What is HOA and Why it Matters in Land Investing (LA 1430)
What is HOA and Why it Matters in Land Investing (LA 1430)
Transcript:
Steve:
Steve and Jill here.
Jill:
Hi.
Steve:
Welcome to the Land Academy Show, entertaining land investment talk. I’m Steven Jack Butala.
Jill:
And I’m Jill Dewitt broadcasting from sunny Southern California.
Steve:
Today, Jill and I talk about what is an HOA, and why does it matter in land investing? I hate them. Who doesn’t?
Jill:
I know. Who wants more people involved telling you what you can and cannot do with the property that you own. By the way, they don’t own it, you do. So I have a lot to say about this.
Steve:
I do, too. I have to tell you, I’ve always had this weird fascination with somehow requesting that clinical psychiatrists or psychologists do a dissertation on certain topics. And this has always been one of them. What psychologically makes someone choose, forget about the money, [crosstalk 00:01:02] make someone choose to start an HOA? Which I get, because you make some money. But more importantly, why do you seek out to live in an HOA or seek out some type of a land where there’s more rules, not less? Is it better that we have more laws in life or less laws?
Jill:
I was just thinking that. Working at an HOA has got to be like the IRS. There’s really no reason anyone’s going to call you happy. They’re calling you to find out what’s the stupid rule, or why did I get fined?
Steve:
What’s that movie, when the kids were little? It was a cartoon about the bunch of animals are living in the back of the woods, and they in they’re all hibernating. And they woke up out of hibernation and there this massive subdivision where they used to live?
Jill:
Yep.
Steve:
What’s it called? Hedge …
Jill:
I forgot, and they went through the fence.
Steve:
Over the Hedge.
Jill:
That’s right.
Steve:
Over the Hedge. Yeah.
Jill:
Okay.
Steve:
And there was this character in there, this woman who was the classic real estate agent/president of the HOA. And they took it to extremities where she would measure the length of everybody’s lawn and then send them notes. Do you remember that?
Jill:
No. I mean, I do remember that movie, but I don’t remember it in that level of detail that you have. I do not recall. That is so flipping funny. I love it.
Steve:
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:
Kristen wrote topic idea. Why do responding sellers have property with no physical access, or in a flood plain, and what to do about it? Oh, why do responding sellers have property with no physical hazards or a flood plan? What to do about it? I know new sellers shouldn’t be buying these, but it’s pretty much all I’m getting. Yeah. I like that. That’s a good idea. Can we do that one day and really dive deep into it?
Steve:
Yeah, we can dive deep. I can give you the 32nd overview here, too, if you want.
Jill:
Go for it.
Steve:
Sellers almost always don’t know about their property. They’ve inherited it. They’ve never seen it. I mean, back me up here or correct, Jill, probably 80% of the time, they have no idea about the property. Sometimes they live adjacent to it and that’s a different story, so they don’t know. No physical access can be remedied. It’s not that complicated. You just need to get the right people involved and make sure that there’s a ton of profit margin on it, because it takes a while. And if there’s a process, then it’s possible. The floodplain scenario, they’re not going to know. It’s only relatively new to land ownership that we can click on these FEMA maps at places like Neighbors Scoop, and just within seconds, see if the property is in a flood plain.
Jill:
Right.
Steve:
So even two years ago … I mean, even now, if you go on to fema.gov and try to find out if a property … it’s a big, huge, massive process. So, that’s not their fault at all. And what do you do about it? You just work through these things where you adjust the price. And I’ve said this a lot of times on the air, there’s people in every market, in my opinion. There’s some old crusty guy that knows everybody, at the County or in the cities that a county’s in, and he can get access to property. He’s made a career out of buying so-called landlocked property and getting access. And everybody hides when he walks into the County building. So you need to find that guy. He might buy the property from you is what my point is.
Jill:
That’s very true.
Steve:
Today’s, topic, what’s an HOA, and why does it matter in your land investing? This is why you’re listening. What is an HOA, POA [crosstalk 00:04:47] Jill?
Jill:
So HOA, homeowner’s association, POA, property owners association, LOA, land owners association. They’re the people, if you own a house, they have the CCNRs, the covenants conditions and restrictions, that tell you what paint colors, how high, when you need to mow your lawn, when the garbage container can be out and how long, how many, if any, you could have cars in your driveway, can an RV be out front, you name it. So what’s interesting is people don’t realize that that can happen with a piece of dirt. They think it’s all with a house, in an established subdivision, keyword, meaning established. But it can still be in these other type of subdivisions, commonly, and it could just be a landowner association. They might have a gate out front, or they maintain the roads, and make sure that the fire department can get through there, things like that. Or even … not really involved in utilities, just access kind of things, because the rest is separate. Do you want me to keep going or do you have some comments?
