When the housing market collapsed in 2008 and home prices plunged, it wasn’t long before investors swooped in and bought distressed properties to convert them to rental properties.
The trend has only increased over the last decade and has coincided with a dramatic drop in homes for sale. Real estate experts have attributed record-high home prices, in part, to the declining number of homes on the market.
Lately, some homeowner associations (HOA) in large subdivisions have adopted bylaws to limit the number of homes that can be occupied by anyone other than the owner.
The Wall Street Journal reports that the Whitehall Village Master Homeowners Association is attempting to amend its covenants to require anyone buying a home in the development to live in the home or leave it unoccupied for six months before it can be rented.
Among the arguments made by the HOA for this action is to protect property values. The HOA has claimed that rental properties are not maintained at the level of owner-occupied homes and can make a neighborhood less desirable.
Small impact at first
Greg Kurzner, a strategic real estate investing adviser at Real Estate Bees in Atlanta, is heavily involved in residential “buy and hold” investing and purchasing homes for resale. He says companies like Invitation Homes, American Homes 4 Rent, and others began institutionalizing the business of residential rental properties around 2012 and were not initially impacting the housing market in a significant way.
“Over time, that has changed, with firms buying more and more homes for rent and more firms entering the residential rental industry,” Kurzner told ConsumerAffairs.
Unlike the immediate post-housing crash years, Kurzner said today’s real estate investors are happy to pay the list price for homes because rental rates are increasing. He says they often hold an advantage over owner-occupant buyers because they can pay cash and settle quickly. In short, they’ve been very good for sellers.
“The presence of buy-to-rent competitors has further exacerbated a low inventory market and there is little chance the trend will slow down until rental rates and or the costs associated with rental ownership increase to a point where investing in rentals isn't profitable,” he said.
Investing in rentals appears to be very profitable at the moment. The Journal cites data from CoreLogic that shows one out of five homes that sold in December was purchased by an investor. The National Association of Realtors reports that the median price for a home selling in February was 15% higher than 12 months earlier.
Kurzner says HOAs can and do implement rental restrictions, and they take many forms. Some restrict short-term rentals such as Airbnbs, and others prohibit rentals entirely.
“HOAs can typically implement restrictions as long as they do so as they would when adding or amending their covenants and restrictions for anything else,” Kurzner said. “Most amendments or changes to covenants require a supermajority vote of the owners.”
To make the changes enforceable, Kurzner said HOAs should seek legal counsel to prepare documents that are legal, enforceable, and don't violate any local, state, or federal laws. An attorney can help ensure that the restrictions are not discriminatory.