The HOA is not in the real estate business yet, but is considering the possibility.

Started by RalphH2 • 3 replies • 1295 views

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RalphH2 (Arizona)
Posts: 12

Posted:

Our built out HOA with about 2500 homes is considering getting into the real estate business. The intent is to provide an additional source of revenue. We already have a restaurant and golf course that are money losers. The proposal is still in committee for further discussion. It may not be a full-service brokerage.
One thought is just to rent some small office space to a broker for about $400 SF and also receive a percentage of gross sales. One concern is about the potential liabilities connected with the sale or listing of real estate by a real estate brokerage which may or may not be covered by E&O or other insurance. I and many are not certain if the reward, if any will be worth the risk.

I'd appreciate any comments from those who do have or had a real office connected with their HOA. How is it working, problems, worthwhile, and what should our HOA members consider?

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Make sure your HOA is a "FOR PROFIT" HOA. Most HOa's are non profit (NOT like charities) and are not designed to be a business. Check with the IRS on the impact this will have. Remember a HOA is made up of ALL the owners, which means you ALL will be in business together. Is everyone on board for that?

Former HOA President

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Ralph

I am following this with interest. My first blush is that it is quite a reach for any association but being as large and complex as yours already is might, it not be that big a reach.

Best of luck.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Aside from the legal issues I raised in your other thread on this topic, at least one more crops up.

In Arizona a corporation can act as a broker but the corporation has to register a licensed designated broker with the state real estate department. I do not recall if that person must also be an officer of the corporation but either way insurance becomes an issue. The corporation itself can never hold a real estate license as that is reserved only for natural persons. If the designated broker resigns, the corporation must suspend its real estate activities until it can find another designated broker.

The term "non-profit" does not mean the corporation cannot make a profit. It means that profits cannot be distributed to investors.

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