Market Conditions: Are Rental Caps Holding the Condo Market Back?
Most Chicago high rise condo buildings have some kind of rental cap in place.
The most strict allow only 10% of all units to be rented at any given time but it can run the gamut all the way up to 40% or 50% being rented. (Anyone know of any that don’t allow rentals at all?)
But according to Marketwatch, the rental caps are putting a crimp on the condo market.
Instead of selling at a low price, Jim and Joan Watson would like to rent out their vacant Lake Shore Drive condo unit in Chicago.
The problem is, a new rental cap in the building will likely prevent them from being eligible to rent out their place for years, given the number of owners already renting out units. The rental restriction also is interfering with a possible sale, Jim Watson said.
“Just in the last two or three weeks, we’ve had two serious buyers who walked because of that,” he said. And it’s not just investors who are balking: “Young people come in, they want to buy it. But like many young people today, if they don’t have job security, if they have to leave town to take a job in another city, they want to know they can rent the place.”
In many Chicago buildings, the rental cap is far below 50%, and caps of 20% and 30% aren’t unusual, said Kim Jones, a real-estate agent with Baird & Warner, in Chicago. Some associations are beginning to forbid rentals for new buyers, she adds, or are creating rules requiring that a homeowner live in a unit for more than a year before renting.
“Certain homeowners, when elected to the board, feel like they’re protecting their property values, they’re thinking they’re protecting themselves,” Jones said. But they don’t consider the ramifications of the change, she adds, arguing that restrictions that are too strict can have a negative effect on home sales and prices.
In some buildings, you can get a hardship exemption, especially if you can show that you would be doing a distress sale otherwise. Early on in the bust, condo boards were more lenient with this, however.
Otherwise, get on the waiting list for the right to become a landlord. In buildings with long lists, some people put their name down even if they’re not sure they will need to rent out their place—just to keep their options open, said Brenda Mauldin, broker with Baird & Warner in Chicago. “It’s a security blanket for some of these owners,” she said.
Do rental cap restrictions really put a crimp on the market?
What condo owner wants to live in a building full of renters moving in and out?
Condo owners face rental hurdles [Marketwatch, Amy Hoak, April 30, 2012]
Simple: Most buyers want the flexibility to rent out their unit but don’t want anyone else in the building to have that same flexibility.
190 E Walton (you’ve cribbed on the building) does not allow any rentals.
Rental caps are generally good. Palmolive (10% or 10 units), Pinnacle (somewhere between 18-20%), and Pearson (10%) all have good caps in place.
I viewed one in Streeterville, can’t remember where, I’m from out of town sorry! -that didn’t allow any new owners from last July 2011 onwards to *ever* rent their unit out. We turned round and walked out. The agent was very rude to my agent saying “I thought you said they didn’t want to rent?” – and we didn’t, but we didn’t want to get involved with a unit that could never ever be rented. Ugh!
My condo-mates believe there are a bunch of buyers just waiting to get an FHA loan so that they can come in and buy as soon as the market recovers and all that would hold them back would be the 50% rental restriction* of the FHA loan requirement.
* we don’t know if it really is 50%, someone read it on the internet so it must be true
On a more serious note, doesn’t anyone know what kind of enforcement authority HOAs have? What if you have a very weak association/Board?
What if you technically don’t charge the tennant “rent” and let them live in your unit rent-free. Yet at the same time they lease your furniture for a generous amount?
If you don’t have a rental cap of around 40% then you risk going over the 50% allowable for an FHA loan. (You have to allow people in bankruptcy and foreclosure to rent as well as hardship circumstances otherwise caps are easily challenged in court. Figure a few people will go into bankruptcy or qualify for a hardship exception so that it should be in the 40s so you don’t run over 50%.) If you have more than 50% rentals then buyers can’t get an FHA loan (best loan terms possible) and many conventional lenders won’t lend. Thus, if your building has more than 50% renters than sellers may only be able to get buyers who can make a cash offer (those are fewer and far between) and those offers are even less (cash offers of usually discounted below market). Better to lose a few buyers than to sink comps down to cash offer value. So yes, having rental caps as long as they are not too restrictive, do preserve value.
