Cap Rentals and Retain Value

 

Homeowner associations may allow owners to lease out their properties but there are usually limits on the number of owners who can lease at a given time.  Caps on rentals are crucial because tenants tend to have less interest in maintaining their residences because they don’t pay for the upkeep.

 

Owners pay dearly in HOA fees to enjoy common areas like clubhouses and recreational facilities. They take pride in the well-manicured lawns and entrances designed to keep undesirables out. So, what’s the problem?

 

When the ratio of tenants to owners is out of whack, an association can lose its identity and market value quickly and in short order.  Sometimes the notion of rentals in the HOA needs to be revisited and revised.

 

Here are several ways HOA communities can stay on top of their rental ratios and retain their property values.

 

  • Limit the percentage of units that can be rented, because some lenders have limits.  For FHA backed loans, for example, the limit is 50%. Lenders aren’t fond of high tenant/owner ratios when considering new loans.

  • Prevent hotel-type rentals and avoid transient turnovers by creating a minimum lease term of one year or more.

  • Insist owners live in their units for a minimum period before renting them out.

  • Create a uniform lease that requires tenants to read, understand, and acknowledge the rules and regulations governing the common areas and recreational facilities.

  • Hold owners accountable for their tenants’ behaviors and charge owners for tenants who break the rules or don’t maintain their property.

  • Make exceptions for homeowners in financial trouble to minimize ‘zombie’ foreclosures, allowing “emergency permission to rent” to prevent too many vacant properties.

  • Limit rental “turns” per owner so that more owners get a chance.  Establish a waiting list if necessary.

  • Assign a committee to monitor tenants’ leases and keep accurate records of all non-owner occupied units.

  • Review the association’s legal documents and confirm leasing restrictions.  Take a vote of members and amend the policies to decrease or increase limits if necessary.

 

While tenants may not be an HOA’s first choice of neighbors, in the real world people move and often can’t sell their properties in time.   Renting out the residence keeps the mortgage paid and the property occupied. To make the most of the situation associations must keep good rental caps in place, use uniform leases, monitor the paperwork and stay in touch with homeowners.  Then, it is less likely that tenants will have a negative effect on the community’s looks or market value, and rentals can be a win-win for everyone.

 

One of our HOA members says we need a receiver. What’s that?

 

What’s a Receiver?

 

A receiver is a person or company appointed by a government entity, court, or other party to take over the day-to-day operations of a community association. Like a good property manager, a receiver pays bills, collects income and schedules repairs.  Receivers take charge when communities can’t come together in a quorum with a functional board of directors, or when the community is troubled from legally elected officials who have lost favor with a majority of owners because of perceived or actual mismanagement, fraud, or theft.

 

Members of the association can petition the Superior Court to appoint a receiver to handle the community’s business when they are unhappy about how their money is being spent or how their property is being maintained.  It is a temporary, but an expensive fix that can last a few years or more.  The costs are high because members must pay for court fees and the professional receiver’s services.  These expenses will be added to owners’ regular assessments and the HOA’s normal operating expenses.

 

Receivers have more power than the board of directors in enforcing the CC&Rs and implementing budgets.  Title holders get help managing their money and property with a receiver, but lose voting rights and their ‘voice’ once a receiver is appointed.

 

A better option for troubled associations is to consider hiring a good management firm that they can authorize to take over jobs previously handled by the board.  When errant board members are the problem, a majority of members can vote to reassign board duties to the management company.  If it’s necessary to pay a few members to serve on the board to have a quorum and the legal documents allow it, a receiver can assume the board’s responsibilities.

 

A strong management company can eliminate the need for a receiver.  While getting a receiver is an option, it isn’t the only one. To avoid the stigma of receivership and a loss of power over their own affairs, homeowners should check their legal documents, determine what flexibility there is establishing a proper board, and discover other options to avoid the receivership option altogether.

 

Time for Class!

 

Banks Spending Time Educating Borrowers

 

 

 

Getting a mortgage is easier now that the Great Recession is history, but more and more the process is resembling a crash course in finance, with banks as tech-savvy teachers and consumers as eager students.  Home buying and borrowing has become a very difference science, with lenders stocking their websites with information and banks offering face to face tutorials for buyers who want to know more.

 

TD Bank’s recently released Mortgage Service Index survey explains that many consumers not only want banks to educate them, but expect them to.  It found that buyers want more assistance from lenders because they don’t understand today’s mortgage procedures. While buyers are willing to shop around online, they expect service inside the brick and mortar offices from people trained to explain to them how to get the best mortgage for their credit, budget, and property.

 

The survey collected feedback from over 1,400 consumers who bought houses during the last ten years. It measured their level of interest in buying and their commitment to following through with the loan application process.  The bank found that 51% of buyers thought lenders should offer more information online, and 49% felt employees needed more training.

 

Understandably, first-time buyers asked for the most help. 52% want bank sponsored workshops and seminars, and almost 60% asked for more online data to review before sharing their financial records.  

 

Seasoned buyers more familiar with the process were nevertheless clueless about local, state, or federal affordable loan programs available in their area.  A whopping 44% of them had no idea there might be area specific options to consider.

 

A good idea is for borrowers to do their homework before reaching out to a specific lender.  Read about loan options online, then pick a local bank or mortgage broker to work with.  The new trend to educate consumers in advance seems to be working.  A final word from the survey is that most buyers (68%) are feeling better about the mortgage application process. This will promote more closed sales, happy sellers, and most importantly, informed buyers who understand their real estate loan, and are less likely to default.  Good news for the U.S. economy!

 

Building Better Budgets Step by Step

 

When it’s time to create the annual budget, and there’s no management company to help, how can an association build the best budget possible? These five steps foster transparency and accuracy, and should be part of every board’s planning process.

 

  1. Read.  Read up on any new municipal, state, or federal statutes or changes that may affect the association’s income or expenses at any time during the upcoming budget year.  Review the community’s legal documents for procedures and timeframes to insure compliance with the community’s standards.

  2. Inform.  Make sure all titleholders know when the budgets are prepared from year to year.  Homeowners have different levels of interest in the process, but all should be made aware of it.  Transparency is key.  Although the actual preparation of budgets is a Board of Directors’ responsibility, individual homeowners often have great ideas worth implementing.  The more homeowners are part of the process, the fewer surprise objections there will be when the Board presents the final product in an open meeting with homeowners.

  3. Review reports.  Take a look at the most recent Reserve Study and review the funding levels.  Is there enough cash flow to pay for planned and unplanned expenses?  Have other reports completed throughout the previous year been analyzed? Be sure to incorporate any and all recommendations in the planning process. Compare the recommended funding level to the actual funding level to decide whether an assessment increase is necessary.

  4. Check and balance.  Go through each line item and affirm or decline the expenses one by one.  Make special note of common elements scheduled to replace or update, total the expenditures and divide that amount among homeowners.

  5. Prepare a presentation. Write out a script explaining how income and expenses are projected.  Be ready to explain in clear language both the operating budget figures and the reserve budget figures so that homeowners understand what the numbers represent.

 

These 5 steps will insure that an association’s budget makes legal sense, shows numbers that are checked and balanced, and can be explained in language that homeowners understand.  Build a better budget step by step so that the final product is the best that it can be.