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MCL Nov/Dec 2013 - To Rent or Not to Rent?
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To Rent or Not to Rent?

Debunking Misconceptions About Leasing

by Patrick Carson, Downtown Resource Group

As a director of a leasing division at a real estate brokerage, I work with many associations and their respective property management companies. Over the last seven years, I have heard the concerns expressed from condo homeowners, board members, and property managers. Much of the concern is certainly understandable, as associations and property managers prefer owner occupied units in their buildings, but I think there are some misconceptions about private ownership rentals, and some great benefits when compared to the alternatives.

One of the first misconceptions through the years of economic downturn and recovery is that rentals can substantially affect the property values in a particular complex. Although rented properties may have some effect on property values, the percentage would need to be close to 40% for that effect to be noticeable. It would only become noticeable when it affects the ability for a buyer to obtain FHA financing. Most associations, during the worst of times for sales, never saw rentals reach 30%, even in buildings with no rental caps in place.

Alternatively, and in my opinion myopically, many associations implemented rentals caps far below any level that would affect any financing, or substantially lower property values. The associations that did impose rental caps (as low as 15% of total units in some cases), rental term limits, or other policies that made leasing difficult for individual owners actually increased the number of foreclosures and short sales that are far more detrimental to property values than leasing. With homeowners forced to move due to employment relocation, additions to families, etc., some homeowners that would have certainly been in good financial standing were forced into short selling or being foreclosed on because they could not lease their property. In these cases the other homeowners in the complex experienced far greater devaluation than those associations with a higher number of renters. It also meant associations most likely were not receiving association dues. No association wants to be in the collections business.

Along with fewer foreclosures and short sales, there are other benefits that associations see when individual units are rented. Those homeowners who have rented their place have steady monthly income to pay their association fees, and generally have a lower rate of delinquency on HOA dues than owner occupied units. With the recovery we have seen and record high rents, investors and homeowners have an even better ability to be current with their association fees and additional expenses. Associations can actually implement policies that further mitigate the risk of delinquent dues from rented properties by requiring rent payments be paid directly to the association if the owner falls behind. Furthermore, associations also have much more control over a renter’s occupancy and the ability to evict a problem renter, as opposed to removing a problem homeowner.

Another misconception is that renters as occupants are of less quality than homeowners. In many of the associations I work with, the rental requirements, including the background checks used, tend to make it harder to lease a condo than purchase. With no background check required to purchase, if someone has the means to purchase the property they can essentially do so no matter of their criminal background or other possible negative history. In contrast, an association has the ability to review a renter’s full history, including criminal, credit, rental, homeownership, employment, and more. Guidelines can be put in place in which the association can work in concert with their homeowners to make sure the quality of rentership in the complex is acceptable.

In fact, a large majority of the renters I work with could purchase but are choosing not to.Many are empty nesters who just sold their home and want to try out condo/association living before buying again. Others want to test out a specific building before buying in it. Many others are relocating from other cities and either own a home already or aren’t sure how long they will be living in the area. There are many circumstances in which client choose to rent, but what a large majority have in common are great rental criteria (good jobs, solid income, no criminal history, solid rental history, etc.). At the end of the day, the risks of renting can be mitigated substantially by the association and the homeowner.

These are just a few points that associations and homeowners can consider when addressing the issue of leasing in their buildings. In leasing, so long as an association employs smart and practical policies, and educatea its homeowners on best practices, leasing can be far more of a benefit than a detriment to the overall health and enjoyment of a building and its association. For more information on additional policies and best practices, contact an agent experienced in leasing in your building and in your market, as well as knowledgeable of the rental policies in your building.

Published by Community Associations Institute — Minnesota Chapter, copyright 2013. All articles and paid advertising represent the opinions of authors and advertisers and not necessarily the opinion of either Minnesota Community Living or CAI–Minnesota Chapter. The information contained within should not be construed as a recommendation for any course of action regarding financial, legal, accounting, or other professional services by the CAI–Minnesota Chapter, or by Minnesota Community Living, or its authors. Articles, letters to the editor, and advertising may be sent to Chapter Staff Editor Joanne Penn at joannep@cai-mn.com, or at CAI–Minnesota Chapter, 1000 Westgate Dr., Suite 252, St. Paul, MN 55114.

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