extra cost can be the scariest cost related to an HOA. Assessments are any extra bills the HOA gives out that goes beyond what the monthly dues cover. Assessments pay for things like new roofs, sewage, and even community pool repairs.

I received an assessment on one of my properties for $4,500 to change from a septic tank to the sewer system. Every single unit owner had to pay $4,500. AND if you do not pay these bills, the HOA has the power to foreclose on you!


  • Credit Bureau

HOAS are actually reporting to credit bureaus. If you do not pay your lawn care or pool maintenance it's as serious as not paying your mortgage or property tax.  The extra costs can completely demolish any cash flow and ruin your credit score.


  • Rules When You Want to Sell

When you purchase a condo and decide to sell it, the HOA has rules that you must follow.  One common rule is, "the right of refusal". This means that the association, which is controlled by the developer, has the right of refusal to buy any property before a buyer can purchase it.  I once dealt with an HOA that had to approve the buyer, and if the buyer  was not what they wanted, they could refuse the buyer. Now, they cannot discriminate against race, religion, or anything like that, but they find a way to stay within the rules and still discard buyers.


  • Contractor Approval

There are also HOA rules pertaining to the materials used in renovations.   I once bought a condo that had suffered a water leak which damaged some of the wood flooring. The previous owner hired a contractor to fix it, but the contractor had to be approved by the HOA first.  In order to get approved the contractor had to go through a 1-month orientation, $2,000 deposit, and increased insurance. In the end, the contractor's work was not approved so the seller ended up with a bunch of assessment fees.

When I purchased the deal I had to rip up the brand new flooring he put in because it had the wrong underlayment and they wanted it to be 1/4-inch thicker. As a condo, if you're on the upper level and you have the wrong underlayment, it can make a lot of noise for the person below you. The HOA can dictate what kind of materials you use and what kind of contractors you use.

This particular condo I was referencing, also had a rule that only one person could move out per day. It was a 500 unit high-rise condo that only allowed one elevator to be utilized by a moving company. As a result, I had to be added to a moving schedule which caused the deal to take three extra weeks.


  • So Many Rules

These rules can be absolutely ridiculous sometimes. They make it very difficult for you to sell a property and/or they make it very undesirable to new buyers. If you want to turn it into a vacation rental, the HOA will often have a rule prohibiting that.

Typically, the people who are creating the rules are the original developer, so they're going to set rules that make their situation better. A lot of times developers make it very difficult to re-sell because they still have new units in the development, that they want to sell.  They will make your life miserable if you're trying to resell a property because they're competing against you, and they're going to beat you every time.

Other HOAS consist primarily of people that have absolutely nothing better to do with their time.  They are the ones that go to all of the board meetings, become the president, and then they spend their entire life trying to create more and more bureaucracy.


  • Lending Problems

The next issue you're going to deal with when you try to resell a condo is all the lending problems that can occur. First off, if the HOA is having financial problems, or not meeting their financial ratios, most of the conventional lenders won't lend on it. This means that you will have to go the non-conventional route, so the price of the loan will go up.

Another lending problem is the ratio of owner occupant to non-owner occupant. If  a bunch of investors are buying condos, this is completely out of your control. If the ratios get out of whack, then a lot of lenders won't lend on that condo because they don't like the ratio.


  • Insurance

I have a friend that is currently having issues with an HOA listing because the insurance is not adequate.  The association insurance level is not adequate, so none of the conventional lenders will lend on it. The association is basically saying, "We're not going to pay more for insurance. You need to go find somebody else to lend you money or pay cash." The great lesson here is to be very aware.


Quick Tip


Before purchasing an HOA, get the seller and the HOA to put in writing that there aren't any upcoming. Make them put that in writing because on an estoppel letter, they only have to list active assessments not  any upcoming. Condo sellers will often try to get rid of a condo quickly, because they know that there is a $10,000 assessment coming in.


  • Concessions

Be careful if there are other units still available by the original developer.I once saw a developer offer 2 years free of HOA dues which were $800 a month. This means that the person would save $9,600 a year for two years if they purchased directly from the developer.

This concession wasn't shown on the MLS or anywhere else, because it was kept a secret. It was something the developers used to help the newly-built condos outsell the existing ones.

Challenges of Townhomes


  • Undesirable

Townhomes suck as investments.  They're undesirable because they're not really a condo and they're not really a house. The psychology of most buyers is that they want a single-family home with a white picket fence. Others want to live downtown or ocean-front, so they want a condo. The townhome is kind of in the middle, but it's the worst of both worlds. Now there are a few buyers out there that would prefer a townhome, but the vast majority of buyers don't. You will run across a lot of motivated sellers trying to get rid of their townhome.

