I have a condo that I purchased in 2007 when my daughters were going to college. They have both graduated and moved on. Unfortunately, the property values have fallen and there have been a lot of foreclosures in the complex.
I did get permission to rent the condo from the homeowners association and have not had trouble doing so, as it is in a desirable area close to a large university. When I bought, the agreement was that 11 percent of the units could be rented out. The HOA now wants to make changes to this agreement and also change the rules for renting out.
Can they do this? And once you have permission, can they deny you the right to rent? I am concerned that I may have to sell at a loss if they deny me the right to rent. I also understand there is a long waiting list of owners waiting to rent. Since some of them bought at such a low price in foreclosures, they have an advantage and can rent at a much lower rent.
What can I do?
As the cost of college rises, we’ve been hearing from many readers who wonder about the advantages of buying a home for their kids while they attend college.
In some cases, it’ll be less expensive to have your child live in student housing. But in others, buying a place will be far less expensive on a monthly basis than renting. And in the past year or two, some college town real estate markets have been stable or improved, making recent real estate investments smart moves.
But as you’ve described, not all such investments are wise. If you sell any time soon, you will end up losing quite a bit of money.
Room and board fees tend to be quite high for college students, approaching $13,000 on top of tuition. To save money, parents can buy an apartment near the college campus (which works especially well for those who have multiple children at the same college). As you probably witnessed, your monthly out of pocket expenses were probably less with the condominium purchase than housing expenses in college housing.
However, the rental “problem” with condominiums you are experiencing is not unique to parents who have purchased condominiums near college campuses. Many condominium associations try to limit the number of rental units for various reasons, including the fact that having a large number of rental units in a condominium complex can limit the financing options for potential buyers.
Depending on the underwriting guidelines used, in many cases only 51 percent of the units in a condominium project must be owner-occupied. This rule was relaxed over the last several years to allow condominium projects greater flexibility during the great recession.
Given the newer, less restrictive lending guidelines, condominium associations prefer continuity of ownership in the building. Many associations tend to feel that they are better off having owner-occupied units over the long term. While they may be right over the long term, their own actions of restricting leasing can depress prices.
If your association forces you to sell at a lower cost because you are no longer able to rent, prices will continue to remain depressed in the building for some time to come. If the association has issues with renters, they can address these issues in other ways. Some associations have stricter rules relating to noise, number of people who can live in a condominium and so forth to control the quality of life in the building.
If you know other owners in the building, you can work with them and vote together on these issues. Most condominium owners don’t want to see their property values depressed for an extended period of time. Your building appears to have had a fair number of foreclosures and is probably recovering from those sales; now the association may want to tackle the issue of rentals, but they should consider the unintended consequences of their rule changes. Also, they should consider that lower priced units in their building may result in lower priced rentals for those owners who decide to continue to rent out their units. Those lower priced rentals may contribute to lower priced condominium prices.
Finally, as far as we know, condominium associations are restricted in what they can do by their governing documents, any condominium laws in your state and court decisions. In some states, condominium boards have great latitude to make and change rules. Yet that power, and how it is used, ultimately comes back to how association members vote. For this reason, when you are an investor in a condominium building, you should consider your vote carefully and understand the composition of the people who are running the building.
Ilyce R. Glink’s latest book is “Buy, Close, Move In!” If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11 a.m. to 1 p.m. EST. Contact Ilyce through her Web site, www.thinkglink.com.