Do HOA Rental Caps Override Investment Property Purchases?

Question

Looking for some advice from other investors regarding HOA rental caps.

I purchased a townhome in 2023 specifically as an investment property with the intent to rent it out. The builder was aware of this at the time of purchase, and my mortgage was issued as an investment property loan.

However, the HOA was only officially formed in March 2025, and they are now enforcing a rental cap across the community. As part of this, they are counting all currently rented units the same and placing some owners (including me) on a rental waitlist.

What’s confusing is that several units that were originally purchased as primary residences are now being rented out, yet they seem to be treated the same as properties that were purchased from the start as investment properties.

My questions for the group:

1. Do HOA bylaws typically override the original intent of purchase (investment vs primary residence)?

2. If the property was purchased as an investment property before the HOA was formed, does it still fall under a newly enforced rental cap?

3. Has anyone successfully challenged or negotiated something like this with an HOA?

Trying to decide whether it’s worth pushing back on this or if it’s better to accept the situation and potentially redeploy capital elsewhere.

Appreciate any insights or experiences others may have had with similar situations.

Kevin Sobilo · Answer

@Sid S Kum, a few thoughts:

1. You use the word "intent". Was your townhome being rented out when this new HOA rule came into place? The answer sounds like NO.

2. You bought a property with an "investment property loan". Typically, that means you cannot live in the home. So, has it been sitting vacant for 2+ years?

3. Assuming #1, is correct my GUESS is that there is nothing wrong with it. No entity has to base their rules/laws/ordinances on your future "intentions". Often you protect your interest by DOING something and then you are grandfathered in when the rule/law/ordinance changes.

So, a primary residence that was converted to a rental and actively rented out when this new rule came into existence protected their interests by doing that because actions mean more than intentions.

4. If you don't like it and others feel the same, bind together and vote different people onto the HOA board and change the rule.

Kevin Sobilo · Answer

@Sid S Kum, I would certainly believe that you could fight it then.

I would explain, if they don't grandfather you in, that means you could get different people elected and put a limit on owner occupied units and make the board members move out of their homes!

If that doesn't make sense to them, I would find a lawyer with experience dealing with HOA issues.

Sid S Kum · Answer

This was always a rental unit from day one. It is actively being rented out. Even on papers it is registered as an investment property. The unit has been rented out way before HOA was formed but they're not allowing any grandfathering.

Ryan Thomson · Answer

Yes, HOA rental caps absolutely override your purchase intent. The CC&Rs are recorded with the deed and bind every owner, regardless of what you planned when you bought.

Here's what actually happens: you close on the property, then you go to rent it out, and the HOA says the cap is full. You get put on a waitlist. Some people wait years. The HOA doesn't care that you bought it as an investment.

A few things to dig into before you close on anything with an HOA:

Request the full CC&Rs and look specifically for rental cap language. "25% rental cap" or "no more than X units may be leased at any time" are the phrases to watch for. Also ask the management company right now what the current rental percentage is. If they're at 23% with a 25% cap, you've got almost no runway.

Some HOAs also have rental waiting lists you can get on before closing, so ask about that process too.

One thing people miss: some caps are building-wide percentages, but others are structured as minimum ownership periods (you have to live there 12 months before renting). Those are easier to work around if you're house hacking anyway.

The other issue is financing. If the rental cap has pushed investor ownership high enough, the building may not be warrantable for conventional loans. That affects your exit options down the road.

Bottom line: treat HOA docs like a second inspection. If the rental situation isn't crystal clear before you're under contract, get it in writing from the management company. "I thought I could rent it" isn't a defense when the HOA fines you.

Garrett Crosby · Answer

The HOA's response tells you what you need to know about the legal path: they're treating the bylaws as the controlling document regardless of purchase intent, and the courts will generally agree with them unless there's a specific recorded document or deed restriction that carved out your unit as a permanent rental. Without that, the "investment property loan" is a lender designation, not an HOA carve-out.

That said — if you're on the waitlist and the rental cap is at 40%, your best move right now is to get organized with other rental unit owners in the community. If there are more investment properties in the community than the cap allows, that's actually a meaningful argument: the HOA may be selectively enforcing or the cap as written may not be legally valid depending on how it was adopted. A VA HOA attorney ($200-400 consult) could tell you quickly whether the adoption process was procedurally correct and whether you have any standing to challenge it.

For future buys: HOA rental cap is now on my personal due diligence checklist before making any offer on a condo or townhome. It's one of those risk factors that doesn't show up in the listing and can fundamentally change the investment thesis. Feel free to reach out if you want to think through your options.

Richard F. · Answer

IMHO, if the By-Laws do not differentiate between specific investment units, nor does your specific deed identify that your unit was sold as an investor unit, you will not be successful. It truly means nothing about the type of loan, or their terms. It is also, based solely on your post, meaningless what the builder said. You stated that you had the bylaws at your closing, so that seals the deal. Also, builder's have no voice whatsoever once the project sells out. If you misinterpreted the bylaws, or overlooked a separate section of them that affect the application of the current rules, there is likely nothing you can do. Some projects have a "waiting list" of Owners that want to change their status if another rental changes to Owner occupied. That may be your only option.

HOA Boards are able to add, remove, or amend SOME of the rules that affect the project, and they are the ones that enforce the rules as well. You would need to examine the various Governing docs to determine their actual authority on this specific issue. Courts will side with the HOA based on those docs and whether or not the Board followed any required process within the docs to make changes or enforce rules.

Lastly, your comment about the HOA not wanting to "go through the process" of identifying owner occupied vs. rental units, may just be a very lazy and incompetent Board. They (or the Management Company they hired) certainly have a record of Owner names and their mailing address. Typically, if the address of record is different from the project's unit address, that indicates what is most likely a rental unit. If the Board/Mgmt is NOT tracking this basic info, I would attend a regular Board meeting and find out what else they are not doing. Your Board Members are Fiduciaries, and must fulfill their responsibilities to all of the General Membership, or they can be held accountable.

Sid S Kum · Answer

@Richard F. Thank you for guidance & thoughts on this. I did look at the bylaws that I signed part of my closing docs and it is mentioned about 40% rental cap and 60% home owners. But my argument with the HOA is the 40% Rental CAP should ideally be applied to folks who first bought their units as primary home and later opted to rent it out for some reason (maybe moved out of state or bought another bigger home in the area).

When I spoke to the builder during the time of purchase I did mention that it would be an investment property which I would like to rent it out. At that point the builder mentioned that my unit was their last investment opportunity in the community and communicated the same to the lender. All this communication happened over emails and I still have a record of them. The lender also processed all the mortgage docs as an investment property & it is clearly mentioned in the closing docs that the unit is an investment property. I am also currently paying the "investment property interest rate" which is typically higher than the primary homes.

It almost looks like the builder clearly followed rules on how many rental units they can actually sell within the community but across the years some primary homes got converted to rental without notifying HOA or mortgage lenders and got mixed up with the "true investment props".

HOA now doesn't want to go through the process of identifying "true investment properties" and just want to enforce rental cap regardless of what purpose the units were originally purchased. If the builder had sold way more investment props than what was allowed, then I agree the rental cap enforcement on units like ours makes sense but it doesn't look like that.@Henry Lazerow No, They are not grandfathering in the past investors.

Do HOA Rental Caps Override Investment Property Purchases?

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