Most townhomes are developed by developers that buy land, but cannot make enough money building single-family homes on it. So they compress a bunch of units with townhomes, and offer all sorts of incentives to get people to purchase them. They are brand new and typically less expensive than single-family homes. In high-priced zipcode areas people will move into townhomes purely to get into the good school districts.  But, all of this is a lot more difficult when you are trying to sell a previously-owned townhouse.


  • Example

I once had a townhome I rented out as a rent-to-own. There were some strict rules, and one of them was that you had to bring the garbage can out to the edge of the road, so that the garbage person could pick it up. If the garbage was not put back by the end of the day, you would be fined $25. My tenant's schedule was irregular so he was unable to bring the garbage can back in until the following morning. My tenant began to receive fines in the mail that he refused to pay, so I eventually had to evict him.  All because of some garbage cans left by the road overnight.


Challenges of Single-Family Homes


  • The H.O.A

Single-family homes in an association can still run into all sorts of problems.


  • Home Exterior Restrictions

An HOA can dictate what your house looks like on the outside. The HOA can restrict anything on the exterior of the home such as roofing materials, house color, fences, and even what you are allowed to have in your yard.

You need to know all the rules and issues involved in single-family homes in associations.  When you resell HOA properties, the association rules and dues can be a deterrent for potential buyers.

Dangers of HOA Properties


I hope I have covered most of the reasons why you have to be so aware of the dangers of purchasing an HOA property. The only solution to these problems is to purchase a deal within a margin of safety. I have a great video on that subject.


  • Margin of Safety

It's important to have a massive margin of safety with HOA deals because of the costs and delays that occur. Be aware of the rules of an HOA before purchasing, because mistakes can ruin your investing career.


Share Your HOA Stories


Please share your HOA horror stories below. I would also love to hear any real success stories where the HOA was wonderful.

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[Total: 8 Average: 4.8]


  1. Thank you for the post on the condo and a townhouse. I kind a like the idea of a condo because you can get amenities like the community pool or gym. However, I think in many cases, townhomes are nicer and actually seem like small homes rather than apartments.

  2. First property I purchased to build on was in a 20 acre subdivision * association was in charge of “road maintenance” they kept increasing dues and then instead of spreading cinder on the road as they were when I bought, they started dropping it off at the lot near the top which turned into a private golf course (with all our materials) while lots in the back such as mine now had to drive over 3.5 miles of Huge (cheap) rock they started throwing on the road. Needless to say many vehicles and property values ruined. Never again an HOA

  3. Ron Wikstrom says

    I would like to know more of your associate program!
    Thank you.

  4. Hey! Every single unit owner had to pay $4,500. AND if you do not pay these bills, the HOA has the power to foreclose on you! You can see on Emaar IL Primo Dubai project.

  5. Marv Sauer says

    As a landlord, I like the HOA, because it protects against possible property abuse.
    It’s a layer pf protection for me, since I live out of state.
    So far it is proving great for the investor who lives out of state.

  6. Linda White says

    Phil, where do you suggest people live? Most homes built within the last 25-35 years all have HOA fees. Especially those in new subdivisions. I lived in Texas for 25 years.
    As a single female senior citizen, I am considering purchasing a condo in Chicago and moving from my 100 year old single family home. I am tired of the headache of mowing grass, raking leaves and shoveling snow. I must say I was discouraged after watching your video. I am now considering renting and investing in REITs.

    • Freedom Mentor says

      For some people HOA’s can be a perfect solution for easing the burden of home ownership. As for purchasing for your own home to live in go in with your eyes wide open and do as much research about the rules, the board and it’s members as you can. Recognize that the people elected to the board can make it an effective HOA or just as easily a poorly managed one.

  7. I have a townhouse 18 years. Someone was saying people can’t get a mortgage cause we have no association. It has to be cash could this be true. Everybody works the lot and land together never any problems. 6 units.

  8. It seems like every HOA is different! They can and do stop a lot of property abuse but a bad HOA board can be abusive as well. If you’ve never lived in a community run by an HOA then be sure you can live within the HOA rules.

  9. We were in an HOA and it was a disaster and had to sell after 10 years. Rules were not followed by members of the board. Beware of HOAs.

  10. Great info! Do you have any recommendations on how skeptical homeowners can set the tone for a new HOA board as control transitions from builder control to homeowner control? Any suggested comments or questions that can cause the first set of board members to behave properly? I just bought a small single family home in a tiny HOA community with no amenities other than 5 small common areas. We are hoping the HOA won’t turn out to be overly involved in our lives but know from experience that the first board members will establish the culture. The HOA documents allow for wide interpretation…… thank you!

  11. Ned Madonia, CCIM, MBA says

    I agree with you comments in general and the solution is education and information. Enjoy your presentations and appreciate the lack of BS.

