While Homeowners’ Associations (HOA) have been around for decades, the concept has become more prevalent in recent years. Part of the reason is that homeowners find that being part of a privately controlled community gives them a more significant say in their communities.
But this does not mean that organizing an HOA is always the right answer. There are times when it might make sense, and there are times when setting up an HOA might not be prudent. With that in mind, here are some tips on what to consider when setting up an HOA.
- Understand the Laws in Your State
If you and your neighbors are considering setting up an HOA, you will want to keep in mind that this sort of structure is highly regulated in most states. As such, you will want to reach out to a lawyer who handles these structures, or you will have to educate yourself.
Doing this by yourself is not without risk, as it is possible that you might miss something. Also, HOA is legal agreements between neighbors, and for that reason, you will need a lawyer to help draw up the various contracts connected to the HOA.
- Keep it Community-Based
HOAs are community-based agreement, and as such, you cannot go it alone when setting one up. The only way you can achieve your goal is if your neighbors agree that this is the right structure for the community.
As such, you might need to go door-to-door to educate your neighbors about what an HOA is and how it will help to improve the neighborhood. While this approach takes time, it will help as you try to convince people that this is the right choice.
One key point is how to handle membership. In the beginning, it might make sense to make it voluntary, but over time you will want everyone in the neighborhood to be a member and pay dues. If not, you risk having neighbors opting out of the HOA, which could lead to problems as members will question why they must pay dues when others do not.
- Get Insured
One of the first things you want to do with your HOA is to get it insured. While you will have to pay for the coverage, it will protect you and the other members of the HOA from liability.
This is important as the HOA is taking over responsibility for an entire neighborhood, including the sidewalks, and possibly the roads. You need to make sure the organization is insured, or the individual members could be held personally responsible for any accidents or injuries.
- Chose the Right Team
HOAs are unique entities in that they are not only political but also administrative. For an HOA to be successful, you will need to have the right team in place. This includes bringing on an HOA management company to help with the day-to-day responsibilities such as following up on maintenance items and special projects.
In addition to the management company, there will need to be a board to oversee the association. This is usually made up of representatives for the homeowners, including individual owners and possibly outside counsel. The board’s job is to manage the activities of the management company and to decide which capital investments make sense.
Keep in mind there are times when capital investments might call for additional dues or fees from members. If this were to happen, then the board is usually responsible for communicating this to the community. Depending on the bylaws, such a decision might even require a vote of all the members, not just the board.
- Covenant, Convention & Restrictions (CC&Rs)
Think of this as the Constitution for your HOA. Like that governing document, the CC&Rs will outline the rules which govern the HOA and will make sure that all homeowners know exactly what is required of them.
What Else You Want to Keep in Mind
An HOA is not for every community. But there are several advantages. This includes the organization often provides common areas that will be well-managed, trash removal, lawn care, and security, and all of this can help to increase curb appeal and property values.
The potential downsides are that some people might bristle at the rules and fees, and they might not like the limits on renting their homes, and you might need to get permission for making any cosmetic changes to your home.
However, establishing an HOA is a popular choice for homeowners from coast-to-coast, and it might even make sense for you and your neighbors.