Addressing Rental Concerns

LeslieT1 (Tennessee)
Posts: 9

Posted:

We are a small community located in TN with an HOA. Our community consists of 18 single family homes that are currently owner occupied. We understand many communities have been wrestling with the best way to address concerns from home owners regarding properties moving from owner occupied to rental/leased properties. We think the best way to gain buy-in from all the homeowners is to sell the idea that it is in everyone's best interest to amend the restrictive covenants so that all properties remain owner occupied. Has anyone created a list of resources that speak to the impact of communities moving from 100% owner occupied to a mix of owner occupied and rental/leased properties. We do intend to allow exceptions that would allow the property to be leased due to hardship situations, such as military deployment, medical, job transfer, etc. We simply do not want our community to become the target for absent investors who purchase properties with the intent to rent/lease. Many thanks for your help!

ElleN (Idaho)
Posts: 4,420

Posted:

Leslie, since the pandemic resulted in greatly reduced mortgage interest rates and raised questions about struggles to build sufficient housing due to supply shortages, this forum has seen some substantive discussion on this. The discussion often included links to articles. Try the hoatalk search engine. Maybe start with searches for the
key words "investor" and "rental".

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Should you also consider owner occupied vehicles? no lending out your car.

Maybe add…… only allowing homeowners to eat meatless foods and watch an hoa approved list of movies on netflix?

If you are going to tell people how they are allowed to live, you might as well add more.

JohnT38 (South Carolina)
Posts: 1,631

Posted:

Quote:

Posted By SteveM9 on 02/24/2023 2:53 PM
Should you also consider owner occupied vehicles? no lending out your car.

Maybe add…… only allowing homeowners to eat meatless foods and watch an hoa approved list of movies on netflix?

If you are going to tell people how they are allowed to live, you might as well add more.

I've never heard of any HOA that does not regulate how people live.

WendyM5 (North Carolina)
Posts: 1,522

Posted:

investors target Starter homes, because the financials work out when the price of the home is cheap compared to more expensive homes.

my guess is an 18 home HOA is probably high end custom homes? If that' the case you dont' have to worry about anything.

Heck our former HOA president told us 5 years ago that the investors were coming to buy all the homes in the neighbor hood. The rental rate was 25% back then and is still 25%. However overall 1/3 of the homes sold in Charlotte were to investors last year, so the point is sometimes valid.

but to answer your question: Has anyone created a list of resources that speak to the impact of communities moving from 100% owner occupied to a mix of owner occupied and rental/leased properties.

No one has made a list as far as I know because the impact is pretty much non exsistent. I mean if you are worried the grass gets cut less often and they dont 'plant as many flowers yeah maybe you should be concerned. But on the other hand renters in my HOA are some of the most social fun people out there. I'd prefer the latter as neighbors.

vis ta vie

DouglasK1 (Florida)
Posts: 2,046

Posted:

There have been quite a few discussions about this. One tack that others have suggested to deter investors is to update the governing docs to prohibit rentals for the first year or two of ownership.

Escaped former treasurer and director of a self managed association.

MichaelS56 (Minnesota)
Posts: 859

Posted:

Our association amended our governing document that pertains to leasing a unit. We added that an owner has to live in the unit two years before they can lease their unit.

LayaS (Nebraska)
Posts: 249

Posted:

Quote:

Posted By LeslieT1 on 02/24/2023 10:12 AM
We are a small community located in TN with an HOA. Our community consists of 18 single family homes that are currently owner occupied. We understand many communities have been wrestling with the best way to address concerns from home owners regarding properties moving from owner occupied to rental/leased properties. We think the best way to gain buy-in from all the homeowners is to sell the idea that it is in everyone's best interest to amend the restrictive covenants so that all properties remain owner occupied. Has anyone created a list of resources that speak to the impact of communities moving from 100% owner occupied to a mix of owner occupied and rental/leased properties. We do intend to allow exceptions that would allow the property to be leased due to hardship situations, such as military deployment, medical, job transfer, etc. We simply do not want our community to become the target for absent investors who purchase properties with the intent to rent/lease. Many thanks for your help!