“What if you technically don’t charge the tennant “rent” and let them live in your unit rent-free. Yet at the same time they lease your furniture for a generous amount?”
As soon as you reserve the elevator for a “move in” (or a “move out”) they’re going to be pretty aware of what is happening.
Good question, Icarus. I know someone who couldn’t rent out their unit so they let their cousin live there. Who knows what cash is flowing under the table. What constitutes a rental situation. Can you let a friend live there? But my guess is that the smarter associations specify that the owner must live there and no one else. But even that gets sticky. Can you let your “girlfriend” or “boyfriend” live there with you? If you’re not there all the time?
1600 S Prairie does not allow rentals
1101 S State I think only allows rentals for original owners
“But my guess is that the smarter associations specify that the owner must live there and no one else. But even that gets sticky. Can you let your “girlfriend” or “boyfriend” live there with you? If you’re not there all the time?”
My experience with rental restrictions is that they had no problem with a roommate situation.
Gary — our condo allows for first degree blood relatives to live in a unit without a lease. Father, mother, child, brother sister, but not cousin. Many parents help their children buy downtown condos while they attend college and grad school and, because of the strict lending requirements these days, the loans are often in the parent’s name jointly or entirely. If we defined by owner occupied, the parents would just say its their in town (and they do use the condo on weekend often) and this is still considered owner occupied under FHA guidelines.
I would advise any board and owners to think long and hard about a “new buyers cannot rent but old owners can rent” policy. There are discrete groups of buyers – those who are specuvestors/investors and those who are looking to be owner-occupiers. A “new buyer can’t rent” policy obviously takes the investor pool out of the equation but it also is a massive turnoff to potential owner-occupiers because they don’t want to live in a building with rentals. Subsequent sale prices are likely to reflect the substantially smaller target markets with lower prices.
Can any of the experts here (Gary, Russ) say for sure what the % owner occupied cutoffs are for obtaining FHA and conventional loans? Our association is considering a rental cap and I thought the building had to be 75% or 80% in order for a future buyer to obtain traditional financing. If it is only 50% that would make a big difference to us.
We put a rental cap in place in our small association for the reasons mentioned above (loan restrictions, insurance costs, and hassle of having renters). We were told that to be enforceable it has to be in the declarations and even then it might not hold up in court. Roommates are fine. We also allow for long-term guests, which is sort of a loop hole that we didn’t anticipate when drafting the rules, but someone is taking advantage of now. We allow 4 units out of 16 to rent. We also set-up a waiting list. Once someone is on the waiting list the first rented unit gets up to 2 more years as notice that they won’t be able to rent going forward and need to figure something out. So far it is working out. Someone mentioned you might be able to give someone a small interest in your condo and they could live there as an owner to get around the restrictions, but I don’t know anything about that.
Now that I’ve traveled from the path from renter to owner, I can say that renters are scum. They’re generally poor, unkempt and transit, they don’t care about the building, they’re generally young, irresponsible, tend to not have good credit, and most importantly, they’re financially unwise – because they’re flushing money down the toilet by renting whereas if they could buy they would be building equity. To hell with renters I say, keep me as far away from that class of ruffian as possible.
This is definitely an on going issue with HOAs. I get a call it seems every couple of weeks from past clients who are serving on their HOA Boards grappling with this issue. Either way, they are kind of screwed. If you limit rentals, you can force another home owner into a short sale/foreclosure situation which doesn’t help the building. However, if too many people rent then you limit the salability of the current units and/or could hurt the ability to refinance.
Many want to limit the rentals but include some clauses for hardship situations. Of course, one of the challenges is what defines hardship. Is hardship loss of job and you must relocate or is hardship simply because little Harrison is now five years and Mom and Dad don’t want to send him to the local public school so they want to move to the burbs?
