HOA pays for water/sewer/garbage?

Question

I’m looking at purchasing multifamily property in the Phoenix area and noticing a trend of listings with HOA dues covering water, sewer & garbage. Does anyone have experience with this type of setup?

A few questions:

- How easy would it be to convince either the city or the HOA to switch to individual water metering so the tenants are responsible? (Is it worth it?)

- What happens in either a non-payment shutoff or a flood-type situation? Would the other owners just pool together the HOA funds to cover the cost?

Thank you for your help!

Bob Okenwa · Answer

Hi @Leah Shanker

To answer your questions:

1. You're basically asking the HOA to rewrite the CC&R's on your behalf, and that's not going to happen. The HOA already has an established system in place and aren't going to change things to appease one person.

2. If you don't pay your dues, some HOA's can foreclose on your property. Not sure what you mean about a flood-type situation, but the HOA has a pool of money for certain repairs and if that money is not enough, they can issue a special assessment, which is a one-time fee that requires all owners to pay a certain amount to cover the costs.

Ryan Swan · Answer

@Leah Shanker condo buildings have master insurance policies (aka blanket insurance). I've heard the number one claim against these policies is for water damage....to the unit BELOW the source of the water leak. The policies typically have very high deductibles in the range of $10,000 per occurrence. Sometimes your personal dwelling policy will pay the master policy deductible, but either way the owner is out some $$ on one or both policies. Any switch to sub metering for water is extremely expensive and cost prohibitive to the association (or individual owners).

Pamela Sandberg · Answer

This is a very common setup in Phoenix-area HOAs. As has been said, you past the cost on to the consumer, and raise the rent rate (while advertising that these utilities are included in the rent).

Colleen F. · Answer

There are areas where HOAs are only for condo's that was my experience on the east coast.  For AZ, TX  and some other areas there are HOAs for SF dwellings.  Sometimes they are set up because there is community water or waste management not handled by the town.  Sometimes they set appearance standards.  Each HOA has it own rules. You need to look at the HOA bylaws/operating arrangement and I expect they would be available for any listing.  This is what tells you the rules. Keep in mind different states, different processes/standards.  No HOA is going to change anything easily so keep that in mind.  You are generally stuck with what you buy into.

Theresa Harris · Answer

If the HOA fees include everything, why worry about getting the tenant to pay for water?  Make sure the rent covers HOA fees, but you pay them directly.  Any HOA fees that aren't paid are attached to the unit meaning you are ultimately responsible.  As others said, if there is a flood or leak, the condo/HOA insurance will cover it if it due to something like a burst pipe.  You will also have insurance as the owner and the renter should have insurance as well.

Make sure you read the HOA rules (and give a copy to your tenants and have them sign off saying they have read them and are responsible for any fines resulting from their actions) and check the financials.

Andrew B. · Answer

Are you saying you have found a multifamily 2-4 unit building, that is within the confines of an HOA, AND the HOA is choosing to pay water/sewer/trash?

I'm sorry but the most likely scenario is you are misunderstanding something. There is no reason for that setup.

Maybe this is a condo/townhouse type scenario? If you buy one unit of a condo, and the HOA fee includes water/sewer/trash, its not changing. My personal residence is a condo, and water is included in our fees because the water cannot be easily sub-metered.

If someone floods a unit, insurance will kick in and blame will be settled later. Its likely the culprit will not be held entirely responsible. I know because that's happened in our complex.

As far as rentals go, first make sure its allowed by the condo rules (bylaws). Next, if your unit is exactly the same as a unit across the street, but he tenants pay water/sewer/trash there, then technically your unit can command higher rent because there are more fees included. This also means your association dues are higher so it should be a wash.

Finally, owning residence in an HOA is a different kind of animal. You need to make sure the board is reserving enough money to maintain common elements. Failure to do so can lead to large increases in your monthly assessment and special assessments that can be crazy under bad circumstances. I read a story about a building in California that did not manage funds properly and they had to levy a $50,000 special assessment on all owners.

Wayne Brooks · Answer

The “cost of the water” if someone floods their unit is miniscule.....compared to the costs to repair that/other affected units.....which is why you have proper insurance.

Bob Okenwa · Answer

@Leah Shanker

I'd have to read the CC&R's and bylaws of the HOA before saying what is paid for in the event of such a calamity like flooding.

Like any other business, the increased cost of doing business is always passed to the consumer. Rents should try to reflect any extra costs you incur so long as the rent remains in line with the market rate.

Leah Shanker · Answer

@Bob Okenwa Appreciate the response and thank you for the information. So in the event a tenant of mine (or a tenant of any of the other buildings covered by the HOA) floods their unit, the cost of water is paid for by the HOA, either through existing funds or special assessment?

How are you passing along the cost to the tenant - are you pricing rent with water/sewer/garbage included?

Thanks again - much appreciated!

HOA pays for water/sewer/garbage?

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