Author Topic: Would you buy a condo with rental restrictions?  (Read 4235 times)

jillian

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Would you buy a condo with rental restrictions?
« on: January 31, 2015, 02:23:51 PM »
My partner & I are interested in buying a condo to live in long-term.

-Would you buy into a building that does not allow rentals?   

-Conversely, would you buy a condo that is almost all rentals?

I see positives to both situations - difficult to decide which is the better bet. Any opinions?

JLee

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Re: Would you buy a condo with rental restrictions?
« Reply #1 on: January 31, 2015, 03:01:21 PM »
I have a hard enough time dealing with city codes (bought my house with a dead tree in the backyard, 3 months later I get a letter from the city saying I have to take it down), let alone HOA/condo association rules. It wouldn't work for me, but it might for some. :)

deborah

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Re: Would you buy a condo with rental restrictions?
« Reply #2 on: January 31, 2015, 03:02:00 PM »
All rentals can be a real problem with the body corporate not caring about a lot of things that live-in owners care about, and it being much harder to have people keep to the rules, but I wouldn't buy into a place that didn't allow rental - life can change in ways you cannot predict.

ShortInSeattle

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Re: Would you buy a condo with rental restrictions?
« Reply #3 on: January 31, 2015, 03:04:28 PM »
I would not buy a condo with a rental cap, nor would I buy a condo that is treated like a dorm with lots of short term tenants. Condos exist that are neither.

Our condo, as an example, is well maintained and managed with very low turnover, but there are no restrictions on rentals except that renters mist follow building rules (sensible stuff) and you must rent on a monthly or annual basis (no airbnb).

We plan to do some long term travel, so being able to rent is an important option for us to maintain.

So there is one opinion for your pile. :)

SIS

jillian

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Re: Would you buy a condo with rental restrictions?
« Reply #4 on: January 31, 2015, 03:52:46 PM »
You're right ShortinSeattle - that's likely my issue that I'm looking at opposites of the spectrum (ie. 0% rentals or 85% rentals)  - Perhaps we'll keep looking until we find one more in the middle. Buying is so emotional it's hard to forget how many places are out there.

What do people think about building size?  Is 12 units less or more risky than 30 units?  I guess it's less about building-size, more about management/condition/age/fees/desirability-for-resell. 



jillian

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Re: Would you buy a condo with rental restrictions?
« Reply #5 on: January 31, 2015, 03:56:52 PM »
Also, ShortinSeattle, I loved previously reading your posts about moving to a smaller condo - Awesome!

coffeehound

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Re: Would you buy a condo with rental restrictions?
« Reply #6 on: January 31, 2015, 04:49:25 PM »
You're right ShortinSeattle - that's likely my issue that I'm looking at opposites of the spectrum (ie. 0% rentals or 85% rentals)  - Perhaps we'll keep looking until we find one more in the middle. Buying is so emotional it's hard to forget how many places are out there.

What do people think about building size?  Is 12 units less or more risky than 30 units?  I guess it's less about building-size, more about management/condition/age/fees/desirability-for-resell. 



You might want more on your checklist than building size and whether or not there are rental restrictions.  When you buy a condo, you are effectively going into business with a bunch of strangers who may or may not have the same philosophy around finances that you do.

Look at location, upkeep, and request a copy of the HOA's reserve study for any building where you're thinking of buying.  You want to find a unit in a well-maintained building that has a healthy reserve, and a good plan for meeting maintenance needs.  HOAs with healthy reserves may have high fees or low fees; you have to ask for a reserve study to have a clear analysis of HOA's financial health.

jillian

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Re: Would you buy a condo with rental restrictions?
« Reply #7 on: January 31, 2015, 06:08:41 PM »
The 1994 building has $40,000 reserve fund & a detailed 90-page consulting engineering depreciation report done recently -says that they need to collect $160/unit/mo to avoid special assessment (they are currently collecting $358/unit)

The other unit is much newer (2007) & does not have a depreciation report done yet. They have $60,000 in the reserve.

I guess that's the issue with condos - so many factors to decide that it is hard to know what you're getting into!

I have no issue with the condo-living itself (I've lived in one for years now) but the financials seem hard to feel secure-about! 

I somewhat prefer going-into-business-with-people-who-are-owners-living-there (rather than landlords) but I also realize that inabilty-rent-out also affects re-sell value/options.   Hmmmm.....   

rtrnow

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Re: Would you buy a condo with rental restrictions?
« Reply #8 on: February 01, 2015, 01:46:27 PM »
Too many rentals can make it extremely difficult to sell a condo. I believe anything over 20% (might be off on that) will severely limit who will finance. I see lots of condos that are heavily rentals selling way below market compared to other similar condos.