Steve:
Yeah, absolutely.
Jill:
Okay.
Steve:
And when you’re done, just let me know and I’ll talk about the financial benefits to the person who set this all up.
Jill:
Okay. Yeah. They’re the one that’s benefiting, so yeah. So yeah, how does it start? So someone buys 40 acres or 10 acres, whatever it is, they subdivide it up, decide they’re going to have an HOA or a POA or an LOA. They’re going to make rules. They’re going to make sure that anyone that buys or sells property in this area is going to be required to meet these conditions. I know there’s a whole formal process and you can talk about that, about how it has to be established, how it has to be managed, how the money has to be accounted for. It’s not like I’m just going to go do it down the street. I know there’s legal things you have to do, and it varies, I’m sure, by state.
So here’s the big picture. Well, that’s great, Jill. Now I understand what this is. They’re already sounding bad. So what does this matter to me? You need to know this as an investor in flipping a rural vacant land, like us, even Invalots. This might come with a property. How do you spot it? Usually when I’m looking through the property details and I spot a subdivision, I’m going to go dig and go, Uh-oh, we’re in Sherwood Forest acres. That’s going to be a little indication, because it’s been … all right, I’m in an area now. It’s got a fancy name to it. I owe it because I’ve missed it. You miss it once and you won’t miss it again. You just Google it and see if there’s an HOA, a quick call the County. They can tell you if there’s an HOA. Those are the best ways to find out real quick, if there’s an HOA.
Then, if there’s none, great, don’t worry about it, move on. If there is, Uh-oh, now I need to have reach out to them, get ahold of the document. And I want you to do this way before you buy the property too, because you just need to know what the conditions are. You don’t need to dig deep into it, but you might need to know like, gosh, is there a time limit to build? That’s going to affect my buyer. Are there big transfer fees? That’s going to affect if I even want to buy it. And when I sell it, how much does it cost to change the name on it? What are the fees? Is it a monthly or quarterly or annual, because that can rack up to a lot. I’ve seen some as low as $30 annually, great, no one has a problem with that, to as high as $300 a month. Now I got someone to say.
I’m only spending $5,000 on a property and it comes with $3,000 a month, because there’s a boat dock at the end. This is going to change things, so I just need to know. And the big picture is the whole point. They’re trying to maintain whatever standards for that community, like I described. I don’t necessarily think it’s a bad thing. You just need to know what you’re getting into. Now, this is personal. Let me talk. There’s a personal side and there’s a non-personal side. So in my business, I don’t think it’s a bad thing. It’s going to make sure that you don’t have the property next to you littered with, fill in the blank, old bathtubs or cars on sticks. I want to have a nice looking neighborhood.
Even if I’m buying a couple acres, I want everybody who’s driving into my ranch, it to look nice. So, that kind of thing. And I like the gate. Maybe the gate looks fancy and it, whatever it is, and I liked that they maintain the roads. There’s other things like that. Or there’s a boat dock or things that I get to use. I’m like, now it’s worth it kind of thing. It can be a positive. Now, personally, and I know Steven too, I don’t really want people telling me what I do at my house. And our primary residences are in neighborhoods that I don’t have to worry about it anyway. I know we’re all on the same page, so it’s never … my neighbor is not going to have a purple house, so good.
Steve:
I mean, it’s a deal breaking issue for me on a personal level.
Jill:
Right.
Steve:
I would not ever buy a house in an HOA community.
Jill:
Right. Go ahead.
Steve:
Here’s the thing, you’ve got to ask yourself are more rules or less rules better? And depending on how you answer that, and hopefully answer it really quickly, you’re going to know if you’re an HOA person or not. The math is, the financial part of it is this: if you buy a big piece of property and subdivide it down, and you say, Hey, can you buy this property? We established an HOA for 25 bucks a month, you got to pay it, we’re going to maintain all the roads. You don’t have to worry about that. And we’re going to put water in and do some other stuff.
In the beginning, I think it’s a pretty positive thing. But after 20 years of nobody’s really maintaining the roads anyway, the person who really wins on these things is the HOA establisher.
Jill:
Right.
Steve:
In Phoenix, they have these little areas of Phoenix that are … they’re called something. California has got this too, but they’re not incorporated. There’s no government office where you can go there. The city of Ahwatukee, Jill, there’s no city of Ahwatukee. It’s part of Phoenix, it’s just called that.
Jill:
Right.
Steve:
Versus like Paradise Valley, which is … there’s a place. You go there, there’s a post office there. If you want to build something, you go to planning and zoning. And so there’s an efficiency. Over the course of my real estate career, I’ve heard people really complain about how much local government there is and how unnecessary it is, especially back East. There’s a million counties in one tiny state that are so close to … it’s just too much government, it’s over governed. And that’s really what I think goes on with most HOAs, not all of them. It’s not hard to do the math. Subdivide a property, you’re going to end up with a thousand lots, twenty-five dollars a month.
