51% Owner Occupied Rules- 49% Renter- HOA Condo Rules

[Shannon Erickson]

Hello all!

My condo building HOA has a rule about 51% of the building needing to be owner occupied, leaving only 49% to be renter occupied. This is managed by the Board of Directors with the HOA- other homeowners within the building. I know that they implemented this rule out of fear that potential future buyers wouldn't be able to buy with an FHA loan.

In my building, the same people that have been renting their units out since the condo building existed, are obviously still the same ones renting out today. Any new folks are put on a "list" that when/if there is a unit available to rent (more owners than renters), the first person from the list is eligible to start renting their unit out.

Questions I have for all of you lovely smart REI folks:

1. Is the FHA rule a hard and fast rule? Do people TRULY not qualify, or is that up for interpretation, based on lender, if Fannie Mae needs to see proof, etc?

2. Is there a way to pull the data about how many people use FHA loans vs conventional (or any other?) for condos? Particularly for DC?

3. Wouldn't you all argue that enforcing a rule like this is actually preventing MORE buyers since investors are ineligible from buying in the building, as well as primary residence folks that eventually have the goal to rent out (my scenario, obviously). 

4. Is there a way to pull the data to see how many buildings have this rule, vs how many are open season for renters vs owners? (commentary here is that all the people I know that own condos in DC do NOT have this rule).

5. I assume this is a nationwide thing- how many other areas feel this struggle?

6. Does anyone know what the "or what" scenario is for an owner that rents out their unit that makes the tipping point for the building to cross the 51/49? (this will not be me, but I'm afraid it will be another friend in the building and I'm trying to help both of us out at the same time).

This is a slight stretch and just commentary, but a primary residence owner needing to sell their house in a pinch due to this rule, rather than renting it out, actually has the potential to drive the value of the other condos down. As well as the fact that if investors can't buy in your building, I could also argue that pulls property values down as you're only able to sell to primary residence owners. I am aware that some people have the attitude that renters don't take care of properties as well as homeowners, therefore that could pull property values down. All of these are statements, not questions haha 

Additional hot take is that the people managing this process are just other homeowners that I kind of just want to drive home the idea of "do you really want to spend your time enforcing these types of things, rather than just letting go of this rule and worrying about other more important things?"

[Greg M.]

1. Yes.

2. Probably.

3. Argue with who? I'd argue that investor-owned units brings the value of the units in the complex down. By preventing them, the downside of less overall buyers is mitigated.

4. No, but I suspect a significant number of buildings have rules like this. 

5. Sure, it is nationwide. Is it really a struggle? Buying in a building where every unit is a rental is a lot of competition for you. Buying in a building with few rentals is a point of strength for you. 

6. HOA fines that exceed the amount of rent being collected. HOA decision to not allow YOU in particular to rent your unit for X amount of time. Court order enforcing that if necessary. I could see the potential for another owner to sue you for losses (reduced value) under a breach of contract.

FYI, yes they want to spend their time enforcing these things. Their failure to enforce the rules can get them sued. 

Your best bet is to argue that all existing homeowners should be exempt from this rule as it wasn't there when they purchased. A threat of suing the HOA for diminished value of your unit may get them to cave.

Also, check the laws. Where I am at, HOA must grandfather in existing owners when prohibiting rentals.rentals