Investment or real-life ‘Money Pit’: Beware of Condo Restrictions

Fans of the 1986 film “The Money Pit,” starring Tom Hanks and Shelley, remember the couple bought a home they believed to be a good deal. After moving into the home, they discovered it had many issues and all the couple wanted to do was rid themselves of the home.

Nowadays, rental rates are on the increase and condo prices are at a low. Many real estate investors are purchasing condo units as investment properties to rent out to tenants or Airbnb guests. However, condo restrictions may quickly have real estate investors feeling like they purchased a “money pit” because they cannot rent out the unit and generate cash flow.

Real estate investors should review the condo bylaws and declarations before spending thousands of dollars to purchase an investment condo.

According to Chicago Magazine, about 50 percent of the condo buildings limit condo restrictions in some way. One way condo associations place rental restrictions is by placing a cap on the number of units that can be rented. Another is by imposing a set amount of years that the condo owner must live in the unit before they can rent it out.

Once a real estate investor enters into a condo association with rental restrictions, he/she has a few options:

• Become involved in the condo board association and advocate for an amendment of the condo rental policy. The real estate investor can draft a proposed rental policy for the board to consider and vote on.
• Find a procedural flaw in how the restriction was passed. Condo regulations provide a process in which the bylaws and declarations can be amended. If the Condo Association did not follow the rules to the “T,” then the rental restriction may not be enforceable.
• File a lawsuit against the association. This approach is costly and time consuming.