While the real estate boom—and subsequent bust—may not have created a significant boost in the number of renters within condominium communities, rentals today do impact condo neighbors and ultimately, market values.
Any uptick in the number of financially-distressed homeowners who rent out their units is easily explainable in today’s economy, says Attorney Gary Daddario, a partner with the Westford, Massachusetts law firm of Perkins & Anctil. “We’ve seen some rental increase. When people cannot afford their units anymore, and have somewhere else to live [that costs less], they try to get out and sell it or rent it before it forecloses,” he says. “This tactic won’t save someone at the last minute but it may work for a proactive homeowner who can see potential trouble [making payments] in the future, and can get rental payments coming in and stay ahead of the mortgage. Even in that case, it is probably cutting the budget too close. If the condo owner cannot afford to be a landlord, ready to pay for maintenance and repairs within the unit, renting it out will not work in the long term.”
“One effect of foreclosure sales of condo units,” Daddario continues, “is people buying them up, hoping to become investors and rent them for income, or flip them for quick profit.”
Lenders’ Requirements Control
While association boards cannot control real estate sales, they do want to see all units occupied. Karl Kuegler, a principal in the property management firm Imagineers in Hartford, Connecticut, contends that failed projects and disappearing developers can create empty units. “Who controls the interests [of unoccupied units]? Somebody will eventually take over the assets and move on, and start selling them,” he says.
Rentals impact this process at the level of mortgage lending. Kuegler says the ratio of investors [who own one or more units but live elsewhere] to owner-occupants can become a real issue when you buy a condo and need a loan. “This ratio can cause real problems when the numbers impact a buyer’s ability to secure a mortgage,” he notes. A significant number—almost 40 percent—of mortgages are tied to federal programs.