WHAT YOU SHOULD KNOW BEFORE BUYING AN HPR REAL ESTATE

The Horizontal Property Regime (HPR) statute, dating back to 1963, has evolved over time, now encompassing more than just land. HPR offers real estate investors two transactions on one piece of land, but it’s crucial to consider implications that might arise.

Real estate investment has always been intriguing,offering potential financial rewards and stability. Horizontal Property Regimes (HPR) real estate has gained significant attention among the various options available. 

Horizontal Property Regime, or HPR, is an increasingly popular classification of property and is all the rage in rapidly growing cities. 

HPR real estate means buying a property large enough to either renovate and convert into two homes or tear down and build a structure divided into two or more separate residences. In either scenario, the double home unit structure is on one property tax lot. 

Investors and builders are motivated to build this structure because they double their profit. Sounds good on their end, but what about the buyer of this new type of property?

With such an exciting trend spike in new home construction, understanding just what HPRs are and how they affect buyers and the entire neighborhood could be vital to you. 

This article will delve into the details of HPR real estate, helping you understand its nuances and whether it’s the right investment choice for you.

WHAT IS AN HPR IN REAL ESTATE?

HPR in real estate refers to a legal arrangement or zoning policy that divides a single property into multiple units or parcels, each with separate ownership. 

This type of property ownership has gained prominence as a way to maximize land usage in areas where space is limited. 

In essence, an HPR development involves the creation of individual units within a larger structure or a piece of land, offering owners a sense of autonomy while sharing common spaces and amenities. 

The result of HPR real estate is that instead of being short and wide, the houses are constructed to be tall and skinny. 

UNDERSTANDING HPR REAL ESTATE

The Horizontal Property Act legally instituted HPR real estate. This property act is often used when lot size requirements do not allow the lot to be divided into two smaller separate lots. Each state has specific laws on horizontal property. 

The HPR real estate goes beyond the traditional idea of owning a standalone property. Instead, it offers a unique blend of individual ownership and shared responsibilities.

Imagine owning a condominium within a larger building – you have ownership rights over your unit, but certain aspects, like maintenance of common areas, are collectively managed by all owners. This hybrid model appeals to those who value both privacy and community living.

A horizontal property regime (HPR real estate) differs from a planned urban development or PUD. (PUD is a large community typically sharing a common area and amenities).

Usually, a PUD will have 100+ individual properties and a community pool, tennis court, outdoor entertainment space, and even a clubhouse. Whereas, in HPR real estate, it is typically just two homes that are both

individually owned on a lot that once accommodated a single-family home. 

There are limited common amenities, and an HOA governs the properties (Homeowners Association) policy. This may include a pet limitation, noise restrictions, and an outdoor appearance agreement.

Pros And Cons Of Owning Horizontal Property Regimes

There are many reasons/benefits why someone would be interested in owning an HPR property. These most commonly include:

1. Affordability

HPR units can be more affordable than standalone properties. It lowers the sale price compared to homes with similar square footage and no HPR, making homeownership accessible to a broader demographic. 

Also, many HPR real estate and developments offer shared amenities such

as pools, gyms, and green spaces that might be cost-prohibitive in a standalone

property.

2. Lower Maintenance

Unlike owning a single-family home on half an acre, You’ll have low maintenance in an HPR real estate property. 

The owners will only need to dedicate part of the weekend to mowing and mulching their lawns, as the Homeowner’s Association collects funds to help take care of the shared portion of the property.

Also, Common maintenance costs are shared among owners, reducing the financial burden on individuals.

3. You’ll live in a vibrant community.

Many HPRs are built by tearing down a single-family home to accommodate two separate HPRs. This is common in areas where there is a limited amount of space and can have a significant impact on neighborhoods. 

HPR real estate development often revitalizes underutilized spaces, contributing to urban renewal and creating living areas for entertainment and enjoyment.

WHAT ARE THE CONS TO OWNING AN HPR?

1. Community Dynamics

Overpopulation, increased traffic, and altered community dynamics are drawbacks of HPR real estate. You co-own the property with the other resident(s). 

The property was originally one lot with a new structure built to accommodate two or more residential units. Consequently, it is still on one tax lot. The new owners co-own the lot.

2. Numerous levels of living

HPR real estate is typically tall and skinny houses, meaning they can only have some things on one level. It’s not uncommon for an HPR to be three stories high. If you aren’t comfortable doing a lot of stairs, or if you want a typical floor plan, you’ll need help finding that in an HPR.

3. Homeowners Association (HOA)

An HPR real estate requires an association. The association will cost you, the new owner, a monthly fee. Once a master deed is registered and issued, it establishes an HOA. 

Every HOA has rules/regulations each owner will need to follow. Part of the joys of owning your own home is being able to do whatever you want to it. 

However, an HPR real estate has rules and regulations the owners must follow because of the HOA requirement. This may include a pet limitation, noise restrictions, and an outdoor appearance agreement. 

