Condo Rental Conundrum

I recently visited with a perspective client who wanted to rent their condominium.  They had purchased it several years ago during the housing bubble and owed more than it was worth.  Life circumstances compelled them to relocate and hence they opted to rent their condo out rather than damage their credit in a short sale or by strategically defaulting.

At the end of our interview we determined that the owner would net about $60 less than their mortgage payment.  They were fine with that.  However, as we were concluding an interesting question came up:

Would the HOA permit the owners to rent their condo?

Why would this even be a question?  Well, as it turns out many HOAs have rules limiting the number of rental units allowed in a complex.  In this particular case, this owner's complex limits rentals to only 10% of total units.  I have seen some HOAs do 20% but this 10% number was quite a surprise.

So what happens if you rent a unit that is unapproved by the HOA?  Well, a couple things could happen.  First, the HOA could use its delegated powers to take action against the owner.  This would create an uncomfortable and often untenable situation for the tenant.  Or, the HOA may do nothing.  This usually indicates management inefficiency at the HOA and would often be evidenced by a complex that significanly degrades in quality over time.

Regardless, it is a gamble for the property owner to rent their condo outside of HOA rules.  This could put the tenants at risk of forced departure and is unsound business in my opinion.  For this reason, I recommend that condo owners always follow HOA guidelines when renting their property.  It may not be the most desirable option but it avoids opening a can of worms that can put the owner, tenant, and property manager at risk.  

If you are thinking about renting your property, contact me, and we can put a plan together for you.