Condo buyers typically underestimate the risk of buying in a poorly managed HOA. Mostly because buyers don’t have the time to analyze hundreds of pages of HOA documents. However, there are easier ways to figure out whether your HOA has financial or operational issues.
Here are a few things you should check to save yourself from buying into a poorly managed HOA.
- Reserves: Reserves should be more than 2x annual expenses. A better measure is reserve funding levels. Unfortunately, most HOA’s don’t calculate this correctly as it requires forecasting financials.
- Upcoming Special Assessments(SA): SA’s are not bad in themselves. There may be legitimate reasons for a SA. However, it could also indicate overspending, underfunded reserves, or other problems. Ask the HOA what drove the SA and if there are any SA’s on the horizon.
- History of fines and litigation: Too many fines are a red flag because either the HOA is playing evil dictator or residents don’t follow rules. Its almost always the former.
- History of Bylaw amendments: Too many bylaw amendments is also a bad sign as it indicates an overactive board.
- Expense profile: Ask your HOA for 2-3 years of past financials and see if the expenses jump around too much. If they do try to understand why. Typically we don’t like to see volatility in expenses because it indicates poor planning on the HOA’s part or in some cases fraud.
You could skip all of the above and order an HOA Inspection on our site 🙂
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