Can HOAs buy distressed units?

Distressed Units

Distressed Units

There’s an argument floating around that HOAs should purchase distressed properties in their association so they don’t get sold for pennies on the dollar later on. The thinking is that if you can invest the organization’s funds to maintain property values in your community.

It looks good on paper but it’s rarely done.

The truth is most HOAs don’t have that kind of cash lying around. If they do, there are typically better uses for it. Like for example, funding your reserves!

Also, there is no guarantee that investing in distressed units will directly benefit current homeowners. The valuation of their unit is based on market price. Picking up a unit here and there isn’t going to move the average much, if at all.

Furthermore, depending how your association’s governing documents are drafted this may not even be permitted. Even if they are it’s going to be a tough sell to the owners; particularly in this economy.

Let’s pretend for a moment that this is feasible and you have the support of your community. Maybe you’re planning to rent the unit until the market recovers.

Are you ready to be a landlord? You’ll need to be ready to oversee tenants, make payments and pay assessments to the association, keep the unit(s) maintained etc. Most HOAs have enough to worry about without coming up with extra money and taking on additional responsibilities.

Ok, you get it. It’s a bad idea, right? Not always!

There are times when such purchases can and do work out for HOAs. For example, maybe the community has a need for additional assets like a clubhouse housing for a superintendent.

If your association is considering the purchase of distressed units, the bottom line is this: make sure the money is there, the community agrees, it is an appropriate use of HOA funds and you’re ready to take on the added responsibility.

See related:

The role of an HOA Property Manager

Vacancies in your community – What can you do?

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