Would you buy a condo that has rental restrictions?
When I was house hunting two years ago, a huge consideration for me was whether I should purchase a home in a building complex that allows rental units.
Condo buildings often have bylaws that might restrict whether you can rent out your residential unit. This can be seen as a good, or a bad thing. If you plan to live in your condo, you may want other owners to live in their units as well. However, if you are buying a home as an investment to rent out, or if you think you might want to rent it out in the future, you will want to check the building’s rental restrictions and bylaws carefully before you make an offer.
I ended up choosing a townhouse in a complex that did not allow rentals (except under financial hardship, which is super complicated to prove) – and that seemed like a great decision. However, eight months later I found myself looking to move to Europe, and all of a sudden I was faced with the financial burden of not being allowed to rent out my unit while I lived abroad. Thankfully I was able to pay my mortgage and my rent while living in Germany, but for a lot of people, that wouldn’t have been an option.
Having any sort of rental restrictions on units in a building will always lesson the pool of potential buyers (like investors), but it doesn’t seem to negatively affect the price in which the unit will end up selling for. In fact, it’s the opposite. In a Downtown Vancouver Ownership, Occupancy, and Rentals study, the median value for owner-occupied units were valued over $30,000 to $40,000 more than non-owner occupied units.
My realtor explained to me that it’s because owners often purchase with their wants in mind, and are willing to pay more for units with a better layout, upgraded features, or a nicer view. Makes sense. Owners are more willing to invest money to renovate their units and make them nicer, because it helps them improve their overall quality of life – and that’s why owner-occupied units usually sell for more. Whereas investors who rent out units for profit are only concerned about their bottom line.
That being said, if you plan on living in the unit that you purchase, there’s a chance purchasing in a building that allows rental units might negatively affect the price of your owner-occupied unit when it comes time to sell. Since a rental will typically sell for less than an owner-occupied unit in the same building, the owner-occupied unit would then have to use the rental unit sale price as a comparable.
I liked the idea (and still do) of living in an owner-occupied community because I feel like owners have a stake in the building, and are more likely to take good care of the common space. Also (and maybe this is just my own personal experience living in rental units), I find that noise and cleanliness to be better when living in an owner-occupied building, and there’s a nice sense of community because people usually purchase property and plan on staying put for an extended period of time.
Would you buy (or have you ever bought) a condo that has rental restrictions?
Author: Krystal Yee
I’m a personal finance blogger and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, climbing, playing field hockey, or plotting my next adventure.