On a personal note, I would not want to buy and live in a condo where most or all my neighbors are renters.

clifp

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Re: Would you buy a condo with rental restrictions?
« Reply #9 on: February 01, 2015, 02:24:54 PM »
I don't think it would have that much impact on the resell value.  Roughly 64% of Americans own their own home, the percentage of condos owners is likely smaller but almost certainly well over 50%. So for every potential investor that might consider buying a condo as a rental property, but couldn't like myself. There is more than one, potential owner who would think like you and me, that I'd rather go into business with people who are fellow owners.  For those people having no renters would be a plus.  I'm pretty sure some of my tenants have been jerks to be neighbors  (based on the HOA violations they accumulated) and frankly I wouldn't have been happy to be living near them.  Now that said stuff happens, and circumstance do change and it is possible you might want to rent your condo out in the future, and you wouldn't be able to. But baring that I'd say I'd have no problems buying into an association with a renter restriction.

jillian

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Re: Would you buy a condo with rental restrictions?
« Reply #10 on: February 01, 2015, 02:41:09 PM »
I agree that both can restrict re-sale (too-many renters or inability-to rent). Also for that reason I think both units I am watching will continue to go down in price. Condos do come with a lot more uncertain-factors that make them more overwhelming than a SFH purchase (but we are most definitely condo-people & not house-people. Also planning to buy with 30% down so either unit is affordable.) 

Still deciding if lack-of-appreciation is an issue or not (seems like it really only is if you need the money or are planning to sell?) Living a MMM lifestyle makes the money seem less important - the reason for buying is for a home (not an investment).

I think I've realized that there are so many factors that can go one way or the other, that perhaps we'll just have to decide which place we want to live in  (as there are no guarantees either way) - obviously still have to be diligent reviewing finances & strata minutes, etc. 

The heavily-rented units (that I currently rent in) are definitely declining in price -one unit originally purchased new for $400,000+GST  (2008), sold for $375,000 (2009)  & last year sold for $319,000 (2014).   Ouch!   




mozar

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Re: Would you buy a condo with rental restrictions?
« Reply #11 on: February 01, 2015, 02:57:57 PM »
I think a renter restriction is a good idea. I bought a co-op and we are only allowed to rent for two years, with approval from the board. It prevents high turnover and people who live here tend to care more about the property. Also nice to get to know my neighbors over the years.

stlbrah

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Re: Would you buy a condo with rental restrictions?
« Reply #12 on: February 01, 2015, 03:03:11 PM »
I think a renter restriction is a good idea. I bought a co-op and we are only allowed to rent for two years, with approval from the board. It prevents high turnover and people who live here tend to care more about the property. Also nice to get to know my neighbors over the years.

this. I can't even remember how many times ive called the cops on "renters" that live around me. Some have moved, probably because of me. I guess I ruined their fun to play beer pong on the balcony at 3am on a wednesday

aj_yooper

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Re: Would you buy a condo with rental restrictions?
« Reply #13 on: February 01, 2015, 03:10:17 PM »
A building with no rental restrictions may lead to difficulties in getting mortgages on condos sold there, which may lead to price drops, difficulties in funding the building maintenance, etc..  For a personal residence, I would definitely prefer no renters or very tightly controlled renting, as in a coop apartment. 

caliq

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Re: Would you buy a condo with rental restrictions?
« Reply #14 on: February 01, 2015, 03:17:09 PM »
A building with no rental restrictions may lead to difficulties in getting mortgages on condos sold there, which may lead to price drops, difficulties in funding the building maintenance, etc..  For a personal residence, I would definitely prefer no renters or very tightly controlled renting, as in a coop apartment.

VA loans and FHA loans and probably any other government sponsored programs don't back mortgages for condos in buildings with more than like 20% renters.  There are other restrictions as well involving reserve funds and % of owed payments to the HOA. 

Depending on the type of condo you're buying, your area, and your price range, it's possible that a large portion of potential buyers would be using these types of loans, so you'd be excluding a huge portion of your market by purchasing a condo in a building with 80% rentals.

AllezAllezAllez

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Re: Would you buy a condo with rental restrictions?
« Reply #15 on: February 12, 2015, 07:57:11 PM »
IMHO, depends on the location. In my college town, no-rentals HOAs command a premium because no one over the age of 21 wants to live near the alcoholic undergrads.

afreeman85

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Re: Would you buy a condo with rental restrictions?
« Reply #16 on: February 12, 2015, 09:58:29 PM »
My wife and I weren't able to get financing to get into a unit we liked because the building had too high a percentage of rentals. We are now in a small 6 unit condo building and there is a rule that only 1 unit can be for rent at any given time. However, it is also possible to apply for a financial hardship exemption to rent out your unit if there is already another unit for rent. So if one or both of us lost our job, we could rent the place out. This seems like a nice compromise. Currently, all unit are owner occupied.

Eventually, my wife and I would like to purchase a live in rental property, but we aren't sure what we would want to do with our condo. If we rented it out now, it would probably get right around the monthly mortgage payment price. So, we could continue to build that equity for the cost of being a landlord, or we could sell the place and use the cash that we would get to put down a bigger downpayment on a multi unit property. We are about 5 years out from having to make those decisions, but the rule actually probably helps out when we go to sell, because there will be more potential buyers. I definitely think that easier financing is more important to widening the pool of buyers, than the ability to rent the unit out no matter what.

OSUBearCub

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Re: Would you buy a condo with rental restrictions?
« Reply #17 on: February 13, 2015, 09:01:01 AM »
I've been thinking about this same issue as well. 

What are the typical ratios of rentals/owners that start getting tricky for mortgage funding?  I'm a few years off and plan on a 20% down payment on a >100k mortgage.  Will a higher down payment help with securing funding in a condo community with a higher percentage of rentals?