'Multi-Family Use' vs. renting out rooms

Started by JpG • 8 replies • 1558 views

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JpG (North Carolina)
Posts: 6

Posted:

I've done a lot of searching across the site but not found this specific question answered for our 8 lot, 5 person HOA:

Does this clause prohibit renting out rooms of our home to people who are not our relatives for 1 to several months at a time:

Under Article Z - Building Restrictions - Section x - Multi-Family Use is Prohibited
No multiplex residence or apartment house shall be erected, placed on, or allowed to occupy any lot,
and no dwelling once approved and constructed shall be altered or converted into a multiplex residence or apartment house.

Our house is over 6000 sq ft and there are 4 bedrooms we don't use.

I've seen several posts on the 'no business use of the home' and it seems there are mixed opinions on interpreting this regarding different renting situations with the owners living in the residence.

Thanks for advice

JerryD5 (Colorado)
Posts: 218

Posted:

I am not a lawyer nor do I play one on TV. However, renting a room(s) does not make your dwelling an apartment complex. I would think each unit would have to be outfitted with a kitchen/cooking area and probably separate entrances to qualify as that. I don't think an HOA would have an issue with room rentals. I know the HOA I am in wouldn't care. I think the only issue that might arise is if you live in an age restricted association (such as 55 and older) and you rent rooms to individuals under that age. Even then, I believe on other threads/posts that it is hard to enforce.

With all that said, I have some friends that live in an HOA where the home lots are 5 acres and the houses are in the 4,000sf size. Apparently some California company started renting one of the homes and set up a substance abuse rehab center. They packed in 10-20 people in a 4/5 bedroom home (and charged each resident $20,000 per month for treatment; 3-month minimum). It turns out they were operating without a business license. They tried a different location in the metro area and were caught again. Now they are in trouble with 2 city entities and the state.

JpG (North Carolina)
Posts: 6

Posted:

thanks for the quick reply -- and what a crazy deal in deal in that 4000 sq ft house!!

TimB4 (Tennessee)
Posts: 21,059

Posted:

Keep in mind that some cities/Counties have zoning requirements that limit the number of unrelated individuals who may share a home.

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Many people often fail to realize there are income tax concerns with almost every financial decision they make.

The fact is, if you rent out rooms, you will by required to file a schedule E with your personal income tax return. The rules for determining rental expenses in this type of situation can become very complicated.

I have several clients who typically do this exact same thing. They rent out rooms in their homes to students attending local colleges.

ShirleyC (California)
Posts: 117

Posted:

You should be "sharing your home and expenses" not renting out a room......I did a lot of reading on this and if you run it like a business (rent out a room) then you probably can't ......if you share....

JpG (North Carolina)
Posts: 6

Posted:

Responses to Tim, Bruce and Shirley:

Thank you to each of you for providing advice/insight.

Tim - good call on zoning - i've looked it up and understand numbers

Bruce - good advice on keeping legal with IRS - already have rentals outside home and do Sched E

Shirley - this one makes me concerned as we are honestly Not planning to "share home and expenses" with others - rather to rent rooms and provide access to common areas (den, kitchen, pool). Our outside rentals are treated as a business. But, would inside rentals be a business, too, since it's in our home?

Thanks again. jp

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Quote:

Posted By ShirleyC on 08/10/2015 9:28 AM
You should be "sharing your home and expenses" not renting out a room......I did a lot of reading on this and if you run it like a business (rent out a room) then you probably can't ......if you share....

I doubt the IRS would agree with you. Don't believe everything you read. Consult a professional.

ShirleyC (California)
Posts: 117

Posted:

Case law re: renting of rooms in HOA situation says if you know the person and you share expenses HOA cannot keep you from doing that. If you rent it out it may be considered a business and most HOA's do not allow residents to run a business out of their home.

This is how it applied to my situation. Not saying all situations are same. And the IRS income tax liab would apply if you were in the business of renting out rooms.

Just trying to help and give you my experience with same situation.

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