Full Video Transcript

Full transcript from this video, organized by chapter. Click any timestamp to jump to that moment in the video.

HOA Fee Crisis Overview

[0:00] HOA fees in Colorado have jumped over 40% in the past few years. And that's before the insurance crisis hit. So if you're buying a home with an HOA right now and you're not checking the HOA health, you could be walking into a financial disaster that gets worse every single year. And after having helped hundreds of people buy homes and condos with HOAs, never seen a situation where it was more important to understand the dynamics of how an HOA works. So, in this video, I want to show you the real data on how HOA fees got out of control, what you need to look for before you're going to buy and how to make sure you don't get stuck with a property that you're never going to be able to sell.

[0:35] All right, so let's start with the big picture nationally. What's going on, and I'm going to show you why Colorado is just about ground zero for this problem. So, HOA fees across the country have jumped nearly 30% since before the pandemic. Now, the median condo fee is just about $420 a month currently. And over the full decade, HOA fees have gone up over 32%. That's more than double the rate home prices went up in the same period. So, your fees are outpacing your equity, which is never fun. It's kind of a problem. And it's not going to slow down. You know, 71% of HOA boards right now are planning fee increases of up to 10% and another 19% are planning increases of 11 to 25%. That's a big deal. So, if your fees feel really high today, just know most boards are already planning to raise them again on you.

Rising Costs Impact

[1:26] Now, here's the part that most people don't really think about cuz I call this the uh shadow mortgage. So, for every $100 a month you pay in HOA fees, wipes out roughly $16,000 in purchasing power because your lender factors that into your debt to income ratio. So, rising HOA fees don't just cost you monthly, they shrink what you can afford to buy in the first place. And right now about three million homes, which I was stunned to see, in this country have HOA fees over $500 a month. That's a massive hit to buying power before you even start house hunting. So, let's talk about Colorado in particular, because this is where it gets kind of uglier. Over 60% of owned homes in Colorado belong to an HOA. The national average is about 25%.

[2:12] We're more than double the rest of the country. And if you're buying new construction, it's even worse. 71% of new builds in the western region are part of an HOA. So in Colorado, avoiding an HOA is getting harder and harder, which means understanding this stuff isn't going to be optional. So why is Colorado specifically getting hit so hard? Two words, insurance and weather. Colorado sits right in what they call hail alley, and we get about 94 hail events every single year. The May 2024 hail storm alone caused nearly $2 billion in damage across the Denver metro area. In the last decade, hail storms have caused over5 billion dollars in insured damage in this state alone.

Insurance & Weather Challenges

[2:52] And then add wildfire risk on top of that. Okay? And insurance companies are either jacking up premiums or leaving the Colorado HOA market just entirely. They're packing up and they're heading out of state. You know, one HOA attorney here in Colorado uh was saying, and I'm paraphrasing this, in 17 years, this is the biggest crisis to hit HOAs that she has ever seen. You know, some HOA master policies have seen premium increases of 2 to 500%.

[3:19] And boards are seeing their insurance go up by $300,000 to close to a million dollars on a single policy renewal. You know, that cost just doesn't disappear or magically go down ever. It goes straight to the homeowners through their higher monthly dues and special assessments. And in Denver specifically, special assessments are hitting condo owners at nearly twice the national average rate. You know, one community in Castle Rock southern insurance premium jumped $600.

[3:46] Then their board tried to raise monthly dues from $300 to $820 overnight. Could you imagine the outrage? I mean, they had someone had to approve that. Uh, another community voted on a $2,500 special assessment just to keep the lights on. You're not talking a special assessment to repair roofs, to replace siding, to redo pavement and parking lots. you're talking just to fund the HOA. Uh, and here's a stat that kind of ties it all together. Between 2022 and 2025, HOA related foreclosures jumped 50% nationally. People are literally losing their homes over this, okay? And if you are concerned about buying in an HOA and want some questions answered, just give me a call, shoot me a text message. I'd be happy to help answer whatever I can for you. Now, the question is, how do you protect yourself before you buy? Well, the good news is is that all the information you need is actually available, okay? And most people just don't know how to ask for or what to ask for. Um, number one, you need to look at the reserve fund. This is the single most important thing.