In the long run, I think having strict limits will help the health of the HOA though.
“What if you technically don’t charge the tennant “rent” and let them live in your unit rent-free. Yet at the same time they lease your furniture for a generous amount?”
A couple of problems with this– If the “generous” amount is above market value for furniture rental, that could be considered rent for the unit and violate the HOA convenants.
The second problem, is that if you’re in the furniture rental business, and not the landlord business, you’ll lose the deductions for rental property improvent and depreciation.
Anybody who makes “renting out my un sellable condo” as purchasing criteria should not buy.
I like rental restrictions even if it might mean that my place eventually sells for less. If I wanted to live in an apartment building, I would have rented. In a condo building, I want most of my neighbors to be invested in the building.
Simple solution to all of this: BUY A HOUSE!! (actually, I am not being sarcastic – many of my friends who said they would never live in a house bc of upkeep/cost ended up buying houses and will NEVER go back to living in a condo bc of this lack of freedom (rental cap policies, common area decisions, and other restrictions). People have to learn to take the good with the bad –
Does anyone know what the owner occupied requirement is for conventional lending these days. Our HOA was just advised by counsel that FHA is 50% but what do traditional conventional lenders require? We have many units that sale for prices above the FHA loan limits so we need to be mindful of that limit to. In any event, I’d encourage associations to keep the rental cap under these limits by a fair bit b/c what if FHA lending requirements sudden change the criteria and changes to 30% rentals allowed.
There isn’t a hard rule in terms of the exact percentage because many lenders have their own “overlays” regardless of what Fannie/Freddie allow. The most conservative lenders generally don’t want more than 30% while some will allow 50%. Some of the portfolio lenders (non-fannie/freddie) will go higher. It also depends on if it is new construction or existing.
I’d say capping at 30% would be prudent.
Another one that can sneak up to bite you is when more than one unit owner owns more than 10% of the units. Kiss of death for Fannie/Freddie financing. For example, you have a 10 unit building and one owner decides to buy another unit as an investment. That person now owns 20% of the building. Kiss conventional financing goodbye.
““new buyers cannot rent but old owners can rent” policy.”
Often that comes with a cap. Old owners are grandfathered into renting whenever, but new ones have to obey the cap. Eventually as old owners sell everyone has to live by the cap.
I don’t mind renters as long as they don’t mess up financing. 40% rentals is ok with me. Rents are high enough in my building that it keeps out the worst anyways. Stricter caps seem to make sense if you have problems with ghetto trash.
950 N Michigan has a policy that new owners have to live there for (I believe it is 2 years) before they are allowed to rent the unit.
“As soon as you reserve the elevator for a “move in” (or a “move out”) they’re going to be pretty aware of what is happening.”
Shame on you Sabrina for assuming there is only one type of condo building/HOA out there. Not all condo buildings have elevators or even lobbies so while you’re neighbors will see you move out and a new person move in, the smaller 16 or less courtyard apartments-turned-condos usually don’t have a strong enough HOA to hire a good attorney (or even HD) to draw up the proper paperwork.
“A couple of problems with this– If the “generous” amount is above market value for furniture rental, that could be considered rent for the unit and violate the HOA convenants.
The second problem, is that if you’re in the furniture rental business, and not the landlord business, you’ll lose the deductions for rental property improvent and depreciation.”
Aren’t you assuming that someone who would use the “live in my condo for free but rent my furniture” angle is also going to be honest on their taxes? I’m not saying they couldn’t get in trouble especially if a strong HOA subpoenaed their records or tipped off the IRS. But isn’t the risk low and for too small of fish for the IRS to care about?
I do not believe in caps. Let the free market rule! There will likely be a few negatives and a few positives but in the end the market will find equilibrium. Trust me when I say (after living in a few high rises) that just because someone owns the condo vs. rents the condo that they will be better neighbors or more caring to the common areas. Some first time and long term owners have entitlement issues and treat the property and neighbors with little respect. In addition there are plenty of renters that care about the rights and needs of their neighbors who want to live in a well kept property.
