Turning a New Build into a Rental Property

[Ricky Hernandez]

Hi Everyone,

I'm considering buying my first home as a new-build and was wondering if there was anything I should watch out for if I plan to turn it into a rental one day. I can see myself renting it out at some point. I know the HOA documents would have information on that, but I'd like to know if there's anything else I can do to confirm that I won't be restricted (with the builder/community) if I turn it into a residential rental one day.

Thank you and Happy Holidays!

[Dennis Bragg]

Hey @Ricky Hernandez

Great question, and it’s awesome to see you thinking ahead about the potential for turning your new-build home into a rental. As someone who’s spent a couple of decades in real estate investing, here are a few things I’d keep in mind:

1. HOA Restrictions: You're absolutely right to check the HOA documents. Look for any clauses about rental caps, short-term rentals, or owner-occupancy requirements. Even if the HOA currently allows rentals, it's worth attending HOA meetings or reviewing their amendment history. Rules can change, and it's better to anticipate potential restrictions down the road.
2. Builder Restrictions: Builders sometimes place restrictions on rentals to maintain the "character" of the community, especially when they’re still selling units. Ask the builder or their legal representative for a copy of the CC&Rs (Covenants, Conditions, and Restrictions) or any supplemental documents specific to the development.
3. Financing Considerations: If you’re financing the property, some loan types have limitations on renting out a home within the first year. Check with your lender about any owner-occupancy requirements tied to your mortgage.
4. Market Analysis: If you plan to rent it out in the future, take a close look at rental market trends in your area. Phoenix has been a hot market for rentals recently, but consider how long-term trends, interest rates, or construction projects might impact demand.

Here's a quick story: A friend of mine bought a new-build in a suburban development a few years back. Everything seemed great until the HOA implemented a cap on rental properties due to complaints about absentee landlord's. He ended up having to sell the home instead of renting it out, which wasn't part of his original plan. Lesson learned: Always think of a Plan B in case renting isn't an option anymore. @Pat Aboukhalen was the agent there sorting it all out for him there after his previous agent missed it - so if you don' already have an investor-friendly agent there that's who I would use. 

Lastly, I’d recommend running the numbers for your long-term goals. Is this a cash-flow play or an apprecation play? In markets like Phoenix, you might find a mix of both, but it’s always better to invest with clarity.

Have you looked into whether the builder is still selling homes in the same community? Builders often adjust pricing based on rental saturation, which could impact future appreciation.

[Ricky Hernandez]

@Dennis Bragg, Thank you very much for the insight! Excellent points about checking the different documents and thinking of a Plan B (just in case). I appreciate it. Thanks again!