  12. i REALLY enjoyed this video. I am a new investor but I am never going to buy any property that has home association dues. I don’t understand why people buy; its like being in jail for a property you are making the mortgage payments.

  13. If you buy in some areas (aka SoCal), they’re fairly unavoidable.

    I’ve got a condo and an SFR in different HOAs in SoCal, and a SFR in AZ, and no real problems so far. The most important thing is to do due diligence on the HOA before buying in them.

  14. Winston Weng says

    We bought a condo from HUD. After three years we found out we couldn’t rent it out for owner occupy only and no buyer too.

  15. Good story on my side so far. Because all houses n the association are 4-unit buildings (12 of them), we have essentially a small association of investors. It also involves property management. With their help, we get neat grounds, crime watch, community-building celebrations, and more for the whole street. We vote on the budget and direct property management to review costs, search for new providers, etc. This has worked out well so far.

  16. Mr. Phil as always you enlighten me on the right path to investing in real estate, I’m learning so much from your videos thanks.

  17. Phil,
    My wife and I are looking for a condo/townhome to purchase. She is set on a condo/townhome because she think that it will rent if and when we have to leave. I have a career that’s high risk and high reward. If things are good we stay and if things are bad we get fired. We live in an area where homes, condos, and townhomes are rented and sold all the time. We’re not real estate investors, but we would like to rent or sell the condo/townhome if and when we leave. What do you think we should do?

  18. Henry Hernandez says

    I just want to share with you the headache that it’s been trying to get the banks on board with financing the rental property that I wanted to purchased. Traditional real estate investing SUCKS! The property is a condo and it is worth $90k and the seller is asking $79k (they were hit with an increase in HOA and assessment for a new exterior for the development). The property is in neat clean shape new floors, recently painted and everything. I got them to agree to $63k they just want to get out. So, I wanted to draft the contract with a purchase price to $79k but the bank should give the seller a check for $63k and wanted to use the difference as down payment. Well apparently this is considered seller concessions and it is illegal according to Fanny Mae rules and guidelines. They told me to speak with business loan lender where they may be able to honor the contract. The problem is that they only do 20 years fixed and that can cut on my cash flow since the payments may not be as low as possible. This place rents for about $850 to $800. I need the principle and interest, taxes, and insurance to be not more than $400 because HOA dues is $175. So, I would like to profit at least $200 per month plus the almost $30k in equity. I think this would be a good deal but I don’t know if this deal could go very bad or if it is even possible to do it the way I wanted to. The main different is having to tie $11k to $13k plus another $5k in closing costs in cash out my pocket to purchase the property the traditional way, or getting a little bit more creative and have the purchase price higher than the required amount (since there is enough equity in it) and use that for down payment and this way my only out of pocket expense would be the cost of closing costs of $5k.

    • There are other things you can do, Henry. You can assume their loan (if they have one) and refinance later, if needed. You can use private money for short term loan to purchase, then refinance.

  19. I have some SFR rentals in areas with HOAs because it is hard to find newer areas now that don’t have them. Some are better than others, depends on the board, but how do you know going in? I stopped at a garage sale in the neighborhood when looking at a property and asked them what they thought about their HOA. They said it was overbearing but I bought because it was a good deal. They were right, the HOA sucks. I would never buy a house to live in where there is an HOA. Who wants someone telling you what you can do with your own house!

  20. Price is the key. I bought a cond from a tax certificate investor. The property had matured to a tax deed. I purchased the condo by way of QC deed. I have been renting the property for 3 years. Yes, the fees are high but the deep discounted price made the difference.

  21. Hi Phil, very interesting approach for USA/Canada. Because of security issues condos are a good option in Brazil.
    Stay strong.

  22. In my last HOA they voted in rule that you could only have the garage door open for entry and exit. I received a warning for having the garage door open when I was working in it. Glad to be away from there.

    Between the government and HOAs you become over-regulated.

  23. Jamie Ferrer says

    Need help on how to become an real estate investors but, I don’t have any money at all to start Phil and how can I start this? Please help.

  24. Phil
    This was awesome! Keep up the great work, it’s appreciated!!

  25. Very good information!
    What Association you are talking about? Please let me know.

  26. Margaret Gonzaga says

    I’m wondering when will people get fed up enough to do away with these “ASS otiations”? I had a house in one of these, AND I WILL NEVER AGAIN BUY ANYTHING WHERE THEY ARE.

  27. The HOA must have some reason to exist in the ridiculous zone… Close to a desirable school, road, cultural district or center… They must have some sort of leverage point to exist!

  28. Hi Phil,

    I know all about the nightmares of investing in condos. I bought a condo several years ago, first as a primary residence, and then rented it to a tenant. The association first tried to discriminate against me, as a protected class under law being blind. This was then changed to allow my purchase. Then they tried to say that I could not have my guide dog living with me in the unit. Again, changed decision, thanks to my attorney.

