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Are HOA Rental Caps Worth It?

by Joseph Hansen on Apr 24, 2018 8:18:00 AM

When your HOA allows rentals, whether short-term or long-term, it brings up a number of questions. One of the issues that an HOA board will face is whether or not they want to issue a rental cap. Understanding the benefits and drawbacks of this rule will help  determine whether or not this is an appropriate choice for your association. 

What is a Rental Cap?

A rental cap, simply put, 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 needs--or even wants--to have a rental cap. In some cases; however, limiting the number of units that can be rented at any given time can have significant impact on the community and help the condominium association or HOA reach its overall goals.

The Benefits of Rental Caps

Instituting a rental cap helps HOAs keep more control over the community as a whole. Renters, especially short-term renters, are often less invested in the property than the owners. They come into the community without the same understanding of or respect for the rules, and it may be more of a struggle to enforce those rules. Consider some of these key benefits of rental caps:

  • In some cases, you may be able to market units within HOAs with rental caps more effectively. Some homeowners prefer the idea of moving into a community where owners, rather than renters, are the norm.
  • Owners are more likely to become involved with community governance, engage in social activities, and help build a sense of community throughout your HOA.
  • Stay within FHA financing guidelines for your association.
  • Rental caps can lead to lower insurance costs, since there is lower need for liability coverage and other key concerns. 
  • Fewer renters mean lower disruption to community members, since owners are more likely to stay long-term.
  • Owners often care more about maintaining the community as a whole and will, as a result, put more effort into their units. 

Drawbacks of Rental Caps

While rental caps have clear benefits, there are also times when you might not want to institute this mechanism in your HOA. Before opting for rental caps within your association, make sure you consider these drawbacks.

  • Owners who are unable to rent out units may have to opt for quick-sale options, which leaves you with less control over the individuals who come into the community.
  • Foreclosure is a higher possibility without rental options, which can mean homes sitting empty long-term. Maintenance on these lots can be low, leading to a community that fails to look its best.
  • It's difficult to know for certain whether or not a property is being rented--and rental caps don't apply to owners who, for example, purchase a unit for family members.
  • You'll have to keep up with a wait list for rental properties, monitoring the person who is next on the list to be able to rent out their unit. 
  • There could be increased management costs associated with enforcing a rental cap--as well as time spent on this task by the HOA board. 

Whether or not your association decides to enforce rental caps will depend on your environment and your unique situation. It's important to note, however, that deciding to implement a rental cap doesn't mean that the process will happen overnight. The resolution should be passed by a 2/3 majority of homeowners--and attaining that vote may be a complicated process. Before making this decision, it's important to discuss it among board members and among members of the community in order to ensure that it's the right choice for you.

Homeowners Association (HOA) management is the complex set of responsibilities and tasks associated with running a successful community association. HOA management companies have a wealth of experience and talent covering the full range of challenges that associations face including rental caps. Contact an HOA management  company such as RealManage to help you navigate the waters of rental caps.

Free Guide How to Choose an HOA Management Provider

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