HOAs and Breaking Their Covenants (CFFL 472)

HOAs and Breaking Their Covenants

Transcript: 

Jack Butala:                       Jack Butala with Jill DeWit.

Jill DeWit:                           Good day.

Jack Butala:                       Welcome to our show today. In this episode Jill and I talk about HOAs, homeowners associations, and breaking their covenants. What are the repercussions of not cutting your grass often enough? Before we get into it, let’s take a question posted by one of our members on the landinvestors.com online community. It’s free.

Jill DeWit:                           Okay. This is Luke. We have Luke again. Luke asks, “Jack talks about posting Craigslist land wanted ads and says you can do this in various markets. Doesn’t Craigslist not allow people to post ads in markets other than their own based on the IP address?”

Jack Butala:                       Boy, that’s not my understanding at all.

Jill DeWit:                           I was thinking the same thing.

Jack Butala:                       Luke, you’re a bright guy. I’ll tell you what they don’t let you do, is replicate the same ad over and over and over again. You’ll get hauled away for that.

Jill DeWit:                           They’ll take them down. You can’t-

Jack Butala:                       But if you materially change the structure of the ad but keep the sentiment the same, like, “We want to buy a property,” “We want to buy a property in Minnesota,” “We want to buy a property in Maricopa County, Arizona,” and so forth, that’s totally fine. There are software programs and services. If you go on Fiverr, you can do exactly what I said and somebody will break that message down and manage it and post it all over the Craigslist everywhere, and it’s not expensive at all.

Jill DeWit:                           Also, I was going to say, too, is that I know that there are ways to get around the IP address too. You can have your IP address pop up in Toronto if you want to. You know what I mean?

Jack Butala:                       Wow, listen to you.

Jill DeWit:                           I know this stuff.

Jack Butala:                       You’re smart.

Jill DeWit:                           I am smart.

Jack Butala:                       Like computer smart.

Jill DeWit:                           You want to know how I know part of this?

Jack Butala:                       Right. Just a couple minutes ago I was fixing your mouse, but …

Jill DeWit:                           Shh. Stop.

Jack Butala:                       But you know where IP addresses go, how to do a Toronto IP address.

Jill DeWit:                           No. I know where this is. You know why? Because there’s a British soap opera that I like, seriously, and you can’t get it unless you’re in Britain. But there are services that you can have your IP address pop up that you are in Great Britain so you can watch your soap opera from LA. Hmm, [inaudible 00:02:03] I knew that stuff. Huh. I’m not just a pretty face. Just kidding.

Jack Butala:                       Does your elbow hurt from patting yourself on the back too much?

Jill DeWit:                           You know, sometimes I don’t get enough credit over here. Thanks a lot. What did Rodney Dangerfield say? “No respect.” That was one of my dad’s lines, by the way. My dad would walk around saying that all the time, “No respect.”

Jack Butala:                       Yesterday you were landing an airplane at Pinal County, Arizona and now your IP address is in London.

Jill DeWit:                           Woo! Look at me go.

Jack Butala:                       Yeah, Luke. That’s the deal. Luke’s middle name, by the way, is Workaround. That’s a massive workaround for doing that, and I would highly recommend it. Those of you who are members or if you’ve downloaded the free ebook that I put together a couple of years ago, the first thing it says is drop everything and make a posting on Craigslist and see what happens. Tons of people have reported back, saying-

Jill DeWit:                           It works.

Jack Butala:                       … “We did a real estate deal doing this.”

Jill DeWit:                           Exactly. Like, oh my gosh. People called me.

Jack Butala:                       I’ve done a lot of real estate deals that way.

Jill DeWit:                           Right.

Jack Butala:                       If not anything, you’re in the business now as an investor and you’re going to see what the inbound call flow’s like. It’s one of the little tricks that we use. We don’t use it anymore because our mail campaigns are just dramatically … They’re so successful that we don’t need anymore-

Jill DeWit:                           It’s the best.

Jack Butala:                       We don’t need anymore deal flow.

Jill DeWit:                           And we can pick it and customize it there. When you’re doing an ad like this, “Hey, call me if you want to sell your land,” you’re going to get a plethora of different things. Cool.

Jack Butala:                       You have a question or you want to be on the show, reach out to either one of us on landinvestors.com. Today’s topic, HOAs or LOAs and breaking their covenants.

Jill DeWit:                           POAs.

Jack Butala:                       POA?

Jill DeWit:                           Property owners’ association.

