Rental Restriction Vote, Pros and Cons?

10 Replies

Hey everyone! I bought a great 1BD/1BA investment condo at auction a few months ago, and I was just notified that I must turn in my vote on the new rental restriction policy they are discussing by tomorrow at noon! It's in an "A" neighborhood of Chicago, and I just rented it for $1750. There are no restrictions at the moment, and the new rules would say new owners must live in the unit for two years before renting and there would be a 50% cap on rentals. Putting my buyers hat on, I've worked with buyers in this price range who like having the option to rent with no restrictions, so one thought I've had is re-selling the condo could be more difficult. I know I would be grandfathered in to having no restrictions, but can anyone tell me how would this change benefit me? I would love some advice. Thanks in advance!

There are two possible benefits. The first probably is what the condo board intended: The restriction would prevent the entire building or complex from being converted to rental units owned by people who do not care about their tenants' behavior and will allow tenants to annoy other residents and damage the property. Even 50% ownership and occupancy by landlords and tenants like that would be big trouble.

The second possible benefit would be to restrict competition -- a tried-and-true aspect of real estate and other occupational licensing. If your complex is popular but fewer owners can rent out their units, you might be able to get more rent.

You might be right about the detrimental effect on the market for selling your property. Also, these restrictions are typical of HOA and government people who like to impose their will on everyone rather than deal with specific behavior that they don't like by relatively few people. The proliferation of short-term rental bans fits into this category.

If you favor fairness to property owners in general, you'll vote "no."

I believe there are FHA & VA lending restrictions on buildings that have a 50% or greater non-owner occupation. You need a lender to weigh in here - but when you go to sell your buyers may be limited on the type of financing available to them.

Teri S., Rejuvenation Homes Inc

Passing that vote would hurt your resale value. No investor is going to be looking at your condo and it's HOA laws as favorable and will go else where when they are considering buying.

Highly vote against that new law

Medium holton wise property group logo jpegFederico Gutierrez, The Holton Wise Property Group | [email protected] | 440.454.3405 | http://www.holtonwise.com

Thanks everyone, I was leaning against it but wanted to make sure I had good reason. Appreciate the insight!

How do you know you'd be grandfathered in? Unless the HOA has specifically said so, then you'll want to assume that you are NOT grandfathered in.

HOAs are difficult to navigate.  

For all the reasons stated above and more, I'd vote against this restriction.

Medium cluebussol logo3inLinda Weygant CPA, Clue Business Services, Inc. | [email protected] | Podcast Guest on Show #244

@Linda Weygant thanks for your input. It was specifically said in the memo that current owners would be grandfathered in, but I have always disliked rental restrictions because it could hurt the resale. I'm glad to hear my instincts seem to be on par with the general consensus!

Originally posted by @Federico Gutierrez :

Passing that vote would hurt your resale value. No investor is going to be looking at your condo and it's HOA laws as favorable and will go else where when they are considering buying.

Highly vote against that new law

 I guess I would disagree. Home owners pay more than investors where I am from. The complexes that ignore rental ratios could go to pot with values and financing or at least out here it will..it really kills overall values in a big way ( 6 figures plus) out here. 

For condos it is about financing , if you go above a certain % rental units some lenders wont finance the units. This can impact the ability to sell to owner occupants so your market is more investors who want better deals.

@Colleen F. I really hadn't thought about that, now I wish I'd asked one of my lenders for advice. Oh well, time to wait and see what happens!

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