California legislature recently passed a bill regarding leasing restriction in common interest development. SB150 will go in effect January 1st, 2012. While it’s not clear what ‘prohibition’ really means one thing is for certain – it will affect association’s ability to impose caps on number of units that can be rented at any given time.
This could be a touchy subject especially in uncertain financial times when owners may depend on renting their unit to stay afloat. Living in a building with such restrictions can create an additional burden on such owners. With that in mind please consider the alternative.
- Associations where a large percentage of residents are renters tend to be less taken care of comparing to those where most people own
- In associations where a large percentage of owners live offsite might have difficult time with some maintenance and upkeep projects. It’s harder to make people living offsite to care about the building as much as they would if they lived there. It’s also harder to convince them to have to pay for additional expenses.
- It might be easier to find a buyer for a community dominated with owners. After all these people are probably moving away from an apartment building.
- It might be difficult to get financing (new sales or refinancing) for buildings where a large percentage of owners are renters. Few years ago many lenders wouldn’t consider giving a loan for a condo in a building where there were more than 25% to 35% of renters. Currently FHA would accept building with up to 50% of renters, but who knows what will happen when the real estate marker recovers.
- Your association insurance rate may go up if you have a large percentage of renters.
All things considered it’s wise to consider putting some limitations to how units can be rented in your association. Approach your association’s board and ask them to consider putting a restriction in place. You need to hurry. Any amendment passed after the January deadline would exclude all current owners and would only affect those that buy after that time. This would require changing your CC&Rs through the usual process.
Another limitation you might want to consider putting in is not allowing rental of units in the first year of ownership. This will deter investors from buying into the building yet will still allow owners whose situation changes to rent when the time comes.