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Condo Rental Restrictions: How to Limit Rentals to Keep Your Condo Value Up
FEB
15

Condo Rental Restrictions: How to Limit Rentals to Keep Your Condo Value Up Are renters taking over your condo building? If more than 50% of units are home to renters, your property value takes a hit because FHA won’t finance loans to buyers for your condo or refinance your existing loan. Plus, would-be buyers typically seek out condos in buildings that are majority owner-occupied based on the perception that owners are quieter and more stable than renters.

If your condominium doesn’t have a rental cap, your unit’s value is at risk.

I just ran into this issue with my one of my buyers and she ended up having to pay cash for her unit because the occupancy rate was too low, (meaning too many units were rental properties) and no bank would finance the property for her. Fortunately for this seller, my buyer had the cash, but I must tell you, my buyer got one heck of a great deal because of it.

The unfortunate thing for existing owners is that they will have a hard time selling and will usually take a hit on the sale price. Cash offers usually come from investors who offer much less then the asking price.

A condo rental restriction can be added in one of two ways;: easy and risky, or tough and expensive.

2 ways to add a condo rental restriction

1. Cheap and easy: If your condo declaration (the legal document that lays out the condo’s rules) doesn’t mention rental limits, the condo board can pass one or more rules that:

  • Cap the proportion of units that can be rented out at any one time.
  • Limit each home owner to one rental during the time they own the unit.
  • Limit the length of time the unit can be rented.
  • Ban rentals completely.
  • Allow rentals only when home owners can prove a hardship, like they’ve been transferred to another city and can’t sell their unit for enough money to cover what they owe on the mortgage, or they need to move to take care of a sick relative.

A rule change is the easy way to go because it usually requires a vote only by the board of directors—not other residents. Grandfather in existing rental units so the rental ban doesn’t force condo owners who currently rent their units to breach their leases with their renters. That could lead the landlords to file suit against the condo board.

Cost: About $500 for the association attorney to review the condo rental restriction to make sure it’s reasonable and fair.

2. Tougher and more expensive: Amend the condominium declaration. This will be harder because you’ll probably need a supermajority of owners (80% is common) to agree to the rental ban. A declaration change to limit rentals will better withstand a court challenge than a rule change, because the declaration vote shows most unit owners (and not just the board members) want the change.

  • If the declaration does mention rentals and you want to change the specifics, your condo board has to amend the declaration, which often means getting that supermajority of owners to agree. The board can’t pass a rule that conflicts with the declaration.
  • A declaration change is a long process because your board might have to hold public meetings or send certified letters to make sure everyone in the building knows about the proposed change. The steps for changing your condo’s declaration will be explained in the declaration.

Cost: About $500 to $1,000 to have an attorney review the condo rental restriction amendment and verify the board followed the rules when it notified home owners and held a vote on changing the declaration.

Whichever method you choose, check state laws to see if they have anything to say about limiting rentals. Be sure to ask the board’s attorney about what will happen and how much it could cost in your area if an owner sues over the condo rental restriction. Our rough estimate: $10,000 to $20,000 to defend or enforce a condo rental restriction.

If you’re in the market to buy or sell a condo call me at 832-576-4902, email me at kim@kimberlywhaley.com or visit my website @ www.Homes-Houstontx.com


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