The Good, the Bad and the Ugly of Rental Restrictions

Posted on Saturday September 19, 2015 |

Rental Units

It’s an issue that every board faces sooner or later: how many renters should our association allow in our community? 
 
All too often, the solution usually arises in the form of what is mostly an arbitrary percentage. Yet this simplistic approach ignores the complexities of individual communities and the specific character of your particular residents. 
 
While it’s clear that this can be a complex issue when it comes to management of any association, whether for a condo, townhome, co-op, strata or homeowner association, it’s also clear that rental restrictions can either be very helpful – or incredibly harmful. Let’s look at the good, the bad and the ugly of rental policies. 
 
When They’re Good, Rental Restriction Policies...

  • …Help future buyers by controlling ratios and keeping interest rates low. 
Many banks tie mortgage rates to the ratio of rentals to the total available units in your association. While this isn’t exactly fair, it is a common reality, so it must be considered. For many lenders, a rental rate of 20-25% is the maximum they’ll consider before charging higher interest rates for new residents who wish to buy a residence in that community. By keeping the ratio below this threshold, you can make it easier for new buyers to join your association.
  • …Can be inclusive and grow future owners. 
An appropriate rental policy finds a way to weave renters into the fabric of your association. If, for instance, your policy goes beyond mandating a restrictive threshold and also requires that renters attend an orientation, then it’s a great way to include them and welcome them to the neighborhood. Many communities see renters as potential buyers...though they may not be in the position to purchase a home at that precise moment, they may be enticed to purchase at a later date if they’re made to feel at home.
  • …Create restrictions that fit your association. 
While many discussions of rental ratios are born out of conflict, you can turn it to your advantage. Consider discussing the issue of owner/renter ratios with your association and encourage neighborhood engagement. It’s an amazing opportunity to bring people together to create a discussion about the future of your community so that all residents share the same vision for the place they call home. That’s what being part of a board is all about. 
 
When They’re Bad, Rental Restriction Policies...
  • …Ignore the fact that some lenders don’t factor in renter ratios. 
So remember that 20-25% threshold a lot of mortgage lenders establish? Well, there are some notable exceptions. JPMorgan Chase Bank has a generous 70% threshold, and lender BMO Harris has no rental limit whatsoever (the unit just has to be intended for owner occupancy). It may be wise to research lender policies prior to setting your rental restrictions.
  • …Alienate renters and fragment your community. 
Severe rental policies will make renters feel like outsiders. They’ll feel unwelcome at community events and may be less likely to use shared facilities such as exercise rooms or pools. This breeds contempt and alienation within your community, which is never good. Work with your board members and your property management company to discuss methods which encourage owners and renters to engage with one another. Mitigating possible conflict and contempt will also aid in avoiding controversy – when the same level of treatment and privileges are provided to all residents, the more likely the same visions and values will be shared whether the resident is an owner or a renter.  
 
When They’re Ugly, Rental Restriction Policies...
  • …Are based on the assumption that renters lower property values.
There is, quite simply, no proven correlation between the ratio of renters and property values. If a member of your board or a group within your association is basing their desire for rental restrictions on this assumption, the matter should be well researched and adequate information should be provided so all parties are educated on the topic before moving forward with establishing a policy.
 
Make no mistake, a rental policy should be upheld within your association...but it should be done fairly, judiciously, and with the intention of welcoming renters as contributing members. Oftentimes, an experienced property management company can help you develop just such a policy. For more details, you can contact FirstService Residential, North America’s property management leader.

Should your community craft a policy to address short-term rentals? Fill out the form below to download our comprehensive white paper on short-term rentals and receive more information on how working with a professional property management company can benefit your association’s residents and board.

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