February 20, 2020
9 Minute Read
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A condominium (or condo) is a unit within a residential building or community that is individually owned. Condos managed by homeowners associations (HOAs) appeal to many buyers because most of their rules are put into place to maintain property values and serve the best interests of the community. In most cases, a condo owner can rent out their property — and according to the Zillow Group Consumer Housing Trends Report 2018, of those who own two properties, 38% say they rent out one of them. When a condo is rented, the owner typically becomes the landlord unless they hire a property management company.
There are many factors that weigh into the decision of whether or not to rent. Some popular reasons for renting out a condo are:
Whatever the reason, it's important to consider the benefits and downsides of renting out your condo.
Some benefits of renting out a condo are obvious, like having an additional source of income. But there are others you may not realize at first. Here are the biggest benefits to renting a condo:
Supplemental income. If you rent out your condo for $1,500 a month, you'll receive $18,000 each year in additional income.
Increased value over time. Property values generally increase over time, so the longer you hold on to your condo, the more it'll sell for in the future.
Reduced taxes from expense deductions. If you make repairs or upgrades to the condo, you can add value and deduct the expense from your income — reducing the amount you owe in taxes.
In contrast, renting out your condo has its disadvantages — especially if the housing market takes a downward turn. Before you rent out your condo, be aware of these potential issues:
You could make less than anticipated. Markets can fluctuate, and if your condo stays vacant or rents for less money, it will negatively impact your income.
It may be difficult and costly to sell later on. If demand in the area drops, you may have a hard time recouping your initial investment.
You could spend a lot on repairs. Rentals require continual upkeep and occasional repairs — these take up both time and money.
You could be responsible for dealing with difficult tenants. If you're the landlord, you may have to deal with things like late payments or property damage.
If you want to rent a condo that's part of an HOA-managed community, do your homework first to be sure it's allowed and, if so, what the rules are for how you must go about it.
Ultimately this decision is up to you, but a property manager typically charges around 10% of the monthly rent plus a portion of the first month's rent when a new tenant moves in. Whichever way you decide to go, know that the landlord or property manager is responsible for:
An HOA is an organization in the condo community that makes and enforces rules for the individual property owners. By purchasing a condo in an HOA, you automatically become a member and are required to abide by their rules and pay dues (known as HOA fees). According to the 2017 American Housing Survey conducted by the U.S. Census Bureau, 80.4% of condos have an HOA. For more information on how HOAs work, consider the learning resources available from the Community Associations Institute.
Some associations will ask you to submit a potential tenant's rental application so they can screen them, but associations can only do this if it complies with state law and the federal Fair Housing Act.
It's within an HOA's power to restrict your ability to rent out your property, but those restrictions depend on your association. Read the HOA rental rules before you attempt to lease out your condo. If you're looking for an investment property, you'll want to carefully go through the Declaration of Covenants, Conditions and Restrictions (CC&Rs) and bylaws before making an offer.
If renting out your condo is allowed, make sure you comply with all HOA rental restrictions. These restrictions can include a rental cap and limitations on the length of the lease.
Lease restrictions may place a minimum lease period to avoid vacation rentals and a high turnover rate.
Rental caps may limit the total percentage of condos that can be rented at any given time. Many HOAs approve rentals on a first-come, first-served basis, so there's a chance you'll end up on a waiting list.
New condo owner requirements may be in place. These are uncommon, but they typically state that you must live in the condo for at least one year before renting it out.
Yes. Covenants in the declaration are public record. Upon purchasing a condo, you should receive notice of all covenants — including rental restrictions. Any restrictions adopted after purchase are typically not enforced in court since you weren't bound by them upon purchase.
Many HOA-managed developments have rules restricting owners from renting out their properties to maintain property values and community safety. Since you're a member, the HOA knows who you are. But when there's a renter in your property, the community has much less insight into them and less leverage to correct any issues that arise.
It's possible to challenge your HOA's policies on renting, but there's no guarantee you can change them — and the process to do so can be long and expensive. We recommend seeking professional legal advice before challenging your HOA. The following are some ways that could help change an HOA's rental policy.
Attend board meetings and get to know the owners in your community. If other owners feel that rental rules need to be changed, join together to propose amendments to the HOA bylaws. Draft a rental policy and lease that reflects these changes and present it to the board.
In states with a high number of foreclosures, like Florida, home owners have successfully rallied to have rental rights governed by state law. In Florida, HOAs can limit rentals in the community only if owners consent to an amendment in the bylaws or if the home is purchased after the event of the amendment.
An attorney can look at your association's bylaws and determine if they're in compliance. Even if you believe that you have a case against your HOA, remember that lawsuits are costly and winning is not guaranteed. HOAs might be able to pass their legal fees onto home owners in the community, so keep in mind that your actions could affect the entire neighborhood. Try working with your HOA first to see if you can come to an agreeable solution.
Often, your condo insurance can be added as a rider to your primary property insurance. As a landlord, you must consider potential lawsuits in addition to property coverage. Talk with your insurance agency to determine the coverage that's right for you.
There are tax implications for converting your principal residence into a rental, and the rates will vary depending on location. Talk to your certified public accountant (CPA) to determine how your taxes will be affected.
Renting out a condo requires time and money. With Zillow Rental Manager, you can streamline much of the process — making it easier to be a landlord. Here are the steps:
Zillow, HotPads and Trulia are popular websites to use when advertising for tenants. You can list your property for rent on all three sites with just one posting through Zillow Rental Manager.
Screening tenant applications is the responsibility of the landlord. Zillow Rental Manager offers products that ease the screening process, like background and credit checks.
You'll need a licensed attorney to prepare a lease and rental application. Be sure to protect yourself and your property while treating the tenant fairly.
Collecting rent is another easy process with Zillow Rental Manager — you'll be able to collect it online, and your tenants can even set up automatic payments.
Consider opening a business banking account and keeping all rental-related money separate from your personal finances. This will help during tax time, especially when it comes to deducting expenses and figuring out net income.
Putting off maintenance will hurt you in the long run as small fixes turn into expensive repairs. For example, removing stains from carpet and cleaning it regularly keeps it in good condition through multiple tenants, whereas neglecting it can lead to buying replacement carpet sooner rather than later.
You're responsible for going through the legal process if an eviction or other action is needed. Check your local laws and hire a lawyer to ensure you're in compliance.
Those are the basics of renting out a condo that's managed by an HOA. Looking for more information on being your own landlord and renting out your property? Zillow Rental Manager provides the tools and resources you need to start capitalizing on your investment.
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