Condo rental caps present thorny problems

Source: “Condo Owners Face Rental Hurdles,” The Wall Street Journal (April 28, 2012)

MARGATE, Fla. – May 3, 2012 – More home sellers in recent years have considered the role of landlord as they wait for a stronger market to sell or simply because they see a potential profit in renting. But for condo owners, renting out their homes isn’t always easy.

More condo associations have instituted stricter caps to prevent too many homeowners from renting out their place. While rental caps have been in place for years at many buildings, stricter caps – which could permit, say, only 20 percent of the units to be rented out at a time – mean that some homeowners must wait a long time before they can rent out their unit. These homeowners argue that the rental caps force them to sell at a loss, stay put or even fall into foreclosure.

Real estate agents say the stricter rental caps potentially hurt home sales too. Potential condo buyers may eye those rental caps as a negative, particularly young professionals who say that if a job relocation offer comes along, they’d be stuck selling at a low price and wouldn’t have the option to rent.

Condo associations say the rules are in place to help homeowners, not hurt them. Several argue that homeowners tend to take better care of their homes than renters. They also point to lenders that want the number of rentals kept relatively low. For purchasers getting a Federal Housing Administration (FHA) mortgage, a building’s owner occupancy has to be equal or greater than 50 percent. Conventional loans also often have owner-occupancy requirements for mortgages on condo developments.

Tightening the rental caps may “push more people onto the foreclosure path,” Donna D. Berger with Katzman, Garfinkel & Berger in Margate, Fla., told The Wall Street Journal. On the other hand, loosening rental caps can “jeopardize owners’ ability to have purchasers qualify for a federally backed mortgage.”

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