Cap Rentals and Retain Value

 

Homeowner associations may allow owners to lease out their properties but there are usually limits on the number of owners who can lease at a given time.  Caps on rentals are crucial because tenants tend to have less interest in maintaining their residences because they don’t pay for the upkeep.

 

Owners pay dearly in HOA fees to enjoy common areas like clubhouses and recreational facilities. They take pride in the well-manicured lawns and entrances designed to keep undesirables out. So, what’s the problem?

 

When the ratio of tenants to owners is out of whack, an association can lose its identity and market value quickly and in short order.  Sometimes the notion of rentals in the HOA needs to be revisited and revised.

 

Here are several ways HOA communities can stay on top of their rental ratios and retain their property values.

 

  • Limit the percentage of units that can be rented, because some lenders have limits.  For FHA backed loans, for example, the limit is 50%. Lenders aren’t fond of high tenant/owner ratios when considering new loans.

  • Prevent hotel-type rentals and avoid transient turnovers by creating a minimum lease term of one year or more.

  • Insist owners live in their units for a minimum period before renting them out.

  • Create a uniform lease that requires tenants to read, understand, and acknowledge the rules and regulations governing the common areas and recreational facilities.

  • Hold owners accountable for their tenants’ behaviors and charge owners for tenants who break the rules or don’t maintain their property.

  • Make exceptions for homeowners in financial trouble to minimize ‘zombie’ foreclosures, allowing “emergency permission to rent” to prevent too many vacant properties.

  • Limit rental “turns” per owner so that more owners get a chance.  Establish a waiting list if necessary.

  • Assign a committee to monitor tenants’ leases and keep accurate records of all non-owner occupied units.

  • Review the association’s legal documents and confirm leasing restrictions.  Take a vote of members and amend the policies to decrease or increase limits if necessary.

 

While tenants may not be an HOA’s first choice of neighbors, in the real world people move and often can’t sell their properties in time.   Renting out the residence keeps the mortgage paid and the property occupied. To make the most of the situation associations must keep good rental caps in place, use uniform leases, monitor the paperwork and stay in touch with homeowners.  Then, it is less likely that tenants will have a negative effect on the community’s looks or market value, and rentals can be a win-win for everyone.