The generalizations that some of you cc’ers make about renters is hilarious!
“Once someone is on the waiting list the first rented unit gets up to 2 more years as notice that they won’t be able to rent going forward and need to figure something out”
That is likely unenforceable. In addition I would whip out my 5 year lease agreement with the current tenant the day after my board presented me with the notice that someone had put their name on the waiting list. Good luck trying to evict them with a proper lease. Hopefully they would want to stay the entire time otherwise when the tenant moved they could likely take action on the vacant property.
Clio wrote: “Simple solution to all of this: BUY A HOUSE!! (actually, I am not being sarcastic – many of my friends who said they would never live in a house bc of upkeep/cost ended up buying houses and will NEVER go back to living in a condo bc of this lack of freedom (rental cap policies, common area decisions, and other restrictions). People have to learn to take the good with the bad -”
I can’t believe I agree with something Clio said. I agree that condo buildings suck! See “High Rise” by J.G. Ballard as a pretty farcical extreme of big-building living. A SFH is so much more worth it … especially if you don’t have your green zone blinders on.
“People have to learn to take the good with the bad ”
there was actually a tv show about this.
i didnt like the Blanche character
My understanding is that fannie guidelines state up to 50% renters. Since 99% of banks that aren’t keeping the note themselves or using portfolio lenders follow the fannie guidelines, I’d say 50% is as close to an “accurate” answer that you are going to get. As soon as it goes to 51%, it is non-warrantable by fannie guidelines and severely limits your lending options.
1600 S Prairie allows rentals. I have clients moving in today.
“Aren’t you assuming that someone who would use the “live in my condo for free but rent my furniture” angle is also going to be honest on their taxes? I’m not saying they couldn’t get in trouble especially if a strong HOA subpoenaed their records or tipped off the IRS. But isn’t the risk low and for too small of fish for the IRS to care about?”
I had the IRS show up at my house a few years ago asking questions, and I’m not exactly a big fish. That said, I’m very conservative when it comes to what I claim, and have a CPA do my taxes, so it was no big deal.
“Now that I’ve traveled from the path from renter to owner, I can say that renters are scum. They’re generally poor, unkempt and transit, they don’t care about the building, they’re generally young, irresponsible, tend to not have good credit, and most importantly, they’re financially unwise – because they’re flushing money down the toilet by renting whereas if they could buy they would be building equity. To hell with renters I say, keep me as far away from that class of ruffian as possible.”
This is a pretty ignorant statement. While some renters are definitely slobs, some home owners are definitely slobs too.
Further, the argument that renters are financially irresponsible and have bad credit may be true in some circumstances, but do you have anything other than your anecdotal nonsense to back that up? The reason I ask is because, quite simply, there are many cases where renting makes more financial sense. What if I’m only staying somewhere 2-3 years for my job and then I’ll be moving? In that scenario, I’ll certainly never build enough equity to offset transaction costs, and thus I’ll be better off renting. Additionally, things like taxes and HOA costs are a huge chunk of cash (in the downtown market, often in excess of $1000/mo) that is no less an example of throwing away money than renting.
^lol
1600 s prairie doesn’t allow rentals? hmm…good info. We were considering putting an offer down on a unit there. I also wouldn’t necessarily want to live in a building with more than 20-30% renters, but allowing for 0 renters is just stupid, people have kids, job relocations, and a lot of other situations in which they may want to rent their unit out for some time as opposed to selling it. But i suppose in the ‘high end’ of real-estate in buildings like the palmolive, etc, the owners are typically wealthy enough where they may not need to rent the units out even if they are rarely, or ever in town.
“Simple solution to all of this: BUY A HOUSE!! (actually, I am not being sarcastic – many of my friends who said they would never live in a house bc of upkeep/cost ended up buying houses and will NEVER go back to living in a condo bc of this lack of freedom (rental cap policies, common area decisions, and other restrictions). People have to learn to take the good with the bad -”
alright you wire me $700K to cover the difference between my condo and the homes for sale in my neighborhood and i’ll pony up for the additional taxes/maintenance, deal?
