Here are the pros and cons of rental caps in condo communities
An issue that associations for common interest communities have faced is whether to limit rentals in their communities. In almost any condominium association or homeowners’ association, the debate of rentals can divide owners. Arguments can be made for and against the adoption of rental caps.
A rental cap is the limitation of the number of homes in a community that can be rental properties. Not all associations have rental caps, and those that do, do not have the same policies.
Homeowners within these communities often find themselves at opposite ends of the argument. There are pros and cons to rental caps.
Here are the pros:
Better quality of life: Owner-occupants often invest more in their home, take better care of common elements and take pride in
Condo Conversations building strong relationships with their neighbors. Most often, they are there long-term, so they are intent on maintaining a certain standard of living.
Home values stay higher: Home values tend to stay higher when there is a higher ratio of owneroccupied homes than rental homes. There is a lower chance of poorly maintained rental homes with long-distant landlords/ owners.
Meets FHA or other loan qualifications: Potential buyers may find it more difficult getting funding from lenders when purchasing homes in a community without a rental cap. Once an association has 50% or more of its homes rented, a community will not meet FHA approval guidelines, therefore potential buyers will not qualify for FHA or other loans. This will decrease the pool of potential buyers when it is time to sell your home, which could lead to your home being on the market longer.
Community participation: More owners within the community mean more opportunities for participation in community governance. Not only is there the possibility of more participants at board meetings or board members, but also for social gatherings. Those that live in strong social communities tend to help one another more often.
Home is more marketable: Many homebuyers looking for homes in common interest communities find those with rental caps more desirable. They want to be in communities where they can build ties with their neighbors, homes that continue to appreciate and visible pride of home and community. Here are the cons:
Lack of community: Renters, whether for longterm or short-term, tend to be more transitory than owners, which may give them less incentive to get involved in their community or with their neighbors. Communities that attempt to provide a lifestyle component may find that renters can be challenging.
Lack of owner options: Many homeowners may find themselves experiencing a hardship such as financial struggles, job loss or relocations, or military transfers or deployments. These are common situations that do not always occur with warning or at the best possible times like a hot real estate market. If a rental cap exists, selling their home is the homeowner’s only option, even if renting makes more sense. When a homeowner is forced to sell their home, the result could be a lower sale price, short sale, or even foreclosure. Either of these results may hurt the value of other homes in the community.
Higher wear and tear: People coming and going can be hard on properties. In some instances, because renters do not own the home, they may likely be hard on the home. While most of the damage they cause is on the interior of the home, it can spill over to the exterior or even the common elements.
Home is less marketable: A rental cap may be a deterrent to some homebuyers. An investor or other potential buyer may wish to purchase a home with the intent of renting the home. Not everyone looking to purchase a home wants to occupy it. This could result in longer times a home for sale is on the market.
Renters could be great community members: Renters often love the homes they rent and may want to eventually purchase it, or one similar in the community. Many renters choose to rent so they can “try out” the neighborhood before purchasing. If they do not feel welcomed in the community, it is probable they will purchase a home elsewhere.
It is important to know an association’s rental policies when purchasing a home in one of these communities. You may find that the home you are interested in doesn’t meet your future needs.
If you are already in a condominium community or HOA that has or does not have a rental cap, you can learn more information by getting more involved in your community.
Board meetings allow homeowners the time to ask questions or bring up a concern. This is the perfect opportunity for you not only learn about the current regulations, but to also hear how other home owners feel about those regulations.
Jennifer Ireland is a Realtor with Berkshire Hathaway HomeServices Towne Realty and co-chair of the
Hampton Roads Realtors Association’s Common Interest Community Forum. Have a question about a condo or common interest community topic? Email svegh@hrra.com. For more on HRRA, go to www.hrra.com, or call 757-473-9700. This column is not legal advice nor a legal recommendation.