    Things got much worse when I wanted to rent the unit. The association told me that they had to approve the tenant, using their own application which included information for credit, references, employment, and criminal background. My tenant even had to meet with a three member board as part of this process, and if she couldn’t kiss up enough to them, they would not approve her tenancy. If she was approved, they even told me what I could, and could not, charge for rent. She had two children under the age of seven years, which also made them uneasy.

    I eventually got approval to rent to this tenant, and at my own set amount, but not until I put up a major stink about the issue. I also had to provide the association with a copy of the signed lease, and a copy of the check for the security deposit. I had to also pay a years worth of dues up front just for the privelege of doing something I should have the absolute right to do as a property owner.

    I plan to stay completely away from these types of investments in the future, given this whole nightmare. I’d even hate to think of the pure craziness that would occur if I were to do an owner finance sale.

    Anyway, thanks for the video training, and bringing attention to these kind of deals. Keep the training coming.

  29. A similar unexpected problem are rules/requirements imposed by jurisdictions. I rehabbed a house in an historic district that turned out to be an expensive lesson! But, it’s a great property now!

  30. Thanks for sharing that with us. I was interested in a condo and as I was speaking with a lender today he told me that condos are a nightmare to get qualify for.

    I was aware of the HOA and some other dues as I have lived in a town House, but the lending part was astonishing.

    Thanks again for sharing.

  31. Awesome Phil!!

  32. Jeremy Heady says

    I’m glad you spoke about this. I refuse to buy anything with an HOA attached to it regardless of the profit margin. I’ve heard nothing but negative when it comes to these things and they don’t really improve property prices enough to justify the negative. Plus, improving value means higher price and more buyers like me avoid HOAs, so who is actually buying at those higher prices with the dues on top of it?

    You mentioned about HOAs not being able to discriminate “against those protected by law” but there are many types of discrimination not protected by law that HOAs are increasingly discriminating against. This can go for regular home sales too, but when it comes to rentals, the owner should have the final say who they rent to. In many HOAs, they have clauses in them on tenants allowed. If you rent to someone and they start dating someone who committed a crime 20 or 30 years ago and decides to move in, they can foreclose on you and evict them. I don’t like not having full control over my properties and HOAs should be regulated more than they currently are. It seems to be the only aspect of real estate that’s not regulated.

  33. Robert Arnold says

    I had 2 interesting issues with condos in years past.

    1 condo we sold to a buyer who was getting conventional financing. Everything was fine buyer was approved for the loan and then about a week before closing the HOA rejected the buyer’s purchase application. He had some criminal background issues from many years back so they turned him down. I ended up having to put it back on the market and sell to someone else.

    Another condo had a restriction against rentals. Because I was buying in a land trust, they rejected my purchase application because they thought I would be renting the condo out. I changed the contract to my personal name and signed an affidavit that I would not rent the property out. They did end up approving the revised application, I used it for about a year as a vacation home, then sold it for a decent profit.

  34. Good stuff keep going Im learning

  35. Hi Phil, I totally understand your warnings on HOA’s and condos.. I just wanted to mention a deal I did that worked out well though.. Back in 2011 I bought a short-sale condo in north San Diego for $196k (probably about $60k below market at that time). I lived in it for 5 years for the tax advantage; then sold it in 2016 for $475,500k. Sure the dues started at $475/mo., but they actually went down! I joined the board and saw they really kept costs down, and due to a landslide at the development years before I even bought; they had proved their mettle in fixing a ton of issues. Sure, I took a risk in buying into an association that had a bunch of red flags (and a special assessment to boot) but it worked out in the end because I bought low and sold high in a desirable area in a “bottomed out” development. Time can cure a lot of problems.

    • Phil Pustejovsky says

      Buying at the absolute perfect time in the history of US real estate (2011) can certainly cure a whole lot of ailments.

  36. Gerry Wieder says

    Hi Phil,

    Love your stuff. Your video on condos/townhomes/sfrs in associations is bang on.The best are none-to-good. Our own home is an association, and while there have been major improvements in the “culture” of our HOA and neighborhood i the past 5-6 years, improvement is never assured. In fact, I decided to run for the board this year just so I can nudge the hurd (of cats) along in the right direction and make sure our kids and our neighborhoods have a nice place to be and grow up.

    Don’t for forget the positives. Associations can keep things neat and tidy! (No RVs abandoned cars in the driveways, etc.)

    Thanks again. And again I love your webcasts.


    PS I am a local Realtor as well as an investor, so I totally get what you’re saying about kids buying townhouse, especially now that there’s so little inventory. And a big Caveat Emptor to all the young people that are thinking of sinking their hard-earned money in a 20-30 year old townhome. Your “margin of error” allowance should be a mile wide!

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