Alternatives to Rental Cap Outside of Declarations

I feel your pain - I live in a townhouse community and we tried amending our documents with a cap and also failed. Mostly because we were close to 50% rentals at the time and also needed a 75% approval rate as well. We even amended the proposal to grandfather current owner-landlords u to the boys and as transferred or sold, but still nothing.

We recently had a discussion on this website about rental caps - You may want to take a Look at it to see what the pros and cons might be. The main problem with this idea is that it takes a lot of monitoring and owners may conspire with tenants to make it look like the p!ace isnt a rental.

For example, most caps exempt homes where a relative may be living in (e.g. Mom moved to a nursing home and the daughter and her family moved in to take care of the place until the house is sold). And what if you hit the cap and someone else needs to rent the place out because she's moving t out of state and needs the money to pay house #1's expenses until it can be sold?

In general, it seems the most effective approaches are to ban short term rentals (thus knocking out the Airbnb crowd) and or Hahn by new owners from renting for one of two years after purchase (this kicking the investors to the curb) but those aren't foolproof either.

In the end the key may be (1) educating your homeowners of the possible financial risks, like the mortgage issue and (2) consistent and fair rules enforcement. If people know too many rentals may hurt property values down the road, that may persuade them to push for a rental cap and maybe someone might come up with a way to keep track of them. You

When we were debating caps in our community, one of the owner-landlords (one of our responsible ones!) suggested landlords be charged a fee at the start and end of the lease, noting renters tend to be harder on the common areas because of all the money going in and out and this could help defray some of the association's additional expenses.

Bad behavior is why people get really upset over rentals (I'm one of them!), So when tenants behave badly you must hold the owner-landlords responsible. If they want their profits reduced because the tenants do things like violate noise ordinances, and toss trash everywhere, that's their problem (either pay up or stop being so greedy for the rental bag!)

Notice I said FAIR rule enforcement. When you drive around any community, you shouldn't be able to tell if someone's renting or is an owner-occupant because everyone follows community rules. Make sure every knows what's expected, have an appeals process in place, document until your fingers call off and don't be afraid I'd to duke it out in court if it co we to that. Some owners will try you, but if you remain consistent and fair, people (most of them) will get the message.

It is already understood that the Declarations would have to be changed. Because the original documents have a 75% approval requirement, and we are at about 25% rentals, it will be tough to pass unless we can convince an investor owner to vote for the change since they’re grandfathered (any good arguments you can make to one?).

Looking for alternatives to help reduce the attractiveness of investor owners, or at least to compensate the Association for some of the issues we face with them.

Our docs say no rentals within first year of ownership. This stops speculators.

Just a general FYI... AirBNB had its IPO today on Wall Street and the company is now worth more than Marriott and Hilton combined. There will be lobbyists pushing lawmakers to outlaw short-term rental restrictions everywhere. That's been happening already in Florida, but now that there will be bags of lobbyist cash floating around I'd expect more lawmakers in the future, not less, to be in favor of acommodating short-term rental interests. If an association can firm up its CC&Rs, essentially a contract, to limit short-term rentals, then I would suggest that it not waste any time in getting it done. Governments are less likely to infringe on existing contract rights than not, and solid anti-short-term-rental clauses in contracts stand a better chance of standing up to challenge than local municipal restrictions subject to the whims of state legislatures who have millions of reasons why they are now suddenly fine with short-term-rentals.

A couple of months ago my city council had another vote pertaining to another proposed, specific STR regulation. Non-landlord homeowners spoke against STRs. Realtors and landlord-homeowners spoke for it. One of the City Councilors matter-of-factly pointed out how much of the city's revenue depends on tourism (similar to many parts of Florida) and that STRs support tourism; tourism massively supports revenue of local businesses; and so on.

Given that tourism directly supports many local families of humble means, if I were a state legislator; county commissioner; or city councilor, being generally for STRs or generally against them seems like a difficult decision to me.

I think it's notable that this is the third rental cap question this forum has seen in about as many weeks.

Is your problem with the owner or the people living in the home?

Your original post sounds like you’re having problems with the owners making shoddy repairs or not keeping up with inspection regulations. Work to strengthen those regulations regarding unit upkeep. Start fining the owners for the condition of their unit that affects all other units.