Leslie,

I will share with you my particular situation in my HOA neighborhood and maybe it will ease your mind a bit. Of course, I am in Nebraska so the economics in your small community in Texas may be way different than mine. I moved into a newly built home in October. The neighborhood is a mixture of owner-occupied new homes as well as 2 buildings of 3 level leased apartments. There are also new construction town homes that rent for $2500 a month. So far, no takers on the newest town homes. I suspect the rents are unaffordable for the majority of people living in my town. Time will tell because they are just finished. There is approximately 5 of those. So far, this mixed neighborhood is working out fine. We have no issues with the rentals except for parking. Parking is an issue mainly because of the construction vehicles coming and going throughout the neighborhood. The apartments have off-street parking and the homes and townhomes have 2-3 attached garage spaces. There are also plans to make the community more of a mixed use neighborhood. I have heard that a bank will be built as well as some medical offices just across the street. Currently there are two churches and 2 schools in sight of the neighborhood. I can't predict what the neighborhood will end up looking like. It seems that mixed use neighborhoods are becoming more of a trend in the Midwest. I recently visited Kansas City and they are cropping up all over there.

With that being said, I can understand your concerns. I just wanted to share with you how my neighborhood is working out so far.

LayaS (Nebraska)
Posts: 249

Posted:

Quote:

Posted By LayaS on 02/25/2023 5:46 AM

Posted By LeslieT1 on 02/24/2023 10:12 AM
We are a small community located in TN with an HOA. Our community consists of 18 single family homes that are currently owner occupied. We understand many communities have been wrestling with the best way to address concerns from home owners regarding properties moving from owner occupied to rental/leased properties. We think the best way to gain buy-in from all the homeowners is to sell the idea that it is in everyone's best interest to amend the restrictive covenants so that all properties remain owner occupied. Has anyone created a list of resources that speak to the impact of communities moving from 100% owner occupied to a mix of owner occupied and rental/leased properties. We do intend to allow exceptions that would allow the property to be leased due to hardship situations, such as military deployment, medical, job transfer, etc. We simply do not want our community to become the target for absent investors who purchase properties with the intent to rent/lease. Many thanks for your help!

Leslie,

I will share with you my particular situation in my HOA neighborhood and maybe it will ease your mind a bit. Of course, I am in Nebraska so the economics in your small community in Texas may be way different than mine. I moved into a newly built home in October. The neighborhood is a mixture of owner-occupied new homes as well as 2 buildings of 3 level leased apartments. There are also new construction town homes that rent for $2500 a month. So far, no takers on the newest town homes. I suspect the rents are unaffordable for the majority of people living in my town. Time will tell because they are just finished. There is approximately 5 of those. So far, this mixed neighborhood is working out fine. We have no issues with the rentals except for parking. Parking is an issue mainly because of the construction vehicles coming and going throughout the neighborhood. The apartments have off-street parking and the homes and townhomes have 2-3 attached garage spaces. There are also plans to make the community more of a mixed use neighborhood. I have heard that a bank will be built as well as some medical offices just across the street. Currently there are two churches and 2 schools in sight of the neighborhood. I can't predict what the neighborhood will end up looking like. It seems that mixed use neighborhoods are becoming more of a trend in the Midwest. I recently visited Kansas City and they are cropping up all over there.

With that being said, I can understand your concerns. I just wanted to share with you how my neighborhood is working out so far.

Oops. I meant Tennessee.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

The "Real" impact of rental is NOT what you can see. That is too short sighted. Plus not all renters are bad. If you hold the OWNERS feet to the ground for the renter's violations, then the owners should start getting more involved with their property. (In Theory).

A lawyer once told me unless the HOA owns the houses, they can't enforce rental restrictions. You will find many states are still lacking in actual rental restrictions in a HOA. Doesn't mean one can't do it. Just understand your HOA may be sued for it in certain situations. (Too many to discuss individually).

The real impact is on Mortgage packages and re-financing. A high rental rate can cause certain mortgage options not available or rate is higher. FHA or Freddie Mac type loans may not be approved for that area. The buyer may have to find another resource for a mortgage. Re-financing homes with existing owners rates may go up. The risk for banks with high rental or lawsuits/collection issues makes them raise rates or limit options.

