Can you rent out a condo you own?
Q: I want to know if you can rent out a condo you own. I live in a four-unit condominium in Chicago. My understanding is that in a condominium building of this size, only one unit can hold a license for short term rentals. One owner already has this license but so far hasn’t rented out their unit. This unit owner lives in her unit. I would like to amend our condo by-laws to prohibit short term rentals completely. If the other unit owners agree, how do I go about doing this?
Should your condo allow you to rent a unit you own?
A: Thanks for your question. Renting units is a hotly debated topic, especially when you talk about short term rentals. Typically, whether an owner can rent their unit is subject to association rules. So, condo associations may allow rentals, but dictate the minimum length of the rental term.
Some association rules require a minimum rental period of six months while others require a minimum term of a year. When discussing short-term rentals, these can be daily, weekly, monthly or for a particular season.
Defining short-term, medium-term and long-term rentals?
Many condominium associations frown upon nightly or even weekly rentals in their properties. In vacation areas, associations tend to be more flexible and will allow seasonal rentals of three- or four-month terms. Others allow monthly, weekly, and even nightly unit rentals.
Can you rent out a condo you own in a vacation destination?
We will address our advice as if you’re writing about a typical residential building in an urban environment, and not a vacation destination like Orlando, seasonal winter destinations in Arizona, or ski resort areas.
Let’s say you live in a residential neighborhood with various sized condominium buildings. Some of those buildings may be smaller with three or four units, while others may include a dozen or more units. Still other properties may contain several hundred units. The developers of these buildings typically created governing documents that either allowed rentals without restrictions, limited rentals and provided a list of those limitations, or simply prohibited all types or rentals in the building.
Association rules govern rentals of condos in building
If there are no restrictions on rentals in your building, your building must still abide by local ordinances and laws relating to the uses allowed in your building and whether or not short term rentals are permitted. Some municipalities and cities have cracked down on owners’ ability to rent their units through online websites for daily or short term rentals. For example, in New York City, you cannot rent out your whole apartment for less than 30 days.
If your building simply prohibits rentals, you won’t be allowed to rent your unit at all, for any amount of time. If there are restrictions, make sure you understand what kinds of limitations are in place.
Check condo rent restrictions before you buy
Rental restrictions can vary. Some buildings will only allow a certain number of units, or a specific percentage of the total number of units, to be rented at any given time. Others will allow a unit owner to rent their unit for a limited amount of time and for specific reasons, such as a temporary relocation. But the rules might say that the rental would be one-time only, and for one or two years only. And, then never again.
Having said all that, condo buildings sometimes limit the amount of rentals because too many would have an adverse effect on buyers’ ability to obtain financing for their purchases. It would also limit existing unit owners’ ability to refinance their units.
If too many condos are rented in a building, buyers can’t get financing
Fannie Mae, one of two of the largest companies that work in the resale of residential loans, will never purchase a loan in a building that allows the rental pooling of units. That’s typically how timeshares are managed. They also won’t buy loans from buildings that primarily lease units on a short-term basis or are hotel-like buildings. Lastly, if you are in a typical condominium building and you have more than half of the units rented, Fannie Mae will likely not purchase a loan in that building.
What does this mean? Well, if you’re looking to buy in a building that is mostly rentals and you need a loan to finance the purchase, many lenders may not approve your loan application. And, if you’re an owner trying to sell a unit in that building, you might have a hard time finding a buyer unless that buyer can purchase with cash and does not need financing.
If you want to eliminate rentals in your condo, talk to your neighbors
So, back to your question. You’re in a small building that limits rentals to 25 percent, or one unit out of four. You have one owner who can rent her unit but has not exercised her right to rent it. And, you’d prefer to restrict all rentals.
First, do your neighbors agree with you about restricting rentals? If you and your neighbors are all in agreement, then look at what your governing documents say about rentals. You’d need to change your governing documents to provide for the elimination of rentals in your building or the restriction of all rentals except under certain extenuating circumstances.
Hire an attorney to help you draft documents restricting condo rentals in your building
When it comes to these types of changes to your association’s governing documents, you’ll want to hire an attorney with experience in condominium or common interest association law to assist you. We don’t recommend that you try to make these changes yourself as you will face technical requirements for the amendment of these documents, including the manner in which you must notify the current owners of the proposed changes, the method of making the changes and then the filing or recording of the documents with those final changes with the office that handles the recording or filing of real estate documents in your community.
©2023 by Ilyce Glink and Samuel J. Tamkin. Distributed by Tribune Content Agency. C1609