How to Take Over (a Small Corner of) the World

What’s the easiest way to secure housing for a community of like-minded individuals with a shared purpose? This post compares the money required to (a) build such a neighborhood from scratch versus (b) orchestrate a hostile takeover of a poorly run homeowners association.

(For context, much of my grad school work was about homeowners associations, or HOAs.)

Option A: Gain political control of an existing common interest housing development, governed by an HOA:

  1. Find a development with (1) high fees relative to property value, (2) high ownership turnover, and (3) low voting thresholds to change rules. It should also have a pre-existing sympathetic group of owners.
  2. Start a sub-HOA within the master HOA.
  3. Start “flipping” properties by buying, adding the deed restrictions, and selling again. Financing needs are lower where the existing HOA fees are highest, since that brings down property prices. The sub-HOA should have rules that attract sympathetic buyers.
  4. Once enough houses have been “flipped,” owners sympathetic to the sub-HOA can take charge of the master HOA.

Option B: Convert existing housing with no HOA:

  1. Each house costs more
  2. Only get one house in the eventual HOA for each home purchased

Imagine a co-op of 100 homes where the fees lower property prices by half and with a 60 percent voting threshold, compared to 100 non-HOA homes valued at $400,000 each.

  • 60 purchases of $200,000 each vs 100 purchases of $400,000 each
  • With $240,000k of working capital and 20% down on mortgages, you could “flip” 6 HOA houses at a time, versus 3 normal houses at once.
  • So, you have control of the whole HOA development after 10 cycles of your capital, compared to 33 cycles for the non-HOA housing.
  • Even if you never gain control of the master-HOA, (1) purchase prices are lower and (2) the housing in a condo or co-op is dense enough that scattered sub-HOA members can effectively coordinate.

Note: Consider how presence of people who would join the sub-HOA would influence property values, relative to the profile of those who currently live in the development. (I.e., find a housing development that is currently under-priced because it has a bad mix of residents.) It’s imperative that existing owners gain housing value from this scheme, to overcome political opposition within the master-HOA. Keep things tranquil.

…I need a small development full of dirt bags with low voting thresholds and high fees.

PS - There are some holes in this logic…I’ll keep working on it.

Written on August 23, 2020