A couple of newbie questions

[Jason Hu]

Hi, I am a newbie investor based in CA looking to purchase my first investment property in Salt Lake City area. I have been working with an agent and recently found a property that I felt good about purchasing after running the numbers. But still I have some questions before I made the final call to purchase:

1. Do I need to go to check the property onsite? To be honest, I couldn’t think of a good reason to go check the property myself, but I wonder if there are any major risks if not checking myself. 

2. The property is under an HOA and currently the HOA doesn't impose any rental restrictions (putting a cap on the number of renter-occupied homes) but I know some HOAs in the area do. How easy would it be for HOA to impose rental restriction in the future?

Any feedback is welcomed! 

[Leo R.]

@Jason Hu personally, I would never buy a property without seeing it in-person. To answer your question: yes, there can be major risks of not viewing the property yourself (particularly since you are a newbie). There are a million potential problems that could exist that cameras and photos don't pick up, and that your agent and inspector may or may not convey to you (e.g.; old galvanized steel plumbing, asbestos, foundation settling, proximity to busy and loud highways, deadbeat neighbors who don't maintain their property, proximity to bad neighborhoods, signs that the HOA isn't maintaining the area and other signs that the HOA is incompetent or not functioning properly, etc., etc., etc.). It surprises me that people are willing to put hundreds of thousands of dollars on the line for a property, but aren't willing to spend a few hundred bucks for a plane ticket and a couple days to verify the property themselves... The only time I would ever consider buying a property without seeing it in person is if I had Warren Buffet-type money, and the property was a tiny fraction of my net worth--and even then, I'd only do it if I had a highly, highly skilled realtor and inspector on the ground who I had a long history with, and who had repeatedly proven to me that they understood how to inspect and evaluate properties, HOAs and neighborhoods.

As for the HOA: My impression is that most HOAs around SLC do not allow owners to rent their units...if this HOA does allow you to rent, you'll want to do serious due diligence looking at the HOA's contracts, asking about the structure and governance of the HOA, investigating how easily the HOA can change their contracts and how often they've changed those contracts in the past, polling the HOA members and the owners in the HOA on their opinions about owner's rights to rent their units, learning about how easy it would be, and how likely it would be for the HOA to ban renting or do anything else that could up-end your business model, etc., etc., etc. As others have mentioned, an HOA really can control the fate of your business model--therefore, in order to buy an HOA rental property, you should have an emergency plan of what you will do if that HOA ever bans renting or does anything else that would adversely impact your business.

...and that doesn't even touch on the many other ways in which an HOA could potentially complicate or even up-end your business plan of renting (e.g.; increases in HOA fees, changes in HOA policy that effect how you manage your unit, HOA decisions to change or eliminate amenities that make your unit less attractive to renters, etc., etc.)...

On the flip side, I suppose it's conceivable that there's an HOA out there that is completely pro-renting, that has locked-in and reasonable fees, that could never change its rent policy, that is competent, and that would make your business run more smoothly (if you find an HOA like that, I'm sure we'd all be interested to learn about it!) ...and indeed, there are folks out there who successfully invest in HOA rentals...it would be advisable to find those people on the BP forums and get their input on your situation...

At the end of the day, YOU are responsible for doing your due diligence. Leaving your due diligence completely in the hands of other people (even experienced people), and just trusting that they will handle everything for you is often a recipe for disaster. Realtors often don't know how to evaluate the condition and rentability of a property, and may not convey information to you accurately over the phone. Inspectors can and do miss important items. Your agent probably doesn't have the experience (or time) to do all the needed due diligence on the HOA. Because of these (and many other) reasons, you want as many eyes as possible (including your own) on the property before you pull the trigger. Additionally, if you want to be a successful RE investor, it is your responsibility to learn how to assess properties--and that usually means viewing many properties with your own eyes (and, if you're inexperienced, paying a professional to view the properties with you to teach you how to spot potential problems).

Good luck out there!