And that's why I keep pushing a fair but consistent rule enforcement policy, which may need to include fines, as Sue noted (check with your attorney to see if that's allowed).

Augustine noted there's been at least three conversations on rentals on this website, and considering the economy is still swirling the drain, as it were, I'm betting there will be more as people are looking for ways to make money while others are looking for an affordable place to live.

Now that AirBnb's value has skyrocketed, I think Geno's right in that there will be more activity in city and state legislatures on whether short term rental restrictions are allowed. That's already been an issue in a county north of me - can't remember if or when that got resolved, but one of the proponents of the restrictions was - a local hotel (actually several).

This is America - follow the money and you can figure out pretty quickly why things happen the way they do - or not.

Hey, Nicholas, Cathy just gave you another talking point - the makeup of the board. Many owner-landlords live across town or across the country, and almost never get involved in association affairs besides paying assessments. Who's going to serve on the board?

And what happens when there's a conflict between the owner-occupants who have to live with the effects of too many rentals vs. the landlords who may own the majority of the homes? If some of them manage to dominate the board, will they cheap everything out, including reserves - if they fund them at all? It's bad enough owner-occupants don't understand that reserves help avoid things like special assessments. Investors may be inclined to keep assessments as low as possible (so they don't cut into profits) and then sell the property and take off any loss on their taxes. You, on the other hand, will have to deal with increased costs and lower property values.

I know most of us can't deduct assessments on our taxes, but I think investors can because it's a business expense. I don't think that's fair, which is why I've never been a fan of dozens of investors in our community - and said so (at one investor hated my guts for saying that, but he was something of a slumlord and I said that to his face. So there's that).

For some years it appears that FHA loans have represented less than 20% of all loans. Do non-FHA lenders look at the fraction of rentals? I have doubts non-FHA lenders do.

I am trusting this was a post-o. When rentals are over about 50% (and I believe some other conditions are meant), FHA loans are either less likely or not possible, and the pool of buyers will be smaller. Perhaps the pool of buyers is smaller in particular for more modest HOAs/condos (modest meaning FHA borrowers tend to buy there) where rentals exceed 50%.

If I have it right: Prior to the circa 2008 recession, housing prices bubbled crazily. Mortgage products were "creative." Sadly, using one's home as an ATM was popular. I put a lot of blame on dishonest lending practices. I put a lot of blame on the math- and financially-illiterate public.

Unwitting buyers got themselves in trouble in the subsequent years. For the 2008 recession, housing prices plummeted. Many were underwater on their mortgages. The Federal Reserve lowered interest rates (to prop up stocks and stimulate the economy). Despite legislation, the banks were stingy and corrupt about re-financing. If one had the money, taking a low interest loan and buying a home (for one's own use or as a rental property), at a bargain price, made (dollars and) sense.

I do wonder though if the FHA borrowers are in some respects on a par with renters, when it comes to taking care of their property. FHA borrowers clearly have less cash in general. They're (foolishly AFAIC) paying PMI on top of the mortgage. This site https://www.corelogic.com/blog/2019/01/mortgage-delinquency-rates-for-all-loan-types-continue-to-fall.aspx indicates that FHA borrowers default at a much higher rate than non-FHA borrowers.

I have seen or read enough to believe that circa 2008 yes, this affected condos in particular, tending to increase their rental percentage by a lot. FHA-loans would then be more restricted. Folks who needed FHA loans would be less likely to buy into condos with a high rental percentage.

As I have posted before, I do think the burden on the board and management occurs in some proportion to the rental percentage.

I tend to think having a lot of rentals in a hypothetical condo is not a good idea. But is having a lot of units owned by owner-occupants with FHA loans that much better?

Forgot to mention, I'm not surprised default rates are higher for FHA loans than non-FHA loans. The lending standards tend to be looser (lower credit scores and lower down payments are acceptable), but they're far from the "liar's loans" of the past. Because of the lower lending standards, the average FHA borrower is less able to weather financial storms. And the lower down payment can result in being underwater when home values fall, which encourages borrowers to default. People who have skin in the game in the form of a higher down payment are less willing to simply walk away from their investment.

Sorry for the OT digression...