Condominiums can be great places to live if they are managed well. The problem is that most condominiums are run by board members who are too busy or too apathetic to properly run the association. The problem is compounded when people begin purchasing units with the intent to rent. These owners, usually investors with multiple properties, typically have no vested interest in the community because they do not live there and they have far too many properties to manage to ensure their tenants are complying with the association’s rules. At best, investor-owners will pay their condo fees on time. At worst, they not only default on their fees, but they also fail to advise their tenants of the association’s rules leaving the Board and other residential owners disenchanted and, in some cases, downright disgusted at the disregard for their communal order.
Some condominiums strictly forbid leasing to avoid dealing with the issue of investor-ownership. Other condominiums have established caps on leasing which operate to limit the length of time an owner can lease their unit and the number of units that can be leased at one time. The reasons more and more condominiums are creating restrictions around leasing is because HUD has made it very difficult for condominiums to qualify for FHA project approval. FHA financing, which boasts lower down-payments and interest rates than other types of loans, is only available to condominiums who qualify. Among some of the qualifying factors are: a condo cannot have more than half of its units occupied by non-owners, an investor cannot own more than 10% (this rule also applies to the condominium’s developer), the condominium cannot have more than 15% of total units in arrears on their condo fees, among other factors. Most condominiums struggle to qualify for FHA financing for one of these three aforementioned reasons if not all of the above.
Another reason associations discourage leasing is because the community thrives from owner-participation in various activities such as maintenance, picnics, annual meetings where the budget is approved, and so on. Condo owners are members of a community with a fractional interest in one property. In other words, if the association did not exist, all of the owners would be tenants in common. This is a frightening notion because everyone’s interest are affected by the behavior of other owners. On the bright side, it is refreshing not to have the obligation of managing a single-family home with all it entails. In a condo, you pay the fees and someone else handles everything but the association must have leadership that is committed to keeping the community a nice place to live. This is no easy task if most of the owners are leasing.
My advice to any investor-owner is to get to know your board of directors. Attend the community meetings. Pay your dues on time. Let the board know that you are a responsible landlord and will not abandon your responsibilities to the association. Trust me. It is worth the investment. Once a condominium has retained counsel to bring you into compliance, there is no mercy.
