Rental Residence in HOAs

Many HOAs restrict their homeowners’ ability to rent out their homes for various reasons. An association with lots of rental units tends to be less valuable. Usually, communities with more renters face more rule violations, maintenance issues, etc., than associations where most of the homes are owner-occupied. But some owners believe that being able to rent out their home increases its value.

There are two common ways HOAs can limit rentals. One is to cap rentals at a certain number of units. Once the rental limit is reached, the next request goes on a waiting list.

Another way is to require buyers to live in their homes for a period of time, such as a year before it can be rented out. This helps prevent investors from buying homes just to rent them out. Some associations are also trying to limit short-term rentals, which tend to be even more troublesome than regular rentals.

No matter which options they use, the HOA needs to be able to enforce whatever restrictions they want to enact. They’ll need to have clear policies, and flag violations immediately.

Why restrict renting

There are a number of issues that tend to come along with a high percentage of rental units. Many mortgage lenders will only approve loans for HOAs with a certain percentage of owner-occupied units. If the association falls below that percentage, it won’t be able to bring in new buyers — no one will be able to get financing if the owner occupation rate is too low.

Rental residences also tend to have increased turnover. That means more moving days, and large moving trucks taking up space on the roads. People who rent usually have less community spirit than those who own their homes. This can lead to lower property values if the HOA isn’t careful.

Often more maintenance is required with rental homes. This is due to higher wear-and-tear on those residences. There may be more rule violations too. Renters may not know the rules since they don’t receive the resale package. Even if they know the rules, they might not care because they won’t be staying long enough.

In order to write rental restrictions into their CC&Rs (Covenants, Conditions and Restrictions), the HOA needs to convince enough owners to approve of it. You might get pushback from owners who want to lease out their homes. Associations that already have high percentage of owner-occupied homes may find this an easier sell to their members than those with a large population of rentals.

Types of lease restriction

There are two major kinds of restrictions that HOAs can write into CC&Rs. One limits how many units can be rented out at one time. For example, the association may cap rentals at any given time to 25 units. Once the cap is reached, the HOA can put anyone else who wants to rent on a waiting list.

This does require that the HOA knows about the rentals. You might have it written into the bylaws that the association must be notified any time an owner is renting out their home. However, you probably will have at least one resident who’ll ignore that rule.

Another common restriction is to require new owners to live in their home for some period of time. For example, a new owner might have to live there for a year before they can rent it out. This is a good tool to prevent investors from buying houses they intend to turn into rental properties. Otherwise they would never live in it themselves.

Some associations want to restrict rentals completely. However, some states and localities prevent blanket rental bans. If that’s the case, an HOA provision is not enforceable. Otherwise, as long as the restriction is “reasonable,” it’s usable. Existing homeowners who move in before new lease restrictions are enacted usually are exempt from those rules. Anyone who moves in after the HOA has approved the restriction will be subject to it.

Whichever type of restriction the association would like to include, they also need to be able to enforce it. Having the rule won’t help if no one follows it. Once there’s one lease violation that goes unaddressed, there will be more. Any rule violations must be immediately addressed by the HOA as part of their duty to their members.

Short-term rentals

With the rise of AirBnB and VRBOs, some owners want to be able to rent out their condos for a short period of time. These give rise to the same kinds of issues regarding rentals. They’re often even harder on the community than long-term rentals.

In addition to barring short-term leases that are less than 30 days, the HOA can also ban certain kinds of behavior. For example, they can limit the number of vehicles that can be parked at each home. This can help prevent short-term rentals around festivals or other parties that tend to disrupt the neighborhood.

In some circumstances, the town where the association is located may have passed restrictions on short-term rentals. The HOA is required to follow all applicable laws. Owners in these associations will be subject to the restrictions as well.

Conclusion

Too many units rented out in one community can be bad for the association and its members. Lenders may not approve loans if not enough units are owner-occupied. More renters also create more wear and tear on the community, driving up costs. However, some owners want to be able to increase their income by renting out their property. There are ways to write rental restrictions into the rules of the HOA. But the association must be prepared to enforce them, or they’ll be worthless.