Bought a townhome with HOA rental restriction

22 Replies

Hey all. I made a big mistake purchasing a town home with rental restrictions. When I read the by laws, I did not see anything regarding rental restrictions. Only to find out there is an amendment to add this restriction. If you read it, it states that it adds restriction to the number of rentals one owner can have. It later talks about if an owner has more than 3 rentals, they can only sell to owner occupied buyers unless they own 3 or less rentals.the first sentence where it says “the maximum number of tenant properties allowed at any one time will be limited to 3”. Since this is a restriction for number of units an owner can have, I feel like they meant the maximum number of tenant properties an owner can operate. 

In my opinion, this restriction is for how many rentals an owner can have. Since I only have one rental, I’m able to rent it out. What are your thoughts? 

Not an attorney so take what I have to say with a grain of salt. to me that sounds like they limit the number of properties you can rent out in that neighborhood, probably with the goal of limiting major companies coming in and buying everything to rent out. So even if you had other investment properties outside of that neighborhood, as long as you don't have more than three in the neighborhood you'll be fine. 

When in doubt I'd reach out to the HOA for clarification, it's probably cheaper than having a lawyer review that for you.

In the future, always hire an attorney. Paying them is worth avoiding a major headache like this. Just curious, is this a large complex? If so, rent it on the sly and apprise your tenant of the restriction and tell him/her not to attract attention.

It’s only 32 units

I reached out to management before closing. They finally responded (post closing) and just quickly said it’s limited to 3 in the neighborhood. I don’t think she looked at the docs carefully. She just records these agreements but is not the decision maker or the board so she probably doesn’t know the intentions of the restriction.

Originally posted by @Matt Mulvihill :

Not an attorney so take what I have to say with a grain of salt. to me that sounds like they limit the number of properties you can rent out in that neighborhood, probably with the goal of limiting major companies coming in and buying everything to rent out. So even if you had other investment properties outside of that neighborhood, as long as you don't have more than three in the neighborhood you'll be fine. 

When in doubt I'd reach out to the HOA for clarification, it's probably cheaper than having a lawyer review that for you.

That is how I’m reading it too. I’m glad I’m not the only one who interpreted it that way. 

Yes, it's just a limitation of owning units in the development. One thing to also always confirm in the bylaws is what the percentage of owner-occupied units is in a development by the HOA. If it's 50% required to be owner-occupied, you have to know if yours tips the scale the wrong way.

Originally posted by @Jonathan Greene :

Yes, it's just a limitation of owning units in the development. One thing to also always confirm in the bylaws is what the percentage of owner-occupied units is in a development by the HOA. If it's 50% required to be owner-occupied, you have to know if yours tips the scale the wrong way.

The by laws has no language surrounding how many percent has to be owner-occupied. This amendment is the only thing that was added. 

When you say limitations of owning rental units in the development, do you mean limitation of a single owner or community as a whole? 

I would contact an attorney. I was part of a condo complex that thought there was a cap of 5% of units that could be rented. This was rumored and followed for 20 years. It wasn't until we had our declaration reviewed by an attorney that we found out the rule would never hold up in court. The wording in this is odd, I would have it reviewed. 

While not worded great, overall it definitely applies to “maximum 3 rental units Per Owner”.  I’d rent it, and if someone tries to interpret it differently, I’d simply tell them they were wrong and pursuing it will only cost Them money. Of course, ask a local attorney. 

Is everyone overlooking the first sentence? "The maximum number of tenant properties allowed at any one time in (the development) will be limited to three (3) tenant occupied properties." I agree the next sentence goes on to address a current owner that may already have more than three, which seems redundant in light of the first statement...but the way it is written the plain reading is that three maximum in the entire development applies...The subsequent statement about three per owner only applies to current owners at the time of this being passed...it's an additional stipulation in light of the fact that some owners at the time of passage may have already been in exceedance of that requirement. It should have been worded better, but I don't see anyway that the development restriction isn't intended to be three total. 

