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Be careful when speaking in absolutes. What you've written is not necessarily true in resort areas. I live in an oceanfront high-rise in Miami Beach where units sell for between $700-$800 per square foot ($580k - $985k). And they sell for that much because they can be rented out in season for up to $5000/month.
My condo is not in a resort area, but near a nice beach. We get $2,000 a week in summer or $7,000 a month and on a year round lease around $2,300 a month, off peak lease at $2,000 a month. The really fancy condo near me on the beach gets $35,000 a month for July and around $70,000 for the entire Summer. They also rent for $4,000 a month off peak. I see owners do a winter rental and one month a lot then use it two months a year. That is $70,000 a year rental income.
It is a big perk cause you can live year round, you can rent year round. We also have "snow-birds" who use units three months a year and rent in off peak and even folks who live there year round will rent it a single week or two in peak time.
Maint in my building is $6,000 a year, Taxes like $5,000 a year. It is a big selling point. I turned down buying any condo that restricted year round tenants and condos with stricter rental rules.
One near me allows a year round rentals or a winter tenant or a summer tenant. But only one out of the three. I find that very restrictive.
What if I rent it out one summer and I suppose to leave it empty all winter? Or if I rent in winter and get too busy in summer it sits empty.
And what are board members in this self-managed building supposed to go around and police people.
My town recently passed and AIRBNB type rule eliminating one month or less rentals. Should be interesting as who is enforcing that. So it goes to show even a building with no rental restrictions can end up with some.
The odd part is last two years I used it in summer and only rented it a single week to a nice couple. It sat empty 80% of summer. I just did one week to cover maint in summer. This year I will do a full month.
Prices in my building may fall more with the new rule. Everyone loved the flexibility. Older people dont understand the Uber/Airbnb world we live in. No one wants a 52 week a year condo or vacation place anymore. The month long rental rule is a killer. Why cause when I first bought place I tried to list it for one month, then I tried to do two weeks. Pretty much magic number was 7-10 days. Folks dont have a whole summer to take off and must dont have two weeks.
I have not yet closed on the unit but discovered the new rental policy (which I was told will be an amendment to the by-laws) by seeing another sales listing for the condo which stated owner occupants only. Unfortunately, I never went to read the board minutes so I don't know if it was mentioned. I still plan on going forward with my purchase as I plan to use the unit personally for at least several years.
I'm questioning the legality of how a condo can allow one owner who purchased 2 months ago, (before the new amendment) the right to lease their apartment for the next 100 years while not allowing someone who purchases two months later the right to lease at all. I can see grandfathering in the current renters until they vacate and not allow new renters in, but to give one group special "privileges" over another does not seem equitable. I will need to thoroughly comb through the bylaws on this.
My statement regarding how the restrictions of rentals will lower the property values is most certainly true in this case. There are many foreign investors buying into the area. Allowing only owner occupants will definitely lower the value of the units in the future.
That would make sense if your only concern was for the renters themselves. Of course everyone is legally entitled to stay out their leases; that's not even a question.
But think of this situation from the owner's perspective. Imagine that 10 years ago you bought a condo for the express purpose of renting it out as an income-producing asset. Then a decade later an edict comes down and within a few weeks or months (however long happens to be left on your tenants' lease), you asset is now a liability that is going to cost you money and sit empty until you dump it. And if there are several other owners in the same situation, they all may have to sell at fire-sale prices to get out from under their costly (mortgage+association fee) vacant units ASAP in a race to the bottom. Those units dumped for cheap become the new comps for the building, and everyone's values plummet. Does that seem more "equitable?" Now that I type it out it sort of does, since everyone takes a hit. But the investors are disproportionately affected.
That would make sense if your only concern was for the renters themselves. Of course everyone is legally entitled to stay out their leases; that's not even a question.
But think of this situation from the owner's perspective. Imagine that 10 years ago you bought a condo for the express purpose of renting it out as an income-producing asset. Then a decade later an edict comes down and within a few weeks or months (however long happens to be left on your tenants' lease), you asset is now a liability that is going to cost you money and sit empty until you dump it. And if there are several other owners in the same situation, they all may have to sell at fire-sale prices to get out from under their costly (mortgage+association fee) vacant units ASAP in a race to the bottom. Those units dumped for cheap become the new comps for the building, and everyone's values plummet. Does that seem more "equitable?" Now that I type it out it sort of does, since everyone takes a hit. But the investors are disproportionately affected.
