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July 23, 2014

Condo Rental Caps Present Thorny Problems

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Condo Rental Caps Present Thorny Problems

More home sellers in recent years have considered the role of landlord, waiting to sell their home until the market picks up or seeing profit in renting. But for condo owners, renting out their homes isn’t always easy. 

More buildings have instituted new caps to prevent too many home owners from renting out their place. While rental caps have been in place for years at many buildings, the stricter caps — which could permit, say, only 20 percent of the units to be rented out at a time — mean that some home owners would have to wait a long time before they could ever rent out their unit. The home owners 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 have the potential to 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 ever occurred, they’d be stuck selling at a low price and would not have the option to at least rent.

Condo associations say the rules are in place to help home owners, not hurt them. Several argue that home owners tend to take better care of their homes than renters, and the number of rentals need to be kept down for financing purposes for owners. For purchasers getting a Federal Housing Administration 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."

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