Reserve Fund Importance

[4:51] Every HOA has two pots of money. There's the operating fund, which pays for day-to-day stuff like landscaping, snow removal, uh, and then there's the reserve fund, which is basically a savings account for kind of big ticket repairs, roof, uh, repaving, elevator work, things like that. If that reserve fund is low and when a major expense hits, guess where that money comes from? You your pocket. That's what's called a special assessment. And in Denver right now, they're hitting condo owners at twice the national average rate. So, how do you know if the reserves are healthy?

[5:22] You ask for a reserve study. Uh, and that should be in most of your HOA docs. You know, industry professionals say that a reserve fund is considered healthy when it's between 70 and 100% funded. below 30% is considered critically underfunded. Now, if the reserves are too low, Fanny and Freddy, the, you know, people who oversee pretty much all the loans in the country, can flag the entire community as nonwarrantable, which means future buyers might not even be able to get a conventional loan to buy in that community, no matter if it's 20%, 25% down. Ask me how I know. I've ran into this multiple times this year with buyers not being able to buy because of lending, which means they couldn't buy any units in that entire complex. And so there were six on the market in that complex there that all had zero options to sell their place. It's a pretty dire event, you know, and that directly affects your ability to sell down the road if the HOA isn't getting in trouble today. Number two, request the HOA's budget and financial statements. You know, you want to see how much they're spending versus how much they're bringing in. Look at how much the annual budget is going to reserves, and most people say it should be somewhere between 15 to 40%. Now, if it's way below that, the HOA is probably kicking the can down the road a bit, right? So, watch out for that. Also, look at the delinquency rate. How many homeowners are behind on their dues? If a big chunk of the community isn't paying, that means less money in the pot, which means everyone else is going to get squeezed.

[6:51] Number three, and this is a huge one in Colorado right now, ask about the insurance. You want to know who the carrier is, what the master policy covers, what the deductible is, and how much the premium has changed in the last 2 to 3 years. Remember what we just talked about? Some communities have seen their insurance premiums up 2 to 600%. If the HOA just absorbed a massive insurance increase and hasn't raised due yet, that increase is coming. Okay? And while you're at it, ask about the deductibles on that master policy. You know, in Colorado, a lot of these HOA policies now have a percentagebased deductible tied to the total insured value of the property. So, when a hail stom hits, the deductible alone could be tens of thousands of dollars per unit, and that gets passed directly to the homeowners as a special assessment. Now, we've also seen some goofiness kind of happen with these insurance policies.

[7:42] And when you have people that sit on a on an HOA board, they may not exactly understand exactly what they're voting on or trying to pass. I've had several cases this year where the master policy went from a 5% deductible to a 10% deductible. That change and shift gets rid of your lending ability. It basically becomes what they call a nonwarrantable condo. uh meaning you can't get conventional funding for it, meaning only investors can buy, meaning cash purchases, meaning they're going to pay a whole heck of a lot less for your place than a typical homeowner. You have to look at these things with a fine tooth comb. Okay, number four, read the meeting minutes. I know it's not exactly fun and exciting, but the last 12 months of board meeting minutes are going to tell you about the health of the HOA uh more than anything else. You know, you're going to be looking for recurring arguments, deferred maintenance, talk of upcoming special assessments, insurance problems, or any pending lawsuits. You know, if the board is fighting with homeowners if they keep postponing repairs because they can't afford them, that's all going to be in the minutes, right? It's going to be a super dry, boring read, but suck it up, buttercup.

[8:49] Get through it. And number five, just drive the neighborhood, right? Walk around, look at the common areas. Are they wellmaintained? Are there visible repairs that haven't been done? You know, talk to a couple of residents if you can. Ask them how they feel about the HOA, whether fees have gone up recently, and if there have been any surprise assessments that they weren't expecting. You know, 5 minutes of a conversation with someone who actually lives there is worth more than about 50 pages of documents. You know, but the bottom line is this. An HOA can either protect your investment or just obliterate it, you know, and the difference comes down to whether you did your homework before you bought it. But what if you're already in one of those situations? That's what we're going to talk about next here. So, here's where this whole thing comes together. Because everything I just showed you, the rising fees, the insurance crisis, the underfunded reserves, all of that doesn't just cost you more money every single month. It can make your property nearly impossible to sell. And that's what no one really likes to talk about.

