What Are HOA Rental Caps and How to Decide If Your Community Should Have Them
If your HOA or COA allows either short-term or long-term rentals, you will have to deal with a number of situations that other HOAs/COAs won't. One of the issues your board will face is whether they want to issue a rental cap on properties within their community.
In some situations, rental caps help. In others, they hurt. Understanding the benefits and drawbacks of this rule will help you decide whether it's the right move for your community.
What Is a Rental Cap?
Simply put, a rental cap is a limit on the number or percentage of units within the community that can be rented out by the owners at any given time.
Not every HOA/COA needs this sort of guidance—nor does every community want it.
In some cases, however, rental caps can have a significantly positive impact on the community and help the HOA/COA maintain its established culture or reach its overall goals.
The Benefits of Rental Caps
Instituting a rental cap helps HOAs keep more control over the community as a whole.
That's because renters tend to behave differently than homeowners.
- Renters (especially short-term renters) are often less invested in the property than the owners.
- Renters have less attachment to the community itself—and by extension, the associated guidance and rules.
For those reasons and more, many HOA/COA boards choose to institute rental caps.
7 Reasons Your Community Should Have Rental Caps
Although there are more reasons that could be listed, these are some of the most common.
- Rental caps make units more marketable. Some homeowners prefer the idea of moving into a community where owners, rather than renters, are the norm.
- Rental caps ensure higher community cohesion. Owners are more likely to become involved with community governance, engage in social activities, and help build a sense of community throughout your HOA.
- Rental caps have positive fiscal side effects. Stay within FHA financing guidelines for your association.
- Rental caps can lead to lower insurance costs. Fewer renters mean a lower need for liability coverage.
- Rental caps lead to less disruption. Owners are more likely to stay long-term. This leads to more stable, established communities.
- Rental caps often lead to higher property values. Owners often care more about maintaining the community as a whole and generally put more effort into their units.
Of course, these benefits are also offset by some negative consequences.
5 Drawbacks of Rental Caps
There are times when it just doesn't make sense to institute rental caps in your specific HOA.
Before opting for rental caps within your association, consider these drawbacks.
- Rental caps can lead to an increase in quick-sale options. Owners who are unable to rent out units may choose to sell fast, leaving you with less control over the individuals who come into the community.
- Rental caps lead to an increase in foreclosures. Without rental options, the odds of foreclosures increase. When that happens, homes could be sitting empty long-term. Not a good look for any HOA/COA.
- Rental caps can be difficult to enforce. It's difficult to know for certain if a property is actually being rented; and rental caps don't apply to owners who, for example, purchase a unit for family members. Depending on the demographics of your community, this guidance may make less practical sense.
- Rental caps can lead to heavier workloads. You'll have to keep up with a waitlist for rental properties, monitoring who is next on the list to rent out a unit.
- Rental caps increase expenses. In addition to time, the HOA board will have to invest funds in tracking and managing rental caps.
Taking all these factors into consideration, your HOA/COA board will need to decide whether rental caps will actually work for your community.
The Bottom Line
Whether your association decides to enforce rental caps will depend on your environment and your unique situation. Homeowners Association (HOA) management is the complex set of responsibilities and tasks associated with running a successful community association, and none of the related decisions should be taken lightly.
That includes deciding whether to institute a rental cap.
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