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If you’re investing in urban or suburban markets, there’s a good chance you’ll come across a POA, or property owners association. Similar to a homeowners association (HOA), POAs serve as a sort of governing body over a collection of buildings in a given area. But what exactly is their purpose? And what power could this community association have over your investment (and its profits)? Let’s break it down.
What’s a property owners association?
A property owners association is an organization charged with governing a specific tract of buildings or properties. Those might be single-family homes, condos, townhouses, or even commercial buildings and businesses. Often, it’s a combination of these property types.
POAs come in many sizes. They might encompass an entire city, town, or county, as well as the buildings within those boundaries, or they might be smaller-scale, governing just one golf course or planned community, a townhouse or condominium complex, or a downtown or historic district. Sometimes, POAs actually have several HOAs under their purview.
What can property owners associations do?
Though POAs often enforce deed restriction rules and manage common area amenities (like a homeowners association would), they often do much more than that. In many cases, POAs handle issues like community development, business licensing, local zoning, and resident services and programming.
POAs may even hold a monthly or quarterly meeting to discuss ongoing issues or local development plans, conduct voting on proposed additions and changes, or offer educational and networking opportunities for local real estate investors, developers, and other professionals.
When compared to an HOA, the main difference is that POAs operate on a broader scale, focusing on the success of the overall community, not just its aesthetics or property values.
Are POAs mandatory?
It depends on the area. Sometimes a property owners association is mandatory, and every homeowner and property owner must participate. In others, membership is voluntary.
In most cases, you’ll pay a fee (either monthly or annually, much like HOA fees) if your building is in a mandatory POA community. This fee goes toward the services and programs the organization provides, as well as any staffing and facility costs it might incur.
In some cases, POAs have the ability to fine property owners for not adhering to regulations set by the organization. These fines vary and could even result in legal problems if left unpaid.
Who runs a POA?
That depends, too. Sometimes, POAs are run by the developer or planner that originally built the community. In other areas, particularly older ones, the organization is run by a POA board, made up of volunteers (usually area residents or business owners) voted in by their peers.
Should you invest somewhere with a POA?
There are both benefits and drawbacks to investing in a POA-governed area. On the upside, you're assured the community you’re buying in will continue to grow and flourish, and your property values will likely remain high for the foreseeable future. As a landlord, it may even allow you to ask your tenant for higher rent or sell for more cash down the line -- especially if new businesses or amenities open up in the area.
The drawbacks are, of course, the costs and added oversight. You may not be able to make the changes you want to your property due to the POA’s rules, covenants, and bylaws, and you may have to invest more in maintaining your property than in a non-POA community. POAs also come with monthly and/or annual dues.
Here's a look at the pros and cons of POAs.
|Safeguards your property value||Comes with monthly or annual costs|
|Ensures community growth and success||May mean more in maintenance and upkeep|
|Could lead to higher rent or sales price down the line||More rules and oversight regarding what you can do on your property|
|May offer networking and professional education opportunities|
The Millionacres bottom line
POAs are organizations that seek to improve the communities they’re charged with governing. And while they do come with some costs and drawbacks, a well-run POA can be well worth these annoyances in the long run -- especially with the right property.
Remember, though, POAs aren’t everything. Make sure to study up on the market as a whole, including where property values are headed, what buyer and renter demand looks like, and other details, including crime rates, school ratings, and more. You want a good handle on the big picture before investing anywhere -- POA-governed or not.
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