I’m curious about the reports of situations where new owners have different limitations on renting from original/existing owners. General discussion among my HOA board is that this sort of rule is illegal as it creates ‘two classes of owners.”
As a potential condo owner, I hate the idea of a building full of renters, but I hate even more the thought of a building full of mortgage-delinquent squatters not paying assessments or anything else.
As for the building losing its FHA certification because of too many renters, well, maybe you’re better off without FHA buyers paying 3.5% down who have credit scores of 580 and mortgages 3X their incomes. Have you looked at the latest FHA default/delinquency rates, now around 19% for combined delinquencies and defaults? FHA picked up all the subprime borrowers after the subprime lenders failed. Sure, you won’t get as high a price for your unit as you will if it’s FHA qualified, but you also aren’t as likely to have a building with 20% of the units delinquent or foreclosed.
Condo buying has never been so risky, and I can fully understand why many buyers prefer a SF house, especially when it is so difficult to cap your financial risk, because of defaults in the building. But as it happens, some people love the physical security and convenience of apartment life and want a building where they can control their space at least somewhat, and invest in improving it. You can’t justify customizing a rental apartment however much you might love the place. So, for this potential buyer, co-operatives where you can qualify buyers financially, are looking better every day.
“1600 S Prairie allows rentals. I have clients moving in today.”
I believe that is for original owners only.
Laura: “As a potential condo owner, I hate the idea of a building full of renters, but I hate even more the thought of a building full of mortgage-delinquent squatters not paying assessments or anything else.”
Which is why a set policy with plenty of room for board discretion on hardship exemptions makes a hell of a lot of sense to me. You don’t want a building full of investment rentals, but if push comes to shove you want to give stuck owners leeway so they don’t damage the value of the building as a whole.
“Now that I’ve traveled from the path from renter to owner, I can say that renters are scum. They’re generally poor, unkempt and transit, they don’t care about the building, they’re generally young, irresponsible, tend to not have good credit, and most importantly, they’re financially unwise – because they’re flushing money down the toilet by renting whereas if they could buy they would be building equity. To hell with renters I say, keep me as far away from that class of ruffian as possible.”
Now, homedelete, I expect better of you. I have rented for a long, long time, and I don’t match that description, nor do most of the people I’ve had for neighbors.
As for renters being stupid because they’re “flushing money down the toilet” by renting, all I can say is HUH? I believe the people who bought in the years 2002-2006, and worse, the ones who HELOCed themselves into oblivion, were the real dummies. Do any of these millions of suckers have “equity” to show for it?
Worse, market rate renters like myself are subsidizing buyers, both in backing, directly or indirectly, the GSEs and the FHA, as well as by being unable to deduct any portion of our rent while home BORROWERS are able to deduct their interest. The deduction for interest alone is a massive subsidy for borrowers at the expense of renters and cash buyers.
I’d rather have a building of responsible renters than people who think that they “own” a place because they were able to scrape together the 3% down for a FHA loan on a place that costs 4X their income. After watching people I know A. buy a $550K house with a combined income of $100k with an ARM in 2007, and b) viewing a number of condos stripped and/or vandalized by “owners” who were foreclosed, I really wish I could just get a lifetime lease on my beautiful rental so I could reno the kitchen and bath and feel that I wouldn’t lose my little investment when the building changes hands, or converts to condo in the next wave of insanity, which I hope I won’t live long enough to see.
Hey, HomeDebtor, your parody fell flat.
How does it work? Like FIFO or something? Let’s say the cap is reached already and there are 10 people waiting to lease, so when an opening under the cap comes up, who (of the 10) gets it?
“How does it work? Like FIFO or something?”
The HOA’s that I asked indicated it was FIFO.
