The Ups and Downs of HOA Rental Restrictions, Texas: What Every Association Should Know

While short-term rentals are currently a hot topic, it's also important that your association has an overall rental policy in place to protect the integrity of your community. Rental restrictions, like many other association policies, have their ups and downs and can be a real concern for homeowners association (HOA) boards. While governing documents sometimes address this issue, more often the intricacies of individual communities and the specific character of residents can make this a more subjective matter. If your community is considering implementing or updating its community rental policy, here are a few things you should consider.
 

The upside of stricter rental policies

• Helps to maintain low rental ratios and affordable interest rates. It’s no secret that banks tie mortgage rates to the percentage of rentals available in your community. Although this practice is not popular, it is a common reality, so it is something your association must consider. Rental rates between 20 and 25 percent are the threshold most lenders deem acceptable before charging higher interest rates for new mortgages in a community. By keeping the ratio at or below this point, new buyers will find selecting a property in your community more affordable.
   
• Enables potential buyers to try it before they buy it. As the phrase implies, many potential buyers like to rent before they buy, especially if they are not from the area and want to get a feel for how the location and community suit their lifestyle. That said, you may want to consider adding into your policy that renters must attend an orientation to the building or community. It’s a great way to make sure they know all the important resident policies and perks, and it welcomes them to the neighborhood. Many communities see renters as potential buyers. Although they may not be in the position to purchase a home at that precise moment, they may choose to purchase at a later date if you make them feel at home.

The flipside of restrictions

• Limit rentals when you may need them most. Leasing restrictions can help to protect property values, but the benefits can diminish quickly when the economy takes a nose dive. Ironically, an extremely restrictive rental policy could cause the very thing it was intended to prevent. In a bad market when owner’s need to move but can’t sell their homes, these restrictions can actually do more harm than good. In fact, most associations would probably agree that it’s better to entertain a more tolerant rental policy than to deal with the ramifications of an abandoned property. In these circumstances, a good association management company would advise the HOA board to consider granting case-by-case rental hardships or revising the policy.
   
• Alienate renters and fragment your community. A primary goal of all HOAs should be to help residents make connections in the community. However, severely restrictive rental policies can actually cause renters to feel more like outsiders, especially when the same level of treatment and privileges are not provided to all residents. Allowing tenants to use shared facilities, such as exercise rooms or pools, will help to prevent contempt and alienation within your community. Board members and the association management company should discuss methods that encourage owners and renters to engage with one another.

Other rental policy considerations

Although there is no exact formula for establishing your community’s rental policy, your board or a group within your association should adequately research state and area information to make sure you have all the facts. For example, in its last session, the Texas legislature put limits on how much control an HOA could have over rentals. According to new laws that went into effect June 19, 2015, HOAs may still require renters to submit a copy of their lease agreement, but sensitive personal information on the document may be eliminated or made unreadable. HOA boards also may not require the potential renter to submit a consumer credit report or require advance approval of the tenant in general.

No doubt, a rental policy is important, and your association should consider and uphold it. However, you should apply it equally, sensibly and with the intention of welcoming renters as contributing members. This is where an experienced homeowner association management company can help you develop the right policy for your community. For more details, contact FirstService Residential, the leading residential association management company in Texas.