We present a theoretical study on narrow armchair graphene nanoribbons (AGNRs) with hydroxyl functionalized edges. Although this kind of passivation strongly affects the structure of the ribbon, a high degree of edge functionalization proves to be particularly stable. An important consequence of the geometric deviations is a severe reduction of the band-gap of the investigated 7-AGNR. This shift follows a linear dependence on the number of added hydroxyl groups per unit cell and thus offers the prospect of a tunable band-gap by edge functionalization. We furthermore cover the behavior of characteristic phonons for the ribbon itself as well as fingerprint modes of the hydroxyl groups. A large down-shift of prominent Raman active modes allows the experimental determination of the degree of edge functionalization.