You’ve likely heard it hundreds of time before…now is the time to buy!!! And it’s true, prices are down and interest rates are low. It’s a great time to make some savvy investments. But when considering a condo versus a single family home, it’s important to keep something in mind—the leasing permit.
I’ve had several buyers interested in snatching up some of these foreclosed condos at rock bottom prices (I’ve seen prices as low as the $20,000), put a little work into them, and then lease them out. It seems like a great plan, a smart investment, and a win-win situation for both buyers and sellers. And with the current difficulties buyers are having obtaining financing, many are forced to rent, leaving us with no shortage of qualified renters.
Unfortunately, all Atlanta condominium (and most townhome) communities have rental caps, usually under 30% of the total number of units in the complex. Given the current situation in the housing market, most of these communities have waiting lists several years long and some won’t even grant leasing permits to people who are not owner-occupants. It can be a frustrating and confusing situation, so I wanted to share some FAQs regarding leasing permits.
What is a leasing permit and how do I get it?
Your Homeowners Association (HOA) issues leasing permits. Given the difficulties sellers have faced over the past few years, many have opted to try to lease their homes out, thus creating these years-long waiting lists for leasing permits. Sometimes the HOA will grant leasing permits for special circumstances or hardships, (i.e., job transfers, etc.) but they will not grant one of these to an investor. It’s important for investors to know they will not be able to make money off of the unit in the near future.
For those non-investor condo buyers, I always recommend they place their name on the waiting list as soon as they close on the property, if the HOA will allow it. This way, if something happens requiring a move within a few years, they are already near the top of the list.
Why does the HOA require leasing permits? Why can’t I just do what I want with the home that I own?
HOAs implement leasing restrictions for a couple of reasons. One is because of financing. Some loans require a certain number of units in a community to be owner-occupied. For communities to remain eligible for these loans, they must have a limit on the percentage of units that can be leased. Another reason is, as a whole, renters are less-desirable neighbors than homeowners. Whether or not the stereotype is true, it’s a common belief that renters don’t care as much about the appearance of the community. Therefore, the HOA limits the number of renters that can occupy a community.
Can’t I just lease my unit out without the leasing permit? What could they do to me?
Leasing your unit without a valid leasing permit puts you and your tenant at risk. If you ignore a leasing prohibition, the board of directors can file suit to stop the lease and evict your tenant. The board may also levy a fine. It just isn’t worth the risk. Also, a savvy renter (or one using a certified leasing agent like me!) will always ask to see a copy of your leasing permit and check with your condo board to see if you are eligible to lease.
So is it even worth it to invest in a condo?
There is no simple answer here, as it really depends on the community and the situation. If the condo is priced extremely low, and based on the comps it appears you could make a significant profit by buying and flipping it, then go for it! But I think investment money is better spent in single family homes.
As an investor, even if you did find a great deal on a property, in a community with a relatively short waiting list (let’s say 2 years), you would still have to pay 2 years of taxes, insurance and HOA fees on that property, before you would even be eligible to lease it out. And then what if the HOA will only grant you a leasing permit for a year (they sometimes do this)? You will have spent 2 years paying for a property that you can’t even recoup your investment on. With a single family home, you can start leasing immediately. You do not have to get permission from anyone (this is true most of the time, but for some communities that have HOAs, there may be certain restrictions). There is an extremely high demand for rental homes right now, so renters are willing to pay a premium. Though it will probably cost more initially, I think that a single family home is a much safer investment in the long run.
Are you interested in leasing your home or condo out? Or would you like a list of homes or condos for lease in your area? Contact me! Blair(dotted)Branch(at)ColdwellBankerAtlanta(dotted)com