Before you throw out the idea of paying association dues to maintain the common areas of your neighborhood, take a hard look at some of the things Homeowners Associations (HOA’s) do for their owners. HOA’s can keep the neighborhood common areas maintained and looking good for both the current owners and potential buyers for property within the boundaries of the HOA, giving them a degree of responsibility that you would rather have someone else deal with, while you focus on enjoying the property you purchased.
When deciding to invest in property serviced by an HOA, it’s important to be informed on what the HOA’s responsibilities are. As with most things in life, the answer to that question depends on the property being considered. For example, if the HOA is a neighborhood association, the common areas might be just the major gates and entryway landscaping for the neighborhood and might exclude streets that are maintained by the city. On the other hand, a condominium association may employ staff at an entrance lobby to greet people renting a unit for the week, maintain swimming pools, gyms, tennis courts, area parks and barbeque pits, provide perimeter security or access gates to the grounds, building and grounds maintenance and services such as garbage collection, water and sewer or basic cable and internet services. In short, services can escalate quickly depending on the property involved.
Clearly, the value of services provided by the HOA will depend on the location environment and type of property and facilities maintained by the Association. To have the best understanding of that, review the Association Declaration filed and the “definitions of terms” used to outline what the common expenses are, any restrictions involved with ownership and use of the property, and what the association’s responsibilities are. These often include descriptions of maintaining real property around buildings on the property, and other things such as the foundation of the buildings, load bearing and perimeter walls, lobbies, stairways, roofs, elevators, covered and uncovered parking spaces, and other common areas found on the property.
It’s important to remember that the Association will charge dues based on what is needed to maintain and to ensure the property is maintained in a reasonable manner, assuming those costs remain constant, the dues should remain stable. If they do not, the Association may need to increase the dues or charge special assessments to provide resources for taking care of the association’s property. Information from the Association should be available to provide an annual budget of dues collected and how that money was spent, as well as any reserves established for contingencies. The Association is typically managed by a Board of Directors elected by a majority of owner’s who meet regularly to discuss issues affecting the property maintained by the Association.
From the IRS perspective, a Homeowners Association formed to own and maintain common areas and enforce covenants to preserve the appearance of a development is allowed to exclude exempt function income from its gross income including membership dues, fees, and assessments from member-owners.
So, if you are thinking about buying property in a community that carries with it the term “Association Dues”, you owe it to yourself to find out how the money is spent. Get involved with reading the minutes from the Board meetings and maybe even participate in the calls to audience. Remember, you have a voice too!