Many real estate investors take the buy and hold approach to real estate investing. And this of course means renting the property out.
If you are buying multifamily property or properties that are typically rentals, this represents no problem.
However, if you are buying a single family property in an area that is represented by a homeowner’s association, there could be problems.
Many homeowner’s associations have restrictions on renting. Very few actually forbid renting but quite a few have clauses in their rules (which you agreed to when you bought the house in the HOA) that restrict the number of rentals in the community to a specific maximum percentage.
So lets say that percentage is set at 10% and the association is made up of 250 houses. That means that the rules will allow for 25 rental properties in their community. If you are rental property number 26, they could take legal action against you for being in violation of the rules. You could become an instant don’t wanter because of these rules.
So how do you guarantee that you do not run afoul of the association rules?
Simple… Do your due diligence before you purchase the property. That doesn’t mean don’t secure the property with a contract. It means making sure you have a subject to clause in the contract “subject to approval of the rules of the association.”
By putting in that clause, you can tie up the house in a contract and have the luxury of time to review the rules and regulations of the association and talk to the association officers if necessary to get clarification on any rule you need interpreted.
This also means you have time to approach the association officers and get a written letter giving you permission to have your purchase be a rental property before you actually close on it.
And if there are any issues, you have a clean and perfectly legal way to gracefully back out of the contract.
You might think that with the craziness in the markets today and the number of vacant houses that there would be no issues. You would think they would be happy to have one more vacant house filled.
And you might be right…
But if that house is in violation of the rules, they can choose to take action any time… So maybe when the community gets filled again and some homeowners start complaining about all the rentals in the community they may choose to take action against you.
The simple lesson here is always do your homework to be sure your potential purchase is suitable for its intended use.
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