Red Flags & Warnings

[9:42] And here's why. When an HOA is in financial trouble, low reserves, high delinquency rates, you know, pending litigations, insurance problems, uh, lenders do notice. And Fanny and Freddy have strict rules about this. You know, if more than 15% of the units in your community are 60 or more days late behind on their HOA dues, or if the HOA isn't putting at least 10% of its budgets into reserves, or if there's active litigation against the association, your building could get flagged as nonable. And when that happens, buyers cannot get a conventional loan to purchase a unit in your community. FHA, VA, uh, financing, they're out the window, too. So, now think about what that means for you as a seller, really. you know, your buyer pool just shrunk to cash buyers and people even qualify for a portfolio along with a bigger down payment and a higher interest rate. And this is actually happening right now all over Colorado, especially in condo communities that just got crushed by insurance increases that couldn't keep up. You know, there's actually a term in the lending world for what happens next.

Financing Complications

[10:41] They call the death spiral. You know, owners stop paying dues because they can't afford them. The HOA uh raises dues to cover the gap. More duels stop paying. The building loses its warritable status. Nobody can get a loan to buy in. Property values drop and the owners who are left are completely trapped with no way out. Uh that is kind of the worst case scenario, but we've seen it happen. Um and I'm seeing it happen daily in communities across the Denver metro area right now. So, how do you make sure that you don't end up in that situation? Well, first, if you're buying, do everything I just told you to do right in the last section. Check the reserves, read the financials, look at the insurance, read the minutes. Uh but go one step further. Have your lender run a warrantability check on the building before you're under contract.

Due Diligence Checklist

[11:25] Right? Uh find out right now if there's any red flags that could affect your financing because if a future buyer can't get a loan to buy your unit because if a future buyer is not going to be able to get a loan to buy your unit, you're going to be stuck. Second, pay attention to the delinquency rate. This is the canary in the coal mine. If a lot of people in your community are paying their dues, that's a sign that the HOA is heading towards financial trouble. And remember, once that number crosses 15%, lenders start walking away.

[11:52] Third, get involved with your HOA. I know that sounds like the most least exciting thing in the world, but the people who show up for board meetings and push for responsible budgeting, proper reserve funding, and smart insurance decisions are the ones protecting their investment. The owners who ignore the HOA and hope for the best are the ones who get hit with a $10,000 special assessment, or find out they can't sell their property. Fourth, if you're already in a tough HOA situation and you're thinking about selling, talk to an agent who understands this stuff because pricing a property in a troubled HOA is a completely different ballgame.

[12:25] You may need to offer credits. You may need to pay assessments uh before closing. You need to target your marketing specifically towards cash buyers and portfolio lenders. It's doable, but only if you have someone who knows how to navigate it. So, you can just also text me questions that you have. Uh and I'd be happy to help if I can. And fifth, understand your insurance situation personally. Don't just rely on the HOA's master policy. In Colorado right now, a lot of these master policies have huge percentage-based deductibles. You know, when a hail stom hits and the HOA gets a special assessment, your personal HO6 policy, uh that's the condo owner's policy, uh is what's supposed to cover your share. But some of these policies right now have hidden cap called special limit clauses that can limit your payout to as little as $2,000, even if you bought higher coverage. Okay. review your policy every year and specifically ask about loss assessment coverage and any special limits. Okay, look, Colorado is one of the most HOA dense states in the country. Over 60% of own homes here are in an HOA. That's not going to change. So, the goal isn't to avoid HOAs entirely. Goal is to make sure you're getting into one that's well-run, well funded, and not going to become a financial anchor around your neck. And if you do the homework I just laid out, you're going to be in a much stronger position than 90% of the people buying right now. But then you have to watch out for the individual house that you're looking at and spotting what a bad house is here in the Denver area, which is actually pretty simple when you know what you're looking for. Which is why I put together this video that walks you through the houses that you should absolutely avoid.

Protection Strategies