4 Things You Can Do with an Unrentable Condo
The worst thing that can happen to a person who buys a rental property for investment purposes is when it becomes an unrentable condo for some reason. This happens with condos quite frequently because condominium bylaws are changed. Owner occupants in the condo building get fed up with someone’s tenants next door because most tenants do not treat the property with the same care as an owner occupant would. The owner occupants then rally together and change the bylaws to not allow rentals.
When condominium bylaws are changed to not allow rentals, some condo owners think that the building will be better off but they do not realize the impact that it really has on everyone. Usually condo values in the whole building will drop significantly when rentals are not allowed. This is because the pool of potential buyers is dropped significantly and no investors will buy there. Many people that purchase condos as a starter home and plan to purchase a single family home later, will less likely purchase the condo if they know that they have to sell it and that they cannot rent it. Another big impact is on the condo association. Once the bylaws are changed to not allow rentals, owners that did rent out their unit are forced to sell or get foreclosed on. Many times they are upside down so they do not pay their association fees along with their mortgage. The unit then becomes a foreclosure and association dues are not collected for several months and in some cases several years.
Below are some options if you own a condo where the bylaws are changed to not allow rentals.
1) Land Contract
When the bylaws are changed to not allow rentals, there are loopholes in some cases. One of the possible loopholes is a land contract. A land contract is where a person agrees to sell a property for a set amount and the buyer makes monthly payments with the ability to buy the property at the end of the set term. If you are not interested in ever selling, you can set the sales price to whatever value you want. This even includes collecting a down payment which can be similar to a move in fee. Make sure you use an attorney to draft the land contract so that you stay within the condominium bylaws.
2) Rent to Relatives
Most associations will allow you to have relatives live in your unit even if it is non-rentable in the bylaws. You can give your relatives a really good deal on rent and you will at least be able to cover part of your mortgage.
3) Sell With Owner Financing
Condo values are usually affected severely after rentals are not allowed. This makes selling the condo for the price you purchased it nearly impossible. A way to get around this is that you sell the property with financing and seller finance it. An appraisal will not be needed since you are the lender and you will be able to sell the condo for a premium price.
4) Short sale or conventional sale
You can sell the property conventionally if you have any equity but you may be forced to short sale if the values went down since the time that you purchased the unit. Short sales are much better than foreclosure on your credit.
In Conclusion
Do not buy rental properties that are governed by an association if at all possible. Associations can turn a very valuable asset into a huge liability and you have no control of the situation if this happens. If you own a condo that you are renting and there are talks of the bylaws changing to not allow rentals, make sure you get involved and attend the association meetings to give your case and share why changing the bylaws will not be good for anyone. If that does not work, it would be wise to sell before the bylaws are changed and you are left with a huge liability.
Privacy Policy: We hate SPAM and promise to keep your email safe.