Selling a Rental Wait List Spot

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Selling a Rental Wait List Spot

Patrick Young
Atlanta, GA · Member since 2016 · 18 posts · 3 votes

Hi All,

I am currently on the board of my HOA and have an idea about commoditizing the rental wait list spots. Has anyone heard of any association allowing members to sell their spots on the rental wait list to other members? Our community has a wait list of around 30 people. It would seem to benefit everyone if we allowed people to sell their spots. For example, I might be at the top of the list but not want to leave or rent my unit out, but would like to profit from the years I've waited for the privilege. I believe creating a market for selling these wait list spots would make it easier for those who value them the most to obtain one and for everyone to profit off arguably the most valuable reason to own one of these condos (rental income). In my ideal system, you wouldn't be swapping - you would move to the back of the list after selling and the buyer would forfeit their current spot on the list.

It doesn't seem to be prohibited by our guidelines but I'm looking for any examples of how this could work or not work.

Thoughts?

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Eamonn McElroy
Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
7y

@Patrick Young

"Thoughts?"

By creating such a policy you've just incentivized everyone to join the wait list, whether they intend to rent their unit or not.  Those who are genuine about turning their condo into a rental are going to be frustrated as they now are competing in a much bigger pool with disingenuous participants who intend to use the rental queue as a means to profit.

I view it as a net negative.

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  • Nicholas LaGatta
    Real Estate Broker · Atlanta, GA · Member since 2017 · 229 posts · 145 votes
    7y

    If it's not specifically address by your HOA's CCRs, then it's probably at the discretion of the board to allow it or more than likely a vote would be required to approve the provision. There are many scenarios and potential disputes that could come out of that situation, so it would realistically take an attorney to draft the change.

    I would tread lightly. As a former HOA president and a former member of 2 contentious HOAs (especially in the area of rental caps), I would advise you to rent the next unit that comes available and use it for yourself and then rent out your unit. It's probably going to be less effort than trying to convince a super majority to change the rules and hire an attorney to that effect.

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  • Patrick Young
    OP
    Atlanta, GA · Member since 2016 · 18 posts · 3 votes
    7y

    You are suggesting I rent out a unit and then wait for my unit to the top of the list to rent? (which would be years).

    We have a 25% rental cap which is the issue with so many people wanting to rent their units out. It may be easier to up the cap to 50% or something but I'm not sure what kinds of restrictions and limitations there are for FHA, etc. It certainly would be opposed by many. Supermajority votes aren't ever going to happen realistically.

    It seems we've arbitrarily restricted the supplier of permits through this 25% cap. I'm also struggling to understand the first come first serve on these permits. Someone can get a hold of one and hold it forever, some may want one and never get to the top. I'm wondering if the association can collect a fee for the permit and or limit the years it can be rented? They're hot commodities; its interesting to think about.

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  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Patrick Young

    "Thoughts?"

    By creating such a policy you've just incentivized everyone to join the wait list, whether they intend to rent their unit or not.  Those who are genuine about turning their condo into a rental are going to be frustrated as they now are competing in a much bigger pool with disingenuous participants who intend to use the rental queue as a means to profit.

    I view it as a net negative.

    1Reply
  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Patrick Young

    "It seems we've arbitrarily restricted the supplier of permits through this 25% cap."

    It's not arbitrary.  The 25% max HOA rental cap is a lending requirement by Freddie...or Fannie...or the FHA if I remember correctly.

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  • Patrick Young
    OP
    Atlanta, GA · Member since 2016 · 18 posts · 3 votes
    7y

    This is true but those people who originally intended to use it as a rental would already been on the list. Therefor anyone who now wants to profit from the rental spot would be last in line..

    Do any communities have limits on how long an owner can rent out their unit? If this list churn was reasonable this wouldn't be so much of an issue. 

    At our last meeting our association rep let us know that we are well below those thresholds at 25%.