But the hens come home to roost. In that scenario depending on size of condo one investor or the other investors can gang up and buy enough units to swing the vote back.
I know a guy between 2009 and 2014 snatched up around 30 condos in a building and a second guy snatched up 20. They are the president and treasurer of buildings. As units come on sale the old folks just straight up contact them. They have a big airbnb rental business going on and was scared it would get killed in a vote to limit rentals. In a mad rush they even were chasing down folks to buy units they could not afford and offer to manage for free first few months. Now they control over 51 % of building.
My building I dont track close but I would say we got around 40-45% rental folks. We have 2-4 units I know will be on market in next 24 months. If they tried to ban renting myself and the one other guy who has money we could just buy 2-3 units and un-do the rental rules.
My one buddy from way back over 30 years bought 100% of units in his building. Is a small six unit building. As folks left he bought them over years. Very hard to get a loan on a old small building that is mainly rentals, he was a cash buyer, as is no realtor fee. Now he lives in building, combined two units on main floor, has garden and basement and rents the four units. I think stores like this make folks fear rentals as owners are often richer and smarter.
The vast majority of condos near me are not FHA eligible, neither is my building. Folks do not want to be FHA eligible as it brings in a lot of low down-payment loans. Some as low as 5% down. As soon as prices fall greater than 5% these folks often stop paying a mortage or maint for several years.
Second the banks near my complex that will lend to condo usually will do 20% on a primary and 40% on a rental. Meaning even investors can get loans. Most condo mortgages near me are on the banks books.
Third, I really don't care as much about potential buyers or potential sellers as much as I care about current owners. I have a pretty big population of folks over 65 who are "going feet first out of complex" They applaud me getting taxes reduced. We won 25% this year alone. And building up reserves.
Right now we have not had a buyer in building who used a mortgage since 2008. Every purchase since 2008 has been cash. Only time I ever fill out the rental form is once in a blue moon if someone refinances. 1
Just because it doesn't apply to your building doesn't make it a myth. I know several people who could not sell their condos for a really long time because a single investor owned too many units for potential buyers to get a mortgage. I know others who lost a buyer who couldn't get an FHA loan, although I agree that that that more and more condos are no longer certified although at least for a couple I know of, the reasons have nothing to do with people not paying mortgage but because the complex can no longer qualify because the percentage of non-owner occupants is too high.
I have not yet closed on the unit but discovered the new rental policy (which I was told will be an amendment to the by-laws) by seeing another sales listing for the condo which stated owner occupants only. Unfortunately, I never went to read the board minutes so I don't know if it was mentioned. I still plan on going forward with my purchase as I plan to use the unit personally for at least several years.
I'm questioning the legality of how a condo can allow one owner who purchased 2 months ago, (before the new amendment) the right to lease their apartment for the next 100 years while not allowing someone who purchases two months later the right to lease at all. I can see grandfathering in the current renters until they vacate and not allow new renters in, but to give one group special "privileges" over another does not seem equitable. I will need to thoroughly comb through the bylaws on this.
My statement regarding how the restrictions of rentals will lower the property values is most certainly true in this case. There are many foreign investors buying into the area. Allowing only owner occupants will definitely lower the value of the units in the future.
It's completely legal, and in fact, many laws have a grandfather provision. The people who bought their units with no rental restriction in place get to continue renting per the terms that existed at the time they bought. People who bought after the rental restriction went into place buy and are subject to that restriction but they know that going in. There is nothing unfair about that.
As for whether investors raise or lower the value is still an open question. You have a different pool of potential buyers but for the owner occupants, they are almost always better off with more owners than renters as their neighbors.
I'm in contract to buy a condo unit that I plan on using as a second residence for several years. I just found out that the board has voted to not allow owners to rent out their units. Only owners who currently lease their unit will be allowed to continually lease out their units in the future....even after their current leases expire. While my short term plan is not to lease my unit out, I would want to in the future. It does not seem legal that a condo board can give some units the right to rent their units while prohibiting other owners from renting. This change will be put in the by-laws as I've been told. Any one have any thoughts or experience with this?
I worked as a paralegal in the legal field for years, including litigation over various types of contracts.
The reason some units will be allowed to rent is that the HOA is bound by the by-laws that were in existence at the time those owners leased their units.
However, I think it's odd that once those leases are up, that those owners would continue to be under the old by-laws. But I guess so....maybe because those are business owners who bought the units as rental units in the first place.
You can use the change in the by-laws to cancel your contract to purchase there. Does the contract mention the by-laws in any way? I would certainly give it a try: An important provision in the by-laws has changed, and it directly affects one of the reasons for your purchase.