Jill:
Right.
Steve:
That’s 25,000 bucks a month coming in, just to blade some roads with an old guy on a tractor. I mean, it’s a pretty good deal for the person who subdivides it, [crosstalk 00:12:15] if you can sell the lots it’s.
Jill:
That’s true.
Steve:
So on the flip side, I’ve lived in buildings when I was younger and worked in accounting and there were HOAs in there, like a condo building, a high rise condo building. I’m not so sure that those types of HOAs are bad.
Jill:
Right.
Steve:
If everybody’s got the same type of window treatments, the building looks good. If everybody in the whole beautiful downtown sky-rise building had different window treatments, and there were allowed to play their music as loud as it goes all night long, nobody wins there.
Jill:
Exactly.
Steve:
Usually, it would be neat playing the music, back then anyway.
Jill:
We know how that go. Exactly. That’s cool.
Steve:
The world would be a better place, in general, without HOAS. And if you completely disagree with that, I bet I know which political party you like.
Jill:
You know what’s funny? You know what, Steven? I would love to see how many new HOAs are even popping up. I wonder. I’m super curious what the builders are doing now for the new areas that they’re creating, because I wonder if it’s a thing of the past. I see it as a sixties, seventies, eighties, maybe eighties. I mean, what do you think that it was at the height that people were doing this?
Steve:
I got to tell you, Jill, I don’t think that anybody does subdivision now without an HOA.
Jill:
Shucks. Darn.
Steve:
Like Anthem, for example, is just a massive Del Webb community, or what’s the place, Verato. Tens of thousands of houses and there’s an HOA there. And I will tell you this as an anecdote, Jill and I have a super good personal friend who also is our real estate attorney in Arizona. And he told me that anytime anybody, a subdivider goes, subdivides property, develops it, starts and HOA, he said, without exception, there’s a class action lawsuit because the lawyer will … Did you know this?
Jill:
No.
Steve:
It’s so easy to contact these people and say, did you know that this person who subdivided this stuff is about to really take advantage of you? And they did this and this, and they probably promise you all this stuff. And they have no real intention, because, check it out, over here they did another one and the same thing happened. And I got all this money for everybody that was participating in this class action lawsuit. Then, this is how they get paid. They win the suit or settle out of court usually, and then all the HOA fees go up.
Jill:
Yep.
Steve:
And that’s how the lawyer gets paid.
Jill:
Shucks. That’s awful …
Steve:
What kind of world do we live in?
Jill:
That’s awful.
Steve:
Yeah. It’s truly, truly sneaky and terrible.
Jill:
Yeah.
Steve:
I couldn’t sleep at night terrible.
Jill:
No, that’s a whole nother discussion, and that’s sad. Who’s married to that guy? And how much fun is he? What does he do to the kids?
Steve:
I just think there’s people that think you have to lie and sneak and do bad stuff to make money.
Jill:
I don’t get it.
Steve:
It’s too bad.
Jill:
It’s really too bad. You’re right. Happy you could join us today. Five days a week, you can find us right here on the Land Academy Show.
Steve:
Tomorrow, the episode on Land Academy show is called, Start to Finish Documents Needed to Buy and Sell a Parcel of Land. You are not alone in your real estate ambition.
Jill:
Okay.
Steve:
You know how sometimes we label the weeks, like acquisition week, or sales week, or get to know your partner week. This is boring topics that people requested week.
Jill:
That’s what I was going to say. This is all sounding like one big throw up from customer service. All of their emails are going to re-reply with watch episode X. I’m not answering this question again.
Steve:
My Gmail account is connected to the Land Academy Google presence.
Jill:
Yeah.
Steve:
And somebody just yesterday, went onto our Google location, where our offices are in Arizona, and clicked on it and gave us a review. Did you see this?
Jill:
Is it the one I’m thinking of?
Steve:
And the review said this, “These two ding-dongs have a YouTube show where they have fun and talk about real estate and everything, but you don’t really learn anything and none of it’s real. One-star. Bang.”
Jill:
Oh. That’s hilarious. Okay. All right.
Steve:
Okay, whatever. You’re right about the ding-dongs part, but I hope you actually are learning something.
Jill:
That’s really good. Hey, if you’re interested in learning more, because that’s what we do, about us, check out landacademy.com.. Don’t drive there like the other guy for houseacademy.com. We provide the education, tools and support you need to be flipping properties like the pros. You go.
Steve:
We are Steve and Jill.
Steve and Jill:
Information.
Jill:
… and inspiration to buy undervalued property.
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