Personally I don't find an issue with rentals as much as people have fears of rentals. I think holding the owner's feet to the ground. Plus putting in the rental agreement the renter MUST obey the HOA rules and be given a copy should suffice. Most off the shelf rental agreements do NOT have this in them. Requiring your HOA owners to put this into their rental agreements would really be the solution your looking for. It allows the HOA to enforce the violations the renter does onto the owner. The owner can now use that to evict their tenant. Otherwise Tenant's rights kick in. Which means if it's NOT in the rental agreement to obey the HOA rules, it's not a violation of the rental agreement.

Former HOA President

LayaS (Nebraska)
Posts: 249

Posted:

Quote:

Posted By MelissaP1 on 02/25/2023 7:55 AM
The "Real" impact of rental is NOT what you can see. That is too short sighted. Plus not all renters are bad. If you hold the OWNERS feet to the ground for the renter's violations, then the owners should start getting more involved with their property. (In Theory).

A lawyer once told me unless the HOA owns the houses, they can't enforce rental restrictions. You will find many states are still lacking in actual rental restrictions in a HOA. Doesn't mean one can't do it. Just understand your HOA may be sued for it in certain situations. (Too many to discuss individually).

The real impact is on Mortgage packages and re-financing. A high rental rate can cause certain mortgage options not available or rate is higher. FHA or Freddie Mac type loans may not be approved for that area. The buyer may have to find another resource for a mortgage. Re-financing homes with existing owners rates may go up. The risk for banks with high rental or lawsuits/collection issues makes them raise rates or limit options.

Personally I don't find an issue with rentals as much as people have fears of rentals. I think holding the owner's feet to the ground. Plus putting in the rental agreement the renter MUST obey the HOA rules and be given a copy should suffice. Most off the shelf rental agreements do NOT have this in them. Requiring your HOA owners to put this into their rental agreements would really be the solution your looking for. It allows the HOA to enforce the violations the renter does onto the owner. The owner can now use that to evict their tenant. Otherwise Tenant's rights kick in. Which means if it's NOT in the rental agreement to obey the HOA rules, it's not a violation of the rental agreement.

Good to point out that there may be financing restrictions depending on the number of rentals. My husband is a veteran so we financed our house with a VA loan. There were no issues with the number of rentals in the neighborhood. But the rental townhomes are high-end homes with 4 bedrooms and 3 bathrooms, full basements, and 2 car garages and nicely landscaped. As I said before quite expensive for the demographics of my town. I have not once seen police in our neighborhood or have there been loud parties, or loud fighting, or vandalism of any kind that I am aware of. I have seen a few dogs but they are always leashed or confined by a fence.

Hopefully my nice, peaceful neighborhood will remain that way. I am a realist though. Anything can happen.

a

CathyA3 (Ohio)
Posts: 6,299

Posted:

If you do nothing else, try to prohibit hotel style, corporate, and short-term "rentals". The third group especially has the most potential to negatively impact communities since they attract the party hearty crowd. Longer term, traditional tenants are often reasonable residents who cause no more trouble than homeowners themselves.

I'll avoid my usual rant about the STRs, other than to point out that they are not rentals at all. They are essentially hotels. The people staying in them do not sign leases and are not living in the premises in the normal meaning of "living in a property"; they are governed by different laws; and there may be zoning restrictions that prohibit commercial businesses in residential areas. Referring to them as "rentals" obscures these things and leads people to try subject them to the same restrictions. In addition, regularly bringing "customers" into the community may impact the HOA's liability profile and may reclassify your amenities as "public" and thus subject to ADA laws.

Homeowners who want to be able to rent out their homes in the future may be willing to restrict the STRs but not the traditional, long-term rentals. Take the wins you can get.

TimB4 (Tennessee)
Posts: 21,062

Posted:

1) Any restrictions need to be in the covenants (but I see you knew that).

2) Define Hardships in the restriction.

3) To minimize investors, suggest no rental for first x years of ownership.

4) Add minimum lease length to help enforce/minimize short term rentals

5) Once you draft something up, have an attorney review and make changes prior to voting on it.