Although HPR Homeowners associations are typically more relaxed than the HOA in a new construction community or condominium complex, it is essential to read all HOA bylaws before purchasing a property.

4. Tax and Insurance Obligations

On shared lots, questions of lot ownership can be challenging for the eventual homeowners. Tax and insurance obligations can be significantly affected by the ownership of the dirt underneath the house. 

The implications of this can often be difficult to comprehend. Building an HPR real estate can be challenging regarding logistics, such as locating utilities.

5. Limited Privacy

Living close to neighbors can be challenging for those who value more privacy and autonomy. Additionally, the constricting property lines can sometimes cause encroachments. 

Resolving conflicts in these circumstances may not be easy if you are not a mediator. While a condo building might have infrastructure to deal with such issues, a property with two buildings needs someone to turn to.

These challenges can often be settled with open lines of communication, a legal mediator, or a trusted real estate attorney.

6. Resale Challenges

Reselling an HPR unit can sometimes be trickier than selling a traditional property due to the communal nature of the development.

Exploring Different Types Of HPR

There are various types of HPR developments catering to different preferences and needs:

1. DETACHED HPR

A Detached HPR is two separate houses built on one lot. The two house structures must be at least 6 feet apart, resembling a modern housing community. The owners co-own the property. The surrounding land is considered a common property lot maintained by the Homeowners Association.

2. HPR ATTACHED

An attached horizontal property regime is when two or more homes are connected, wall to wall, without any green separating the home. 

3. HPR – ZERO LOT LINE

HPR real estate Zero Lot Lines were made illegal in 1984. The units that were already built were grandfathered in. 

A Zero Lot Line property is a duplex that is separately owned, not co-owned. Simply put, a zero lot line is when the home’s structure goes right up the property line, leaving no room or property between neighbors.

HOW DOES HPRS WORK?

The operation of HPR real estate is governed by legally enforceable agreements that specify the duties and rights of each owner. These documents cover various aspects, including maintaining common areas, rules and regulations, fee distribution, and dispute resolution mechanisms. 

Clear communication and cooperation among owners are vital for the smooth operation of HPR real estate.

When establishing an HPR real estate, your first step should be to find a knowledgeable real estate lawyer. With one, the process can be possible. To establish the HPR, your lawyer must draft a master deed. 

The master deed must have a certification from the real estate attorney who drafted it stating that it complies with all applicable laws. HPR real estate patterns can allow both homeowners to be part of one tax bill, so defining property boundaries within the home is extremely important.

Reasons To Invest In HPR Real Estate 

Without a doubt, horizontal property regimes are a niche type of property. It only attracts many potential buyers, but those interested in purchasing one are willing to pay top dollar. Investing in HPR real estate can be a strategic move for various reasons:

1. Maximize Your ROI (Return On Investment)

Developing a piece of land and building a home is expensive. A lot of upfront costs need to be recouped when it comes time to sell the home. 

HPR real estate offers an attractive benefit when it comes to high-end residential closings — there are two buildings to sell instead of one, and this doubles the amount money investors stand to gain from the transaction as a whole. 

Constructing costs will be higher due to the extra building, but the cost of preparing the land and any taxes or fees will be dramatically cut. Investors stand to make a grand return by selling two homes instead of selling a single structure.

Also, as urban areas grow, well-located HPR properties can appreciate over time.

2. Less Involved Risk

A vacant home is a drain on funds. This equates to flushing money down the drain, which is a bad time for investors. HPR real estate offers extra coverage that will help in such times. Renting out or selling just one of the two homes will help cover ongoing costs or pay investors.

The potential for coverage lowers the overall risk in real estate investments. This gives you the room you need to hold out until you can secure high-end residential closings.

3. Attractive To First-Time Homebuyers 

Investing in HPR real estate benefits younger people buying a house for the first

time. These homes are affordable and require a little work to make them livable. For those who are purchasing their first home, they are much more likely to buy a home that is move-in ready.

These buyers are also attracted to the minimal upkeep needed for HPRs. The yards are typically smaller, which means there is less yard work to keep up with.

4. Reduced Red Tape 

Developing a piece of real estate often necessitates a lot of back-and-forth with the city. A lot of permits need to be acquired and fees to be paid. 

HPR real estate, however, requires less approval from the city, making it of great benefit to contractors and developers as it reduces the amount of red tape involved with real estate. 

The builder will be required to get a building permit, but far fewer reviews and approvals are needed to proceed. 

5. Diversification 

HPR real estate investments also help to diversify your portfolio beyond traditional real estate options.

Final Thoughts 

In the realm of real estate, HPR real estate stands as a unique and enticing option.

Understanding its intricacies, benefits, and challenges, legal aspects is essential before embarking on this investment journey. 

HPR real estate is undoubtedly a trend worth exploring. So, as you navigate through investing in real estate, consider the promising potential that HPR real estate brings to the table.