Homeowner Associations Push Back Rental Investors
There is a rise in homeowner associations attempting to block investors from purchasing residential properties for rental purposes. These groups claim that, by having companies buying rental properties, has actually led to a decline in property maintenance, making their neighborhoods less attractive and potentially lowering their property values.
While homeowner associations typically enforce rules found in their documents, such as overall house appearance and lawn care, many also have broad powers as to regulating how homes are used. Some homeowner associations may place a cap, for example, on the number of homes that may be rented in a particular area, and usually require rental tenants be first approved by the association.
How do investor residential purchases effect the housing market?
Buying Houses to Rent: Picture courtesy Wall Street Journal
With the housing market still facing more demand than supply, investors are paying cash for homes intended for rentals. According to housing research from CoreLogic, investor purchases accounted for more than one in five home sales in December. The effects of this on the housing market has major implications as potential home buyers are unable to compete with all cash offers.
This also creates a divide between home purchasers and renters. Blocking investor groups from purchasing homes in a homeowner association community may inevitably hurt renters who struggle to find affordable housing. Since 2019, approximately 30% of the more than 1,000 Homeowner Association documents in twenty-one counties in Florida, Arizona, North Carolina, and Texas contain leasing and usage restrictions, including restriction on short-or long-term rentals according to InspectHoa, a real estate technology company—which is an increase from 21% filed in the same counties from 2016 to 2018.
To counter such restrictions, the real estate industry has worked to pass legislation in Florida that prevents associations from retroactively banning investors that already purchased and rented houses in homeowner association communities. This does not mean, however, that the associations could not prevent future purchases with restrictions. In addition, there are homeowner associations that are simply passing new rules to prevent investor groups from being able to purchase homes for rent.
Picture courtesy The Wall Street Journal
What does this all mean?
With interest rates rising, home ownership for potential buyers may becoming more and more out of reach. As a result, would-be purchasers may opt to rent. Although investor companies have purchased homes in association neighborhoods, many associations are attempting to prevent investor groups from purchasing homes intended to be rented in their neighborhood. Investor groups may look to purchase properties in more rural or suburban areas that do not contain homeowner associations or just develop their own rental communities. Either way, both the definition and the demographics of what constitutes a “neighborhood” will continue to evolve.
From The Trenches