CathyA3 (Ohio)
Posts: 6,299

Posted:

Quote:

Posted By LayaS on 02/25/2023 5:46 AM
... snip ....
Leslie,

I will share with you my particular situation in my HOA neighborhood and maybe it will ease your mind a bit. Of course, I am in Nebraska so the economics in your small community in Texas may be way different than mine. I moved into a newly built home in October. The neighborhood is a mixture of owner-occupied new homes as well as 2 buildings of 3 level leased apartments. There are also new construction town homes that rent for $2500 a month. So far, no takers on the newest town homes. I suspect the rents are unaffordable for the majority of people living in my town. Time will tell because they are just finished. There is approximately 5 of those. So far, this mixed neighborhood is working out fine. We have no issues with the rentals except for parking. Parking is an issue mainly because of the construction vehicles coming and going throughout the neighborhood. The apartments have off-street parking and the homes and townhomes have 2-3 attached garage spaces. There are also plans to make the community more of a mixed use neighborhood. I have heard that a bank will be built as well as some medical offices just across the street. Currently there are two churches and 2 schools in sight of the neighborhood. I can't predict what the neighborhood will end up looking like. It seems that mixed use neighborhoods are becoming more of a trend in the Midwest. I recently visited Kansas City and they are cropping up all over there.

These are good points.

One thing: a community that was built with a mixture of single family homes plus attached apartment-style rentals is designed to accommodate the physical challenges associated with the rental properties. These include traffic and parking, privacy, noise, etc. This isn't much different from the larger HOAs that have the same mixture of detached and attached housing. It isn't so much renters vs. homeowners as it is low density vs. high density housing.

This situation is also different from an HOA that was designed entirely with detached single family houses with their own garages, potentially small lots, etc. When you change the usage of something that was designed to be used differently, issues will crop up that can be difficult to resolve.

I agree about the increase in mixed use communities in the middle of the country. I think it's a response to rising housing costs as well as urban sprawl/traffic congestion. We're choking to death on our motor vehicles - you really notice it in condo communities where people with three cars buy units with one-car garages (that they want to use as storage units), and then it's everybody else's problem. In this part of the country, distances plus lack of public transportation means everybody drives themselves and generally owns their own vehicles. This may change since younger adults seem to be less enamored of car ownership or driving in general.

I'll note that the airbnb/STRs are much more likely to bring a lot of cars into a community, unlike traditional rentals whose tenants behave more like owner-occupants.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Lender requirements….. As I've said before, if you dont track it, you cant report it.

I fill out these docs all the time, I always write: to the best of my knowledge, there are no renters. 100 percent owner occupied. Why? We dont track them!

If a lender or insurance company wants to knock on every door to investigate who rents and who doesnt, they are free to do so.

We are not doing it for them.

CathyA3 (Ohio)
Posts: 6,299

Posted:

Not tracking is probably fine unless your CC&Rs contain a rental restriction - then you'd have to argue that the board made a "business decision" to ignore this particular restriction. We'd have a hard time claiming ignorance, and it's not in our best interest to do so since corporate investors are targeting my area.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

You can pass any restriction you like, and spend unlimited hours trying to enforce it, that does not mean it will go well for the hoa in court if you bring it before a judge or jury.

Less restrictions, less time spent on hoa duties, less lawsuits, enjoy life.

CathyA3 (Ohio)
Posts: 6,299

Posted:

Yup, it's all fun and games until the consequences land, and then the whining starts. Some of the whining may come with a side order of lawyers and financial pain.

Buying property that comes with rules and restrictions and expecting to be free from rules and restrictions is not reasonable. Fortunately there is an easy solution for people who don't want to live this way: don't buy property with deed restrictions. Counties make it easy since these restrictions are recorded and are public info that anybody can look at. Various real estate laws even require this info to be disclosed to buyers. Anyone who walks into an HOA blind does so willfully. Unfortunately, blindness does not make them immune from consequences, just unprepared for them.

For cautionary tales of what can happen when owners ignore rentals and refuse to see the writing on the wall, Google "condo deconversion". I'm been getting monthly mailings from an investor group that is trying to buy up property in my area. You'd better believe I'm paying attention - if they get a toe hold in my community, I'm outta here. However, it will be *very* interesting to see what happens when the moneyed interests who benefit from HOAs/COAs run smack dab into the moneyed (and sometimes foreign) investor groups who may or may not take an interest in running a community association. I fearlessly predict that things will not go as planned - and as always, the little guy homeowners/renters will be the ones paying the price.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

Buying property that comes with rules and restrictions and expecting to be free from rules and restrictions is not reasonable.

Correct. But there are many benefits of minimal governance by the HOA, whose intervention in the is just sufficient to sustain itself.