@Dominic Kosteris Yes, first and foremost I am not an attorney, yet I live in a gated community with similar restrictions! One way you can go around the Restriction: Lease option/.. Someone with minimal credit where you give them 2 years to build there credit..example, $2500 deposit, $1500 rent where $1000 goes toward the house and $500 to you! This may not be in exact order but I think you'll get my point! Hope this helps!

I think this is pretty common and helps townies remain with better financing available and or helps if they dont fall below threshold owners vs renters. Most complexes dont want to turn into majority renters except resort type destinations. 

@Michael H.

Simple for me.

My wife has 3. My kids each have 3.....

Buy 12 and separate them into trusts.

So easy.

They don't want you having so many that you end up owning too many. Too hard to control you if you only have a few.

This is pretty clear. The stated purpose of the declaration is "add certain restrictions to the number of rental properties one owner may operate in the subdivision". The paragraph in quotes that starts with 9. is meant to be added to the existing list of covenants. My guess is those covenants 1-8 are owner covenants. In other words this is a list of covenants that owners must abide by. Section 9 is just Maximum Number of Rental Properties that an owner can have. The maximum number is 3 per owner. If you have more than 3, you are grandfathered in. 

If you understand how legal terminology works, this is perfectly clear. Feel free to ask an attorney, but I don't personally see any question here. It is not confusing at all in the right context.

I have come across this. In my case it was to limit one person from owning too much of a complex. If one person owns 50% of a condo building some banks won't loan out on it to new people. The deck is stacked and the majority owner holds too much power to tank the property if they go under.  I would rent it, see what happens. You probably are fine. Good Luck!

this happened to my girlfriend in an HOA apartment complex. It was her first time buying an investment property she wanted to rent out and her realtor was clueless and did not look into any of this knowing she 100% wanted a rental. Within a week after closing and on zillow the HOA committee found out and told her to remove it immediately. We found out later there is a 20 person wait list to get on if you want to rent out the unit. Our only options were to sell or try to rent it out to a close friend or family member that would cover or vouch for her saying that she live there also to avoid fines/penalities. In the end we relisted the unit for 30k more just to try and cover the closing cost and commission. Luckily the market was still red hot in southern california and we managed to get 16k over list price. In the end she held the property for 3 months and still made about 15k on the deal for profit. It worked out but we got lucky.

NAL, but put 3 in your name, 3 in your wife's name (if married), 3 in your cousin Billy's name and 3 in your aunt Jemima's name. Prob. solved.

Hi all, new here. Hoping to learn a lot from all of you. When we bought a condo, one of the questions from the lender was what percentage of units are owner occupied. I was told it had to do with FHA and FNMA financing being available for new buyers.

"In order to be Fannie Mae warrantable and/or FHA approved, condo complexes must meet certain specifications for the percentage of owner-occupied units, the number of units owned by one individual or company, and the amount of reserves and must be in good condition and free of litigation."

Originally posted by @Joe Splitrock :

This is pretty clear. The stated purpose of the declaration is "add certain restrictions to the number of rental properties one owner may operate in the subdivision". The paragraph in quotes that starts with 9. is meant to be added to the existing list of covenants. My guess is those covenants 1-8 are owner covenants. In other words this is a list of covenants that owners must abide by. Section 9 is just Maximum Number of Rental Properties that an owner can have. The maximum number is 3 per owner. If you have more than 3, you are grandfathered in. 

If you understand how legal terminology works, this is perfectly clear. Feel free to ask an attorney, but I don't personally see any question here. It is not confusing at all in the right context.

Exactly.  No need to hire a lawyer to read a paragraph or hire a GC to hang a ceiling fan. 

Originally posted by Mike Adams:

NAL, but put 3 in your name, 3 in your wife's name (if married), 3 in your cousin Billy's name and 3 in your aunt Jemima's name. Prob. solved.

He only has one unit so he probably doesn't need to worry about even 3, let alone 12 units, haha. I probably wouldn't even want 3 units in the same complex. Too much risk with HOA.