Increases in the number of homes that are owned as investment properties have become a reality for community associations, and boards are challenged because many property owners do not fully understand the rules and regulations of renting out a home within a community with an HOA. This can lead to friction within the community and challenges with maintaining standards. If you are having conversations related to investment properties within your association, there are three key considerations. 

The Right to Rent

A property owner’s right to rent their property, even within an HOA, is constitutionally protected. Many people mistakenly view this as a “privilege;” however, courts historically uphold this freedom, requiring substantial reasons for imposing rental restrictions. Notably, courts are cautious in enforcing post-purchase restrictions that could undermine an owner's investment. 

However, property owners must review the community’s governing documents to see if any rental restrictions are already in place. Based on what the state and local laws allow, various restrictions may be in place, including short-term versus long-term rentals, application and approval processes, and rental caps. The board of directors is charged with enforcing restrictions that exist within the governing documents of the association.

Ensure Tenant Compliance

Every tenant must abide by the community rules. Ultimately, the property owner is responsible for ensuring the tenant knows and follows the association rules. For property owners, their investment's success and long-term relationship with the association depend on this.

However, tenants may break the community rules, even if accidentally. It is a good idea for landlords to include a clause in the lease that states breaking the association rules is grounds for termination of the lease. Such clauses protect the homeowner and can also ease the association's concerns regarding tenants using the common areas. Furthermore, if there are any fines because of the actions of the tenant or guests of the tenant, the property owner will be liable, even if the lease states that the tenant will be responsible for paying them. 

While communities with HOAs have amenities that appeal to tenants, it is each homeowner’s responsibility to ensure the lease protects both the owner and the community from any negative actions by the tenant. Hiring a professional property management company to handle the intricacies of the lease and HOA and tenant interactions may be a worthwhile investment. 

Maximizing the Investment

For most property owners, the ultimate goal of a rental property is the income opportunity. Having a rental property within an HOA has additional financial obligations, including HOA dues. The property owner remains liable for all association assessments, charges, and fees, even if those are included in the tenant’s rent payments or collected by the landlord as a separate fee. 

While renting out a home within an HOA has its complexities, many associations have successfully integrated tenants into the community. Boards and landlords must both be aware of the rights and responsibilities of all parties under HUD, FHA, ADA, and other regulations. Working with an experienced property manager can help to reduce risks.

The Bottom Line

An investment property in a community with an HOA comes with a few extra hurdles than a home without one. However, there are a few steps you can take to make the process smoother.

1. All parties should know exactly what the HOA’s governing documents say about rental properties before purchasing the home. Boards can assist investment property owners by making available the governing documents and providing guidance to owners before they lease their property.
2. A community that employs a professional community association management company will make the process and communication more straightforward for the homeowner and the board.
3. A professional property management company can handle tenant placement, lease agreement, maintenance, tenant communication, and more on behalf of absentee landlords. Having the management of the home in competent hands also benefits the association in the end. 

This article was provided by Brad Johnson, CEO of Sweyer Property Management. To learn more about the benefits of property management in southeastern North Carolina, visit the property management experts at www.wilmingtonforrent.com. 

CAMS provides support to homeowner association boards, and associations can opt into a rental registration program to facilitate compliance with governing documents.

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