Adding tenants to LLC to bypass HOA rental cap

9 Replies

So we are moving to a single family house and would like to rent our town house. But our community has hit the rental cap (20%) and since the HOA is still owned by the Declarant and not really the home owners, there is no voting in place to increase the cap. I was reading some other posts and I see one way to bypass this is to add your tenant as a member of the LLC and that way we don't need a rental permit. I believe the LLC will in turn need to hold the title for the house. Is this something folks do in common to overcome HOA rules? How complicated could this get? I see other posts where people do convert rentals under LLC to better manage financials may be. Any advice is greatly appreciated!

If the title is switched to an llc......it then Automatically becomes a rental, no matter who lives in it, as an llc can not be an owner occupant(human).

Thank you Wayne for taking time to respond.

No, the title is Not yet switched to LLC. The question is if we switch the title to LLC and make the tenant a member of LLC, we don't need a rental permit is it?? Do we still need an approval to go this route from HOA?

Ready my answer again, it answers your question. Just replace If with when.

Thank you again! So you are saying to convert the title to LLC I would need a rental permit from HOA and this route will not help me bypass the whole HOA rental permit process?

Adding tenant to the LLC will complicate your taxes and also gives them ownership in that property (even if it's 1%). @Brandon Hall can probably explain but at greater details. You will have to issue them K-1 and their portion of depreciation on house price minus land. However, if the house is owned by LLC then it doesn't matter who lives there. HOA record will show your LLC as owner and then whatever is between the officers of LLC and your tenant is your LLC's business. You need to do more research on this.

Your HOA is the equilivant of having a landlord. How would you like it if your tenant found some unscrupulous way to avoid having to follow a lease they agreed to and signed because they no longer like the rules.

Show some respect for your community and your landlord (HOA) by not snubbing your nose at the rules.

Respect the rules or sell, do not be the owner that doesn't give a s**t about the neighbours, community or rules.

As a potential new landlord you are starting out on the wrong foot in regards to respecting a lease.

@Thomas S. - I would have respected the HOA if it was run by home owners, but it's run by a declarant for last ten years who has no intention of turning the HOA back to the home owners. With no voting and all these clauses not explained by builder when we bought the house - it leaves us with very little options😬 any case if it comes to it - we wud need to sell. But wanna check all options before taking that route.

I have never done this before but I have been concerned about this as I consider investing in rentals.

I would speak with an attorney about his experience in getting around the HOA and how to get voting rights in your HOA.

If the HOA has reached its 20% limit then you have some like minded individuals that may help you change things.

Consult an attorney about his advice and strategies in the state your property is.

In any case I think this is what you are trying to do and copied it from the website below:

http://ughdad.com/finance/making-money/rental-properties/how-to-get-around-hoa-rental-restrictions/

How to Get Around HOA Rental Restrictions – The Answer

So, the answer. Set up a Revocable Trust. Here’s how it works.

Set up a revocable Trust
Change the title on the property to be owned by an entity, like an LLC.
Have the revocable trust own the LLC.
Next, on the revocable trust, have the renter become an owner with no rights. This will show that the renter is an “owner” of the property.
Then submit the paperwork showing this to the HOA.
Have the HOA approve.
So, this technique does work. The only catch is if the legal representation for the HOA fights it. But, not all legal representatives will. It’s worth a chance.

Personally, I had an attorney set this up for me as it was more valuable to me. It cost about $1,500. If you feel comfortable in doing it yourself, check here for Revocable Trusts. I didn’t have the background and wasn’t sure how to do it.

Another benefit of having an attorney do the revocable trust, was the side benefits. I was also able to:

Put my property into the trust
Assign my children as beneficiaries
Set up distributions – In case I pass, the estate will be passed in graduated distributions with the option to execute. For example, get a percent at age 20, then 25, 30, 35, etc. And, in the case of divorce, keep the distribution within the trust so soon-to-be ex couldn’t touch it.
Protect everything – Everything I own is now in separate LLC’s. If one property has an issue, all other properties, businesses, etc. are protected legally.
Other ways on how to get around HOA Rental Restrictions

Owner Finance the Property

List your property as an owner finance. This may or may not work. I would suggest reviewing the covenants, then asking the HOA prior to doing this. You don’t want it to backfire on you. Keep in mind that not everyone can afford to purchase properties. And, from what I understand, a lot of these owner financing may have a clause where it’s a rent-to-own. Just present it differently to the board. And, if you do a rent-to-own, chances are the people will back out. Then, just repeat this process.

Something else to consider but not recommended

Calculate Your Loss

Calculate the penalties of renting versus the actual rent. You may still come out on top

Sell. You are wasting your time trying to fight a HOA.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here