Would you buy a condo that has rental restrictions? - Give Me Back My Five Bucks
Would you buy a condo that has rental restrictions?

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?

About Krystal Yee

I'm a writer, 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, playing field hockey, or plotting my next adventure.

15 comments

  1. We have the similar thing in Norway, a bit complicated to explain right now, but in short, I wouldn`t want to buy a condo that has restrictions. When I buy my first apartment I want it to be mine, and no one else should be able to meddle with it. Having others decide wether I`d want to rent it out for a period of time, or worse, having other decide whether or not I should be allowed to have a pet (!!!) in my OWN apartment, that`s a no go for me.

  2. I live in a community that allows rentals and a good majority of the units are rented out. Of the 66 units, last time I checked almost 70% of them are rentals. That’s huge, so huge in fact that it makes it hard for first time home owners have been unable to get a FHA loan. Conventional loans are kind hit and miss depending on the lender and Cash is king.

    But for those of us sitting here watching the market and living in our units, hoping to one day sell, dealing with renters who could care less about the property or even being polite and respectful to the other people that live here…well, we’re not to optimistic. Matter a fact, my husband and I have a plan A, which is sell. We love plan A. Then there’s plan B. Plan B is not our favorite and it wont be double for about 2 years. But with the market the way it is, the 2 years is necessary anyway because we’re so under water and not willing to write a check to sell and move.

    I now wish I’d been one to find a community that had a little more restriction because my condo that I paid way to much for is worse than my first apartment in a questionable neighborhood, mostly because of the renters in neighboring units.

  3. My husband and I currently rent in a renter-heavy building in Toronto, and I can’t tell you how many times we’ve said to each other how glad we are that we didn’t buy in the building. Every few weeks there are signs up about damage to the pool/dogs going to the bathroom in elevators, etc… incidents caused by people not caring that their actions will cause condo values to go down/fees to go up. And I’ve got to say, given the way our unit is managed, I don’t feel any great responsibility for care, as the owner clearly doesn’t.
    There is a lot I love about condo living, but based on this experience I’d be very hesitant about buying, especially in a building that allowed renters. The fire on a lower floor caused by gross negligence, requiring several weeks of major repair to common elements (not to mention a terrifying 2am wake-up)? That may have been the final straw.

    • LOL! For a second there, I thought you lived in my building….except for the fire. I would normally recommend looking into the property management company but I’ve found that they seem to have different tiers of service so the way they run one condo building might not indicate what would happen in the next. In my building, the tenants got together and pressured the property managers to shape up. The management company ended up replacing our building manager and there’s definitely been a significant improvement.

      If I were buying I would buy in a building or community where there’s a maximum % of rentals permitted, so that I would at least have the possibility.

  4. Hey Krystal,
    I also own my apartment in Vancouver, and I’m in no-rentals building. Like you, I went to Germany for six months this summer, and had to pay double rent. It was really a pain. But you know what is worth the cost of a no rentals building for me? **The decreased chance of getting bedbugs!!!** Because the less people moving in and out of the building, the less tenant turnover there is and that decreases the chances of an infestation!!

    • OMG after getting hit with bed bugs TWICE while traveling in Europe, I can definitely agree with you. I’m so freaked out about bed bugs now, and having stable neighbours who are going to be around for a while makes me feel better that there’s less of a chance I could get an infestation.

  5. Let me add my experience buying an affordable home in a new neighborhood in 1999. Fast forward to 2013 after the apocalyptic housing bubble burst in 2007, most notably in Las Vegas, NV. Because my neighborhood is considered affordable, investors have purchased homes around me. I’m now surrounded by renters. They like to leave their trash outside, have beat up cars that leak oil all over the street and gutters, and like to take their dogs over to piss and poop in my yard. Suffice to say we intend to upgrade our house into an expensive gated community with a strict HOA. I just hope that we are not sacrificing our future by buying an overpriced home in order to escape the ghetto.

  6. We are dealing with exactly that issue at my townhome complex right now. Our covenants are confusing on how many rental units are allowed and we’re having a struggle in getting them amended. The owners want fewer rentals and the investors want more.

    The biggest concern is the one that CJB listed above about financing. If more than a certain percentage of a community is leased (I believe it’s 25%?) then you can’t get FHA financing and some conventional loans are subject to higher interest rates.

    I don’t mind a percentage of renters. Heck I’ve been a renter for years. But I also would prefer to buy into a community that was majority owner occupied.

  7. I’ll agree with much of the above. I’d prefer a condo with owner/occupied places vs. those with heavy rentals. Sure, it’s a risk that you’re eating, but that should be factored into the decision about how much to pay and whether your budget can withstand the increased premium of this decision.

  8. I have had a slightly different experience which has completely changed my mind about renting a property to someone. In my case, I own a half-duplex. The other side is tenanted, with the owners living out of town but with a local property manager. When we bought our plan was to keep the property as a rental when we moved to something larger. After seeing (and living beside) the issues with the various tenants who have lived next door over the last few years, I don’t think I’d ever rent out to someone if I didn’t live on site to keep an eye on the place. Many renters are good, responsible people, but all it takes is one bad one to ruin your investment and cause serious disruption to the other owners.

  9. I’m not looking to buy a house nor own one, but it’s something to consider in the future. I never even thought of this before. Thanks~

  10. Absolutely I would want rental restrictions. I would pay a premium to ensure that my neighbors have a vested interest in keeping the building in tip-top shape. Some renters are more conscientious even than owners, but they are definitely in the minority.

  11. I think it depends on what percentage of the building is owner-occupied. We have a pretty good mix, plus the condo board ensures that fines are pretty well publicized, which cuts down on issues a lot. We don’t have a restriction on the number of rentals (well, we do, but it’s something like 80% and that’s because the tax classification of the building would change and our property taxes would quadruple). I’m happy that the flexibility exists and we seem to be just fine as a result. Most of the time it seems to be the owners who are breaking rules anyway, haha.
    One of my new coworkers really regrets buying a no-rentals condo, because the market in Kelowna has imploded and he’s now moved for work. He’ll have to sell at a loss and has no idea when he’ll be able to do even that.

  12. Where there is a problem, in my opinion, is that there is the ability for strata to completely restrict owners in this way. If there were no, or less, restrictive rental restrictions on all buildings, then there would be a better mix of rentals throughout the community, there would not be so many ‘rental heavy’ buildings, and there would not be the stigma of living in a ‘rental building’.

    And you did buy it, right… We can all run into issues in our life that could find us needing to rent out the place, and to have to get on your knee or hold out your hand and cry ‘hardhip’ really sux.

  13. I would strongly recommend that buyers avoid purchasing a condominium unit where no cap on the percentage of renters exists. I recently sold a condominium unit 1.5 years ago that had no such restrictions. The percentage of owner-occupied units at the time of my sale was approximately 50%. I can say without hesitation that most of the renters (mostly young men under 30) cared very little (if at all) re. maintenance of the property. The paucity of volunteerism among owners on the property exacerbated the situation. In hindsight, I am relieved to have sold that property and moved on. Further, I understand the percentage of owner-occupied units has declined since I moved, and I have been told by at least one Realtor that the condominium was no longer FHA approved. It could be very difficult for the HOA Board to get the by-laws amended at this point because so many units are being rented, and the owners wouldn’t likely want to give up that steady income. I think this is a potentially perilous situation for such a condominium.

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