HOA restriction on rentals

[Pat Garaffa]

I purchased a townhome with the expectation of either 1. renovating and reselling it or 2. renting it. My preference is the latter and I want to rent it and add it to our portfolio. Most of the HOA in our area (Jersey shore) have some type of restriction to limit rentals. The most common is a waiting period of 2 years. The owner cannot rent for the first 2 years of ownership. And even then, there is a process that must be adhered to keep them happy.

We were aware of this when we bought and we wanted to flip it.  There are no restriction on flips.  But now we want to rent it and I wonder if I can get around this without having any problems?   

The house is worth about 160K and we have a 95K mortgage.  It was a 130K short sale purchase with 25% down payment but I did some renovations and we got it at a good price so I had some added equity at closing.  The home is in my own name and not an LLC.  This was done to maintain favorable interest rates and to keep the mortgage company and HOA happy because neither is fond of LLC's.  

I've been given lots of advice but we have some challenges.  

The most common advice was to put the home into an LLC and then add the LLC to a trust.  I can make the tenant a trustee in the trust without any voting rights so "technically" they would be an owner.  

This seems complex and expensive.   

The change in ownership could also trigger a "due on sale" clause in the mortgage. In addition, we live in Jersey where there is a fee for everything and the only thing we get in return for our fee is a receipt. We also have a Realty Transfer Tax that is applied anytime a home changes hands. A conversion to an LLC would qualify so I would have a fee of about $600 in taxes. In addition, the HOA charges nearly $2000 to join so I could possibly be subjected to that again if the property ownership changes. And we also require a township inspection and certificate of occupancy on all rentals in this town so the amount of checks and balances is overwhelming.

I've been given other advice such as: 

1. Rent it and keep my mouth shut.  

2. Tell the HOA that it is owner occupied (me or my wife) and that the other person living there (the real tenant) is our room mate. And, of course, I am never around because I travel a lot for business. I am sure their annual tenant questionnaire would also require proof such as drivers license and our address would not match.

3. Put it on the market or sale at a ridiculously high price and then put in a house sitter (the tenant) while I wait for an offer.  I am unsure if this is allowed but they can't expect me to leave it vacant so it's worth a try.  

4.  Do a lease-purchase instead of a standard rental agreement.  Technically, this would still be a rental but I am curious if they have the ability to restrict how or what method I use to sell my home?  Not everyone can get a mortgage right away so I could put in a tenant who wants to buy.  But he has crappy credit so he can't do it for a year.  Of course, this is also fabricated but I could easily draft up a lease purchase agreement giving the tenant the option which he would ever exercise. 

Any advice on how to creatively and legally get around this 2 year rule would be greatly appreciated.  

[Jim K.]

@Pat Garaffa

So the plan is to rent it for the long term.

If that's so, angering the HOA off the bat with the frankly rinky-dink theatrics you mention might not be the best strategy. The goal of limiting rentals is to keep the property desirable for owner-occupancy. So all the neighbors are also going to be on the HOA's side. I suggest you renovate and resell. Be done with the HOA and all their problems.