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  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Patrick Young

    "This is true but those people who originally intended to use it as a rental would already been on the list. Therefor anyone who now wants to profit from the rental spot would be last in line.."

    Yes...but this doesn't refute anything I said.  You're just stating the effects will take a short period to materialize and then they're there permanently as I've described.

    "Do any communities have limits on how long an owner can rent out their unit? If this list churn was reasonable this wouldn't be so much of an issue."

    My condo association specifies a rented unit cannot remain vacant more than 6 months or else its rental permit is revoked.  Otherwise, you can rent indefinitely once you have the permit.

    Adding a life to how long a unit can be rented, then it gets kicked back into the queue will decrease the attractiveness of your community to buyers, which will cause downward pressure on property values.

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  • Patrick Young
    OP
    Atlanta, GA · Member since 2016 · 18 posts · 3 votes
    7y

    "Adding a life to how long a unit can be rented, then it gets kicked back into the queue will decrease the attractiveness of your community to buyers, which will cause downward pressure on prices."

    I think that assumes that a prospective buyer would like to rent out their unit indefinitely. There are other shorter term options which would be attractive such as the ability to rent this year or for the next 5 years without waiting.

    If I'd like to buy and rent my unit today but would have to wait 3+ years, then that unit is less valuable to me than one I can purchase today and buy my way to the top and rent immediately.

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  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Patrick Young

    "I think that assumes that a prospective buyer would like to rent out their unit indefinitely."

    Not exactly...it assumes buyers who intend to eventually rent don't want a rental life cap in the bylaws which would revoke their rental permit, kick their unit back into the rental queue, and leave their unit sitting empty for an unknown period of time or require them to buy their rental permit back.  

    That's not exactly a wild assumption...

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  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Patrick Young

    If we can get out of the weeds for a second....ask "cui bono?"  --  "who benefits?"

    Is it the association members who rent and intend to rent their units?  No, most definitely not.

    It's the members who intend to use their units as primary residences, and profit off this "rental permit marketplace" you've created.

    Again...net negative.

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  • Patrick Young
    OP
    Atlanta, GA · Member since 2016 · 18 posts · 3 votes
    7y

    I think someone who wants to rent and is lower on the list would benefit by being able to purchase a permit from someone at the top of the list. Someone who is moving out of state suddenly, new job, lost job, etc. I get there are hardship provisions in the hoa documents but those are subject to approval.

    Why is it a net negative for the permanent residents to profit off the list?

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  • Josh F.
    Wholesaler · Seattle, WA · Member since 2015 · 59 posts · 13 votes
    7y

    @Patrick Young Let's discuss, I have some thoughts. Having said that, I don't think that the beneficiary should be the person that owns the "leasing permit", rather the HOA. Meaning that they should lease out this privilege on an annual basis, using some sort of auction. If you think about it, these approval slots really belong to everyone, so in truth a waiting list isn't really fair to those waiting. What is more fair is that the income flow back to everyone, and that there be an option to rent. Put another way, the waiting list is a cost that unfairly burdens those who don't have a leasing permit. So to make this fair, simply have auctions, and those that pay the most get a leasing permit for x years, that return to the HOA at the end of that time. That seems like the most equitable way to do it.

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  • Tchaka Owen
    Real Estate Agent · Merritt Island, FL · Member since 2017 · 986 posts · 1k+ votes
    7y
    Originally posted by @Eamonn McElroy:

    @Patrick Young

    "It seems we've arbitrarily restricted the supplier of permits through this 25% cap."

    It's not arbitrary.  The 25% max HOA rental cap is a lending requirement by Freddie...or Fannie...or the FHA if I remember correctly.

    Maybe way back in the day. For the past decade and a half (perhaps longer), limits have been at 30%, 40% and even 50%. That said, I do agree with Eamonn that selling wait list spots is a TERRIBLE idea as everyone with as few as one functioning brain cell will get on the list. If you want to do your association favors, work on raising the rental percentage to about 40%. Don't sell waiting spots.

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