The downside of making your condos available for rent
One of the most attractive parts of owning a condominium is to be able to be a homeowner and work with your neighbors to split the costs of home expenses. It can be overwhelmingly hard to be dumped with the full cost of plumbing repairs, roof repairs, tuckpointing, extermination, power washing, maintenance, gardening, laundry appliance repairs and so forth. In a single-family home, you’re the only one using it so the wear and tear may be considerably lower. But when it does fail, it’s solely on you to make those adjustments.
For some people, investing in a condo is a way to make supplemental income. Buy enough units to get a steady stream of income in, and that renter can pay off your mortgage if (s)he stays there long enough. With a really good tenant who wants to be there for the long haul, you may get to the point of paying off the mortgage and now this tenant is covering condo assessments. Still, repairs will be needed, and who can predict when a special assessment will come up? Life happens.
However, not every condo unit owner is invested in the property. Just as there are slum apartment landlords, there can be disengaged condo landlords, too. They more often than not have no interest in being condo board members. They couldn’t care less about Rules and Regulations or the condo bylaws. They ignore the phone calls about repairs, are dismissive of board regulations (ex. pet policies), and barely pay attention to tenant complaints but always want their money on time. It happens. It’s easiest to do this for condo unit owners who don’t live in the building and are not a doorbell’s reach away.
While a condo board can terminate the agreement with a property manager who doesn’t do the job, a condo association cannot just immediately separate from a condo owner. The process of separation from a condo owner is even more involved than tenant evictions. (And during COVID-19, sheriffs in some cities and states put a freeze on tenants who hadn’t paid rent in months! Meanwhile mortgage companies still want their money from property owners.)
So when a condo unit owner sells his or her unit and a new one wants to purchase it, there’s a reason that the condo board must meet to decide whether they want to exercise the right of first refusal. There’s also a reason that some bylaws have a 30-day waiting period so that other unit owners can first purchase the unit before it’s released to the public for potential purchase. Condo owners already know who they’re dealing with when it comes to their current set of owners. Who knows who will move into the building next?
Should condo unit owners be allowed to rent their units?
In some cases, renting a unit out falls under the Forcible Entry and Detainer Act, which is used to rent out a space to pay past-due assessments. Excluding eviction proceedings, some condo owners choose to exclusively use their condos similar to the way property management companies will buy an apartment. Rent, release, repeat. Their units are basically like having an apartment rental, and you may not see the same tenant(s) there for more than a year.
Some condo boards require tenants to go through the filtering process with them, not just the condo unit owner, to make sure the tenant is someone reliable and safe to live with. Others leave it up to the condo unit owner to decide. The latter option can be a catch 22. The same condo unit owner who wants to be a landlord may want the rental checks but won’t necessarily want to take on the managerial duties. This type of condo unit owner will often want the board to get involved with tenant problems and concerns, all while feeling that it’s not the condo board’s business who the condo unit owner chooses as a tenant. Be careful what you wish for; you just may get it.
Is a condo rental more lucrative for a condominium building?
According to the Washington Post, “If you have too many rental properties in a neighborhood of single-family homes, it can cause property prices to stagnate or even drop.” To put it bluntly, if majority of the condominium is full of rentals, you may as well be living in an apartment building.
The only difference between the two is there’s a team of owners to weigh in on building decisions as opposed to one property owner dictating the entire space. It will save condo unit owners more money to invest in one unit as opposed to a whole building, but there are still the added opinions (and board reactions) of all other unit owners.
Condo unit owners who want to continue renting out their spaces will usually shy away from the idea of putting a fixed number of rentals into the building. The more, the merrier. But for condo unit owners who actually reside there or even ones who plan to sell their units one day, they know a rotation of tenants coming in and out of the building (especially undesirable tenants) will make it much harder to sell their units some day.
Additionally, instead of condo unit owners dealing with each other, residing condo unit owners will have to wait for the condo unit owner to talk to the tenant and hope that the tenant is willing to cooperate. For condo unit owners who are relying on tenant(s) to pay their mortgage and assessments, the last thing they want to do is lose that stream of new income. So it should be no surprise when some condo unit owners will side with an unruly tenant over other condo unit owners. What’s it to them? The landlords don’t live there anyway.
In all fairness though, some tenants are so unproblematic that residing condo unit owners can completely forget they live in the building. And there are some condo unit owners who pay assessments on time and quietly handle their own building repairs. They’re so “out of sight, out of mind” that condo boards can forget they’re even there unless access to the unit is needed for a common element repair.
The condo bylaws usually dictate what a condo board can and cannot do. The right of first refusal has such a delicate line in the sand, and boards must be cognizant of refusing someone based on discriminatory practices. While they may or may not like the idea of excessive condo rentals and feeling like they’re in a fancy apartment building, that gripe is better taken up with the condo board, not (potentially) incoming condo unit owners. And if the rental rules change, be prepared for prior condo unit owners who purchased their units before bylaws or Rules and Regulations were updated to expect grandfathering rights.