By Sara Huebener
Just this week we were talking with a client who informed us that now that her children are grown and moved out, she is planning on selling her larger two story home in Savage and moving to a condo. Her future plans including living there for a period of time as she begins preparing for retirement, with the possibility of renting it out in the far-ahead future and moving to a warmer location.
She inquired about any rental restrictions on condos, and the ease of being able to rent out the condo unit that she hopes to buy. Her timing for asking this question could not be more relevant. Many homeowners have been pressured to rent their homes(especially owners of condos and townhouses) as a result of the slump in the housing market. It is important that homewowners looking to downsize to a condo or townhouse carefully consider this issue before making a purchase.
The concern is a two-fold "damned if you do, damned if you don't" sort of issue for homeowner's associations in particular. Many board members of associations have concerns that failure to place rental restrictions on developments makes these areas less attractive to prospective buyers. They feel a duty to protect the integrity of the community, as most people feel that owners tend to exhibit more care with property than renters do.
Likewise, putting rental restrictions into place could force an increase in the number of foreclosures in developments where the homeowner cannot sell the property, and is not allowed to rent it due to the rental restriction. Feeling their hands are tied, sellers with little or no equity who cannot sell at market price and cannot rent the home might feel they have no choice but to allow the home to slide into foreclosure.
It is good practice to make sure that if you are buying a condo or townhouse with the possibility of renting it out in the future, be sure to review the bylaws for the association so there are no surprises regarding existing or planned rental restrictions. Some associations with no rental restrictions currently in place may adopt a "grandfather clause" so that those who are renting out their units may continue to do so until the unit sells or is vacant for a period of time.
One of our rental units has a similar required provision. I originally purchased the unit as a home for my younger brother while he attended school here in the metro. The development has a cap of 10% rentals, and if at least 10% of the units are currently rented, homeowners need to sign up on a waiting list before being allowed to lease the unit to tenants. Once one of the rental units is sold, then the first person on the waiting list would be allowed to rent out his unit. Additionally, I was required, as a homeowner/landlord, to provide the association with proof of a background check validating the tenant has no criminal background, as well a rental permit from the city (for a fee).
By researching this information before I purchased the unit and went into the arrangement with my brother, I had full knowledge of the restriction and understood the special provisions well in advance. Ultimately it made for a smoother purchase and relationship between my brother, myself, and the association.
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