Seems like the HOA is trying to stop investors from buying rent-only units. They want homeowners to at least live in them for some period of time. The reason for this is that owners take better care of property and are better neighbors. Having a few renters is one thing. Having a lot of renters would change the whole complex, and not for the better. For one thing, new owners would probably not buy there, once they found out that most people there are renters.
Keeping the rentals down is a good thing, for property values.
Just because it doesn't apply to your building doesn't make it a myth. I know several people who could not sell their condos for a really long time because a single investor owned too many units for potential buyers to get a mortgage. I know others who lost a buyer who couldn't get an FHA loan, although I agree that that that more and more condos are no longer certified although at least for a couple I know of, the reasons have nothing to do with people not paying mortgage but because the complex can no longer qualify because the percentage of non-owner occupants is too high.
Well you need a separate reserve account of at least a certain amount, contribute at least 10% of maint to reserves, have arrears below a certain amount, have no lawsuits, avoid having special assessments and fill out a bunch of forms on top of the rental thing. It is a lot of work for board. Also there is a lot of paper work to provide seller everytime there is a sale. Big pain, insurance documents, financials, proof of who is renting in building.
Folks can still get mortgages non FHA it just requires a larger downpayment. I don't want 5% down loans, VA, loans, fannie mae loans. All they do is prop up resale prices artificially, which in turn raises property tax in building when assessor gets hold of comps and when the 5% down folks start defaulting they stop paying maint.
I would only accept a buyer with proof of funds and non-contingent upon a mortgage or was pre-qualified from a local bank if I was selling. The FHA/VA/Fannie/Freddie crowd are more trouble than they are worth.
I worked as a paralegal in the legal field for years, including litigation over various types of contracts.
The reason some units will be allowed to rent is that the HOA is bound by the by-laws that were in existence at the time those owners leased their units.
However, I think it's odd that once those leases are up, that those owners would continue to be under the old by-laws. But I guess so....maybe because those are business owners who bought the units as rental units in the first place.
You can use the change in the by-laws to cancel your contract to purchase there. Does the contract mention the by-laws in any way? I would certainly give it a try: An important provision in the by-laws has changed, and it directly affects one of the reasons for your purchase.
Seems like the HOA is trying to stop investors from buying rent-only units. They want homeowners to at least live in them for some period of time. The reason for this is that owners take better care of property and are better neighbors. Having a few renters is one thing. Having a lot of renters would change the whole complex, and not for the better. For one thing, new owners would probably not buy there, once they found out that most people there are renters.
Keeping the rentals down is a good thing, for property values.
In your opinion. I have a few folks who live in mansions, an ex NFL football player, Managing Directors all own units and rent.
The folks who live there as primary owners are usually, divorces, widows, folks on a fixed income, blue collar folks. They have no big bucks. Cheaper condos it is backward. And board members who do not live on site do a better job. I personaly as an officer sued/foreclosed on every deadbeat within six weeks in officer. The prior board was like they are our neighbors they are having a hard time. I sued 3 out of six coughed up the dough and the last three got a short sale, bankruptcy and a foreclosure.
My prior complex when I was 29 and I bought cheap as building was a mess. An investor bought 20% of building, he worked on board like 20 hours a week for free for 5-7 years turned building around and started selling them one by one for triple what he paid. He had skin in game. The primary owners had little skin in game. In an 86 unit building you own one unit, compared to 19 units. who is working harder to turn it around. Some of our primary people just walked away and stuck us with bills
Basically if the original Covenants have rental restrictions in them, that all agreed to such when they purchased so they will generally withstand any legal action to the contrary. After that is gets real tricky.
Many BOD's/Association's have tried incorrectly and illegally to put rental restrictions in after the fact. It can be done, but it can get legally sticky and in some cases, all (as in 100% of all owners) must agree. Be very, very, very careful when adding rental restrictions after the fact.
I'm in contract to buy a condo unit that I plan on using as a second residence for several years. I just found out that the board has voted to not allow owners to rent out their units. Only owners who currently lease their unit will be allowed to continually lease out their units in the future....even after their current leases expire. While my short term plan is not to lease my unit out, I would want to in the future. It does not seem legal that a condo board can give some units the right to rent their units while prohibiting other owners from renting. This change will be put in the by-laws as I've been told. Any one have any thoughts or experience with this?
I thought you told me a while back that you had a friend renting from you. Perhaps you can find that old lease around somewhere...
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