Navigating HOA Building Insurance when Renting Out my Condo

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Navigating HOA Building Insurance when Renting Out my Condo

David Kim
Seattle, WA · Member since 2015 · 20 posts · 6 votes

Hi folks!

I own a condo in a small, four-unit building, but I've since moved out, and want to rent out the current condo after doing some remodeling.

One of the 4 units has been a rental unit for a while, and mine would be the second such unit. Apparently, if two units do it, and the building becomes 50% rental, that changes something that massively affects the overall cost of insuring the building. Its status becomes "majority renter occupied building" or something of the sort. The HOA (which is self-managed; no third-parties involved) is understandably apprehensive about this.

Anyway, I want to be able to rent whenever I want, but I DON'T want to try to fight for preemptively getting the more expensive insurance for the whole HOA for something that may or may not happen this year. I guess if it's just a couple hundred dollars extra, I can just pay that difference and get on with life.

Is there an easy way to get past the insurance hurdle?

  • I would think we could maintain our existing insurance/status, and if I want to rent it out, I'd be purchasing some "bad renter protection insurance" or something like that, which would close the gap. Does such a thing exist? Like, it would be good to just have the "option" of add-on insurance to the existing policy, so the owners of rental units can pay the gap when needed.
  • If I use my condo as an Airbnb, rather than a fully-leased rental, is it still subject to those rules? That's another possible workaround, though might not be worth the trouble (have to get it cleaned between each use, etc.) If it lets me do Airbnb, and if Airbnb lets me say "you're required to sign on for 6 months or more" that would be fun and sneaky haha.

Anyway, I appreciate any advice from people in the know. I thought I'd ask here from folks who know this landscape before calling up the insurance company/rental management companies to get their takes on it. Good to know what options are rather than going in blind.

Thanks!

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  • Greg M.
    Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
    5y

    As long as there are no restrictions against renting, the fact that the HOA insurance will increase as there are more renters is not your problem. Keep in mind that in most places the HOA can institute a ban on rentals at any time. Of course, they would need a majority to agree to it...

    The insurance increase will occur when they renew, so after you have a renter in place.

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  • David Kim
    OP
    Seattle, WA · Member since 2015 · 20 posts · 6 votes
    5y

    Hi, thanks for the response! Remember, we're a small (4 unit) condo association, and we're self-managed (not paying a 3rd party to do the easy task of running such a small tight knit HOA), so it IS my problem. If I did something like that behind everyone's back, they most certainly WOULD vote to just plain ban all rentals, then after my lease expires, I'd be forced to kick out my tenants and sell the place.

    So what I'm looking for are what good insurance options there are which both landlords and HOA would find palatable.

    Right now, the only reasonable option I can think of is to preemptively agree to take on the extra fees should they arise (i.e. "let's just update our governing docs to say that if there's ever 50%+ rentals, the landlords agree to pay whatever difference in insurance cost comes up next time it's renewed as a result"). It just means we'd have to be proactive about reaching out to the insurance company and figuring out what that would actually look like (is it an extra $500 a year, or an extra $2000, sorta deal).

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    • David Kim
      OP
      Seattle, WA · Member since 2015 · 20 posts · 6 votes
      5y
      Originally posted by @Greg M.:

      The insurance increase will occur when they renew, so after you have a renter in place.

      One quick follow-up question about this piece specifically: Between the time that I take on a tenant, and the time that the insurance increases (~8 months from now)... if we need to file a claim, will the insurance provide reject it because there's a tenant and the increased coverage isn't in place? I would have thought we'd need to proactively make the change, and do some kind of prorated payment...

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    • Greg M.
      Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
      5y

      It's a 4 unit building, so to ban rentals or institute a policy to recoup costs from a select few owners, they'd need a majority. They'd need 3 of 4 votes. I assume you and the other landlord would not vote yes on this.

      The insurance policy will detail when they need to be notified about a change. Yes, claims can be denied if they are not notified of material changes to the risk. The key being a material change and it being related to the claim. Even then, many claims would still be paid. Going from 25% to 50% renters is small. Adding on an additional story or turning it into a hotel would not. 

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