Investor prohibited from offering rental property

Realizing that you may not be able to rent your investment home? Banning homeowners from renting their properties is a trend that is becoming increasingly popular with some developers and many homeowner associations (HOAs).

It is rare that you will be able to buy a new home in a development that does have an HOA. As a homeowner, you are subject to the HOA restrictions found in the Covenants, Conditions and Restrictions (CC & R).

CC & Rs regulate the use of your property, restricting everything from house color, window shades, Christmas decorations, sports fields, pets, landscaping, etc.

One of the most recent restrictions that builders are including in their CC & Rs is a restriction that prohibits the owner from leasing their property. Builders have a provision in their sales contracts that the home will be a primary or secondary residence and the buyer will occupy the home. The owner is strictly prohibited from renting the apartment.

Why this trend? The idea is to limit the number of rents in a subdivision because lenders believe that a large number of rents in a community affect the value of the property and can erode the security of your loans.

Existing HOAs like the no-rent idea and there seems to be a growing movement to amend their CC & Rs to add the “no rent” provision.

Investors Beware!

The new home buyer should be aware of the no-lease restriction when buying. But what about the investor who buys a home a few years later? If the investor does not read and understand the CC & Rs, they may end up owning a property that they cannot rent.

You cannot count on the seller of the house to advise you of the restriction. They may be the third or fourth homeowner and may not even be aware of the restriction.

Oh sure, you could buy the house, rent it, and hope you don’t get caught in violation of the CC & Rs.

However, anyone who has dealt with an HOA soon discovers that there are always a few other owners with an eagle eye looking for the slightest offense from the CC & Rs. They are happy to notify the HOA management company, and the management company is required to investigate and enforce the rules. For you, the investor is not a resource … and there is no resource.

This is a strong reminder that every investor should have a clause in every purchase contract that says the purchase agreement is dependent on you receiving, reading, and approving a copy of the CC & Rs.

This is a situation that could lead to ulcers and that no investor can afford to ignore.