Considering buying a rental property

7 years ago

Hello,

I'm not sure where to post this. I thought there was a Home Rentals Forum, but I can't find it.

DH and I are considering buying a rental property (probably a 2 BR condo). This would be a first for us, but we've been thinking about it for years.

The current situation is that my DD (recently widowed) is going to sell his big house and split his time between here and his vacation home 1000 miles away. He wants to be here a lot to enjoy our large extended and local family, 10 grandchildren, all their concerts and baseball games, etc. But a few times a year he will go to his vacation home for a month or more at a time. I think he'll be gone about a third of the year.

At first he wanted to move into an apartment, but he hates the idea of paying rent during the times he will be gone. He is considering buying a condo instead to avoid that waste, but he's on the fence about it. Since we have been wanting to buy a rental, we were thinking about buying one, and having him be our tenant. During the months that he will be gone, I was thinking we could rent the condo out. My Dad is an experienced landlord who can teach me a lot. We have an excellent relationship, so I'm not worried about that side of things.

The area that we are thinking about attracts a lot of business travelers for conventions, meetings, conferences, and some tourist-type travelers for weddings, galas, shopping, etc, so probably the renters would be single business travelers or couples.

After a while DD might decide to move permanently to the vacation house and we would rent the condo full time.

Does this seem like a plan that would work? We are just formulating this idea so we haven't met with a realtor about it, but I floated the idea with my Dad and he likes it in theory.

What are some of the things we should be thinking about, planning for, pitfalls, etc. Thanks in advance for insight!

Featured Answer

Denita

7 years ago

There are pros and cons for purchasing a condo for rental. I am in S Florida so my extensive experience may be different from your area. In my area many of the condo communities have rental restrictions in place. Those restrictions vary widely from community to community. Some won't allow rentals at all. Others restrict the number of times per year you can rent the property e.g. one time, or twice. Others will allow rentals but only after the owner has lived there 1 yr or 2 years. Do these restrictions apply to family members: yes.

So the very first thing to check is what are the rental restrictions in the communities you are considering. And, remember, rental restrictions can be added to the condo rules and regulations at any time as long as the proper procedure was followed to change or add a rule. Note that after the mortgage crisis in 2008, many condo communities in our area changed their rules about rentals making it exponentially more difficult for owners to rent their unit to anyone.

The other thing to keep in mind is that as a unit owner/landlord you have an outside party that can turn down your tenant. Who? The condo board can turn down any tenant you approve to rent the unit, including family members. Some boards have no approval process and just want to have the information (lease, contact information) for the tenant. No approval process is extremely rare here. Most have an active role in approving or declining your tenant. In my area it is common for the condo board to have their own separate tenant application, their own separate tenant app fees, and take anywhere from two weeks to a month to go through the application process. Some even require an personal interview of the tenant and won't allow video conferencing even if your tenant lives elsewhere in the world.

Some condo communities even have subtle rules meant to eliminate tenants. I ran into one yesterday where the board requires a minimum credit score of 700 and if the tenant is married, both have to have a minimum score of 700. If there are 3 tenants that are of adult age (18 yrs old and older) then all 3 have to have 700 or more. It's not unusual for a family unit to have an adult child that doesn't have credit yet and doesn't meet that requirement. Doesn't sound like much, but it effectively cuts down the rentals tremendously.

I'm going to stop now because your area may be different :) Be very diligent in your research. IMO it is not worth the aggravation of having a third party that can kill your rental at any time.

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Comments (9)

jlhug
7 years ago
last modified: 7 years ago
Be sure that the condos you consider can be financed if you need to do so. Many cannot because there are too many units are rented. Fannie Mae has some guidelines in place. Most lenders who re-sell mortgages will not finance a unit that is not in an approved condo "complex".

Edited to add: When you are checking on the rental rules, take note of the minimum acceptable rental period. Some have a six month to one year minimum lease term.
AJCN thanked jlhug
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jmm1837
7 years ago
If I understand you correctly, you are proposing to rent the condo part of the year to your father, and the rest of the time on something akin to an AirB&B platform. Would you and your father be comfortable with strangers occupying his home and using his things? Will your condo board allow it? And who will manage security, cleaning and maintenance - you, or an agent? To me it seems you might be taking on a lot of headaches, so be very sure the after-tax return will be worth it.
AJCN thanked jmm1837
AJCN
Original Author
7 years ago
Thanks so much for these comments. There is a lot to consider.
User
7 years ago
What is a DD? (You suggest it is a male.)
Denita
7 years ago
Possibly Dear Dad?
User
7 years ago
Thanks, Denita.
summersrhythm_z6a
7 years ago
Would it be cheaper to add on an in-law apt? Just a thought.
ncrealestateguy
7 years ago
Personally, I would never purchase a TH or condo to rent out as an investment. Too much is out of my control... rules, regulations, repairs, maintenance, assessments, monthly hoa fees, close bad neighbors, parking, and like Denita pointed out, the HOA can restrict owners from renting at any time. And then if the complex is maxed out with the # of rentals, the only way to sell your unit is to find a cash buyer who wants it for their primary residence. This severely limits the buyer pool, which negatively impacts resale value.

If anything, go with a single family home in a locale that would rent well on a short term basis. Again, rules and regs are getting tight for SFHs being used as short term rentals too...

And, I am curious too, as to what would happen to all of your DDs personal property when it is being rented out?