Jack Butala:                       Property owners’ association. Yeah.

Jill DeWit:                           Yeah, it’s all those.

Jack Butala:                       HOA’s a homeowners association. LOA is landowners association. They’re all the same thing. What are they, Jill? What is a HOA? What is it? How would you define it?

Jill DeWit:                           Good question. It’s a governing body over an area, and you know when you’re buying into it you’re required to be notified and you’re usually handed what’s called the CC&Rs at time of purchase. You should be notified ahead of time, and then they have a certain window that they have to supply you with the CC&Rs, the covenants … What is it?

Jack Butala:                       Something.

Jill DeWit:                           Covenants and restrictions.

Jack Butala:                       And restrictions.

Jill DeWit:                           Yeah. Basically, it’s the rules of the community. You are buying into this community. This is a lake community. Everybody has a boat and you’re allowed this much dock time and it could be something like that or even like a regular homeowners association, even just a little master plan community. That’s usually where we see it the most, in a homeowners kind of thing where everybody’s required to have their trash can in by 6:00 that night after trash guy comes. You have to make sure that your weeds don’t get above X amount of inches, and all the same. It’s meant to enforce and keep a nice community, so no one’s going to have a car up on blocks in their driveway for six months for everybody to stare at.

Jack Butala:                       If you drive through any urban town or urban city it’s glaringly obvious which subdivisions are master planned and which ones have CC&Rs. It’s covenants, conditions, and restrictions. I just looked it up.

Jill DeWit:                           Okay, thanks.

Jack Butala:                       And which ones don’t. This show is partly about defining that, which we sort of just did, and then talking about breaking those rules and what can actually really happen. HOAs are something that everybody has a real strong opinion about. You’re either pro HOA or you’re extremely anti HOA. Some of them are insane. I remember when we met you lived in a place where you could only paint your house one of three colors.

Jill DeWit:                           Exactly.

Jack Butala:                       And they actually had the colors and they told you what they are.

Jill DeWit:                           That was it, man. That’s very true. Your wall could only be a certain height, and if you wanted to put … I remember I lived in a place a while back where if you wanted to build a shed, or put a shed in or something, and it went above the wall, you had to go to the meetings, you had to submit plans, get it approved, all that stuff.

Jack Butala:                       Some people hate that, and some people love it. There are some people do not want to have an RV parked next to them at all. If you ever go in a subdivision somewhere and somebody’s got an antenna that’s like 17 stories because of the ham radio scenario.

Jill DeWit:                           Right. It just looks ugly and awful and …

Jack Butala:                       That’s a non-HOA subdivision.

Jill DeWit:                           Right. Exactly.

Jack Butala:                       Personally, I don’t hate it. What I want-

Jill DeWit:                           I’m on the fence. I go both ways, because some of them are just darn ridiculous. When you’re telling me that I can’t have my garage door open more than six hours during the day, okay, come on, I’m working on something. It’s kind of weird.

Jack Butala:                       If you had a cabin, you would never want that because you want to spread out in the wilderness and all of that.

Jill DeWit:                           Right, have all your toys out and all that good stuff.

Jack Butala:                       Yeah, but I don’t know. In a city I’m not sure that that’s the right place to do that. I’m not sure that my next door neighbor should be running an auto mechanic shop out of his garage.

Jill DeWit:                           Right. So there’s a place for them. Basically, you want to have your eyes open when you go into it. Sometimes, the way we buy property, which is from private parties, we have to do our own checking. They’re not-

Jack Butala:                       You should always check.

Jill DeWit:                           Right. They’re not going to necessarily alert us. They should, but, I mean, come on. It’s a private party. They’re not going to tell me that they’re selling me a car that, by the way, hasn’t had an oil change in six years. They’re not going to disclose that. They might not tell me, so I have to make sure I do my own homework and I know.

Jack Butala:                       In our asset type, some of the good things about HOAs or LOAs are road maintenance. If somebody develops a subdivision in a rural area and when there’s not a lot of development yet, they blade the roads once or twice a year. They pay for that, so all the dues that you’re paying actually go toward some good. It’s not uncommon to see HOAs have millions and millions of dollars of unspent money because-

Jill DeWit:                           For improvements.

Jack Butala:                       Yeah, and that really … I have a peeve about that.

Jill DeWit:                           Yeah, they should spend money.

Jack Butala:                       If you’re going to pay into it, you better spend it to make the community better.

