All condo HOAs seem to have tight rules about the # of rentals?

Question

I've been looking at condo units as a plausibly lower maintenance option for rentals. One issue I'm finding is that nearly all of the HOA docs 1) assert that rentals are allowed 2) limit it to a tiny fraction (e.g. 4 out of 120) that can be rented at a time and you have to provide a copy of the lease to the HOA.    I can understand why the HOA would want a copy of the lease. The restriction on the owner's rights that preclude me from renting it at all because 3-4 other units are rented seem like an overreach. WI passed a state law not too long ago that, if I understand it correctly, precluded municipalities from preventing rentals of at least 30 days. I wonder if this applies to condo HOAs, as well? Can / do-in-practice they actually prevent you from renting it out on a long-term basis?

Russell Brazil · Answer

Fannie Mae will only lend on condo associations with a certain percentage of rentals. (This ratio has changed over time). Go over that percentage and Fannie will no longer lend on the builsing and it becomes unwarrantable. When that happens, prices plummet. 50, 60 70% since you can no longer get a loan on the units.

This is why the investor ratio is limited in the bylaws of most condos.

Logan McKay Zylstra · Answer

Same thing here in SLC. HOA’s are their own beast and not worth the hassle. I would reach out to an agent and ask them which buildings don’t restrict rentals and ask them to set you up for alerts on those buildings.

Corina Eufinger · Answer

People erroneously think that HOA regulations on rentals come back to strictly a community decision, and as it's been pointed out here it's not.  Fannie Mae isn't the only one that has limits on the percentage of rentals in a condo association. But it would be false to say that these regulations only have to do with lenders.

Condos are viewed as different entities than single-owner properties by the law.  This is mostly because you are dealing with people that buy into a community to put down permanent roots and don't want to be transient (like renters) and are living in very close proximity with shared walls.  For this reason, the community can come together and create rules and laws that may be viewed as unconstitutional outside am HOA but are meant to maintain the quiet enjoyment and security of the established cooperative living experience.  Condos can have regulations on noise violations, criminal activity, etc that may result in legal action against the owner from the association.  All under the desire to maintain the integrity of the community.

That's a very long way of saying "yes", they can.  There are some rights to property that you are not entitled to keep or have exclusive regulation over when you purchase a condo.

Greg M. · Answer

50%-70% price plummet? I'd love to hear some examples of this type of price drop. Perhaps in some tiny dying town where no bank would ever be willing to hold a loan, but I've never heard of any price difference like this. Maybe 5%-10% lower price. And there are many lenders that will lend on these properties. Smaller banks and credit unions will lend and keep it on their books. The buyer may have to pay a slightly higher interest rate and have a larger down payment, but there are lots of lenders for unwarrantable properties.

Andrew C. · Answer

thanks for the thorough answer. That clarifies a lot.

Julie Hartman · Answer

I would look elsewhere; condos are not ideal in the long run. As others have said, dealing with HOA's is a nightmare. HOA turnover is constant and gets exhausting. And it may seem cheaper on paper in terms of maintenance but just wait until you are slapped with a $15k "special assessment" and then everything goes sideways. The other problem with condos is that eventually, you will get a tenant who requires absolute silence at all hours in order to function normally, and then the noise complaints will start. You'll get tired of dealing with it.

Nathan Gesner · Answer

As Russell said, if they go above a certain percentage then banks can't loan. HOAs are also getting tired of rentals that are poorly managed, so they may use this rule as an easy excuse for limiting rentals even more.

A condo may seem like a no-brainer for investments, but they can actually be terrible. A well-run HOA can fall apart with the wrong leadership or you can be harassed by a retired neighbor that spends their day harassing people over rule violations. And HOA fees will never, ever go down!

Andrew C. · Answer

that at least explains it somewhat. And, I get that the required ratio goes up and down over time, but at least per

https://homeguides.sfgate.com/...

in 2012 the requirement was 50%. I'm seeing most HOAs with limits like 15% or 'at most 4' in a 120 unit HOA. That just seems obnoxious. :(

All condo HOAs seem to have tight rules about the # of rentals?

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