If you own an Indianapolis area residential property located in a community with a Homeowners Association (HOA) there are restrictions on what you can and cannot do with your property. Before deciding to convert that property to a rental, you need to understand the rules. Likewise, if you are considering investing in a community it’s also prudent to know the HOA rules. If not, you could possibly face a costly battle after you have rented the home.
HOAs and the Problem For Investors
Communities managed by HOAs appeal to many buyers. HOA rules are put into place to maintain property values and serve the best interests of the community. In some communities the HOA is the governing body over half completed properties where the developer has handed over control without completion of the project. The HOA is responsible for costs that may far exceed the revenues generated by the owned properties. The HOA has a tough role and are often scraping for every possible dime they can find.
Often in these under-performing communities, the doors swing open for investors. HOA boards then make a commitment to other owners to take a more pro-active role when it comes to non-owner occupied properties. Even when communities are performing wonderfully, the issue is with existing owners and their fear of renters. Either way, investors can coexist with owner-occupants and provide many valuable benefits.
If you are considering investing, or currently live in a home in a community with an HOA, try to be a part of the solution. There is a need for community and it can be developed in many different ways. Become knowledgeable and follow these suggestions to make the investment road smoother.
How Many Renters Will Your Community Allow?
Many homeowners associations have restrictions that can stop you from renting your property out. The reasons given for these restrictions vary from maintaining home prices to preserving community safety. These rental ratios are usually well-intentioned directives that may need updating and discussion. The rules sometimes are simply a way for an HOA board to maintain better control over its residents.
It’s important that you know the rental ratio and actual rental amount for your community. If your community is at the maximum ratio, renting your property may cause serious problems with your HOA. The approved amount of rentals in a community most of the time is an arbitrary percentage. These ratios are often created based on the often incorrect idea that a community of renters brings down property values.
Another reason for rental ratios, given by some condominium HOAs, is the ability for purchasers and owners to obtain FHA financing. Traditionally FHA financing is not available where over 50% of the units are occupied by non-owners. Many HOA rules have not been updated to reflect changes in FHA financing. In 2016, Congress passed legislation that lowered the owner-occupant threshold to 35% for existing complexes with stable finances and delinquency rates. If your HOA uses a 50% ratio, you may wish to provide them updated information.
Some Board members may argue that bank lenders also have restrictions with all kinds of various limits. Banks vary in their lending policies from having no limit to other arbitrary limits. Unfortunately, the HOA rule is the rule. Making a decision to fight for a change is an option for any owner.
Get Involved With the Board-Even if You Don’t Live in the Community!
It’s possible to challenge your HOA’s policies on renting, but there is no guarantee that the process will be easy, fast or successful. The better alternative to challenging the HOA rules is to get involved in your association. Attend board meetings and get to know the owners in your community. If there are other owners who feel that the HOA rules on rentals need to be changed, join together to propose amendments to the bylaws of your community. Draft a rental policy that reflects proposed changes supported by a significant amount of owners. Present the proposed policy to the HOA board for consideration based on the support you have gathered.
It’s smart business to be the voice of the non-occupant owners in your community. Your advocacy is good for your investment for some of the following reasons.
Reduce alienation of renters in the community
Severe rental policies will make renters feel like outsiders. They’ll feel unwelcome at community events and may be less likely to use shared facilities such as exercise rooms or pools. Work with your board members and your management company to discuss methods where owners and renters can be encouraged to engage with one another.
Educate other owners on property values
There is no proven correlation between the ratio of renters and property values. A member of your board or a group within your community may base their desire for rental restrictions on fear of decreasing property values. Take the position the issue should be well researched and adequate information provided before moving forward with establishing a policy.
If rules are enforced, the exterior of all units should appear the same. When this occurs, rental units should have no affect on home values.
Share actual benefits of welcoming renters in a community
Some homeowners associations loosen their rental restrictions to help attract buyers and occupants. In difficult times, homeowners may only be able to keep their homes by renting them out. For the homeowners association, allowing rentals may be better than having foreclosures and vacancies in the community. A foreclosure in the community could cause the values of neighboring homes to drop.
Pay Attention To The Rules For Renter Approval
Some HOA’s are placing themselves in a position to screen the tenants that a non-occupant owner selects to rent. In many cases, this is not a power originally vested to the HOA, but one they have created. Since ultimately, the HOA has powers to make living in their community very difficult for a tenant, it would be wise to follow their directive. At the same time, there is a line that should be drawn about what information is appropriate for an HOA to have about a possible tenant-neighbor.
Reduce The Fear Associated With Poor Maintenance
One of the reasons HOA rules restrict renters is associated with the expectation the property will not be maintained as well as owner-occupied properties. As a rental owner, provide the HOA with emergency contacts and your property manager. If you are not ready to hire a property manager, make sure that every required owner maintenance item is continually covered, lawns mowed, landscaping trimmed, exterior light bulbs working, etc. If you hire a property manager in Indianapolis, give them a copy of the HOA covenant and restrictions so that the manager can make sure the property is maintained and does not stick out among other homes.
Work With the HOA to craft winning rental policies
Non owner-occupants need to have the HOA as their ally, not enemy. Making sure the property is maintained is a big step toward avoiding some of these hassles. Be prepared though. Read your HOA rules before you attempt to lease out your home. If you’re looking for an investment opportunity at an HOA-managed community, be sure to review their Declaration of Covenants, Conditions and Restrictions. Find out if there is a tenant approval process before making an offer or actually putting a property up for lease.
Be willing to volunteer to work with the HOA to be an advocate for non-occupant owners. By keeping a positive environment for owners like yourself, you will improve the community and the property values for all existing owners.