Jill DeWit:                           Right. Yeah, you know what? Here’s a positive thing that I do like about HOAs, because we’ve owned properties … Remember? We’ve had some, there’s one in New Mexico that I’m talking about where it’s got a beautiful entrance and a beautiful gate and I think that improves a property and improves the value. We’ve had some too where they have a little park area that’s maintained and that’s going to improve the area and improve the value. Those are some nice things that they do that I see as a positive.

Jack Butala:                       Think of this, and we were talking about this on a weekly call last week. If you buy a bunch of properties, 150, 200 properties, you could create and incorporate an HOA and you could make the landowners pay you $39 a month or a year, take that money, and really develop it and do it some good. You can, on the other side, create your own HOA, write your own CC&Rs that are-

Jill DeWit:                           Use the money to pay for your staff if it’s needed to do this.

Jack Butala:                       Exactly.

Jill DeWit:                           That’s not crazy.

Jack Butala:                       You can get on the other end of it and really make it work.

Jill DeWit:                           Right. The main thing that I think too that the takeaway here is, know what you’re getting into and know how serious the restrictions are and what they really, really can do. If you do these things like Jack was talking about, you’re running an auto mechanic out of your garage, and the HOA catches wind of that you could be fined and, by the way, they could put a lien on your property. If you don’t comply within X time limit because you bought this property …

This is not an optional thing, by the way. They don’t hand you the CC&R and you say, “You know, I’m going to buy this house, but I don’t want to be involved. I’m not going to pay the dues. I don’t want to play your games. You guys all do what you want around there, but I’m going to be in my own little bubble here on my property because I bought this land.” You know what? You actually don’t get that choice, so this is a thing that you need to be aware of. They can come down on you and they really can make your life difficult.

Jack Butala:                       Here’s how it would play out. If they fine you because your grass is too long and you don’t pay, you lift up your figurative middle finger to the whole thing and you don’t pay for years and they send you notice after notice and fine after fine, you don’t cut the grass, they can put a lien on your property and eventually foreclose on that lien.

Jill DeWit:                           Yeah, they really can. That’s a good thing to know.

Jack Butala:                       Again, everybody’s got a real clear opinion about this, but it’s not something that you can … You have to pay taxes. It’s the same thing, or they’re going to come and get you.

Jill DeWit:                           True.

Jack Butala:                       You don’t want that.

Jill DeWit:                           Exactly.

Jack Butala:                       HOAs are not optional.

Jill DeWit:                           Exactly, so just know what it is. Also, too, when you’re selling properties this is another thing too. I do this all the time. This is something you put in your postings. Make sure that the … You don’t want your buyer to have any surprises too, so you want to make it real crystal clear. By the way, it’s in an HOA. What I would do personally is obviously spin it as a positive thing. Whatever they do that’s positive, like, “Look, that’s why it has this pretty gate, they maintain the roads in the wintertime, they plow so they make sure you can get there,” whatever they do, that’s a positive thing. Make it a positive thing for your buyer, and it’ll really help and it could increase the value of your property.

Jack Butala:                       Exactly. Here’s my final point, and it’s a very positive one. Whenever we get a signed offer back on property and we find out that it’s in an HOA, the first thing we do is call the HOA and see if they have any properties for sale.

Jill DeWit:                           Good tip.

Jack Butala:                       Buying property from an HOA that they’ve foreclosed on because of past dues is very common. They have their version of a tax sale.

Jill DeWit:                           Yep, brilliant.

Jack Butala:                       Make sure you do that too.

Jill DeWit:                           Good tip.

Jack Butala:                       Join us in another episode where Jack and Jill discuss how to use information, that’s me.

Jill DeWit:                           And inspiration, that’s me.

Jack Butala:                       To get just about anything you want.

Jill DeWit:                           We use it every day to buy property for half of what it’s worth and sell it immediately.

Jack Butala:                       You’re not alone in your real estate ambition.

Jill DeWit:                           That was a good show.

Jack Butala:                       It was. We-

Jill DeWit:                           That’s really informative.

Jack Butala:                       We try to make it entertaining, but I don’t know.

Jill DeWit:                           Well, you know, it’s funny. I think that people-

Jack Butala:                       Leave that to you.

Jill DeWit:                           I think that some people don’t realize that even in our property time just because there’s not a house on it doesn’t mean it can’t be in an association. It really can, so you got to check.

Jack Butala:        Information and inspiration to buy undervalued property.

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