“How does it work? Like FIFO or something?”
in many places it works like Gary suggested: “Most buyers want the flexibility to rent out their unit but don’t want anyone else in the building to have that same flexibility.”
Those who rented their units out before any rules were created are grandfathered in. Suggesting that they be limited to only being able to rent a few years in order to cycle through the Wait List will get you JP3Chicago types would sign long term leases and hunker down for a fight.
“How does it work? Like FIFO or something?”
It is FIFO in my building. Management company maintains a list.
Laura: I think your comments on FHA participants is a gross generalization just like the comments that all renters are bad. In my experience, FHA mortgage holders are young people just starting their careers without 20% down. And there are both good and bad tenants.
“That is likely unenforceable. In addition I would whip out my 5 year lease agreement with the current tenant the day after my board presented me with the notice that someone had put their name on the waiting list.”
In my building, we only allow leases for 12 months. So a 5 year lease agreement isn’t possible.
“How does it work? Like FIFO or something?”
I passed on a unit in Irving Park because of the rental restrictions.
Out of 14 units, only 2 were permitted to be rented at any time.
Everyone else had to wait in line.
That unit went on and off the market several times over the past year and just went into contract.
I am feeling a bit like Sheldon from Big Bang Theory, but I think HD’s original comment was sarcasm unless I got it wrong again : )
“This is a pretty ignorant statement. While some renters are definitely slobs, some home owners are definitely slobs too.”
“I think HD’s original comment was sarcasm”
Perhaps the responses were extensions of the theme?
Condo declaration by-laws can be amended by board and/or owners’ vote; typical amendments clause in original declaration document allows this to occur. Often new amendment’s restrictions allow “grandfathering”
of existing owners who would now technically be “in violation”, whether because they’re renting-out their unit, have a dog too large or wrong breed, have added unit washer, etc. I’ve run into many buildings that have grandfathered elements for certain units, while other units aren’t allowed same privilege. Eventually ownership turnover will cause full compliance, but it may take decades. And yes, “grandfathering” is both legal, and penalty for noncompliance by non-grandfathered owners is likewise legally enforceable.
I prefer caps on percentage of total rental units in a condo association originally intended for owner occupancy, coupled with restrictions requiring owner’s prior tenancy in unit and limitations on length of total rental period. I think speculator-owners in condo buildings often create inherent instability in tenancy, increased operational costs due to frequent unit turn-over, less “quiet enjoyment” for owner-occupants, etc. (Trump Tower, for instance, was conceived for frequent occupant turn-over.)
260 E Chestnut is advertising some units as “owner occupant only”, whereas before it had a number of rental units. Some owners are looking for that type of stability.
“Simple: Most buyers want the flexibility to rent out their unit but don’t want anyone else in the building to have that same flexibility.”
I’d say that’s a very concise distillation of the situation.
What I’d like to hear is from someone who USED to be a staunch supporter of rental limits, who’s life situation changed, and suddenly was much more sympathetic to the idea allowing rentals. That would be very interesting.
There’s gotta be some people out there; you know, they kind who so utterly lack perspective that they need to be placed in into a certain situation, and only THEN see the other side.
I see both sides of the argument, but I’m obviously leaning much more heavily to the ‘allow rentals’ side.
It’s odd for me. If a building is at rental parity then the financial position of renter and owner should be fairly similar, particularly with such low down pmt requirements. Fair that an owner may have more regard for the property but i would expect there to be a curve on that which diminishes as you move more towards a higher end property. Just dont see a renter at 10k a month destroying a place.
I live in a small association, fewer than 15 units, and the declaration was amended to limit the number of rentals, require that all leases be on the same schedule (i.e., end on the same date), require all tenants be subject to an application, cap an owner on 3 years renting consecutively and allow for a stiff penalty in cases of non-compliance.
I can understand desire to have easy renting in a high rise, but tenant occupancy can be awful in smaller associations. Beyond the possibility they do not fit in due to being in a different stage of life from owners, each renter is one fewer owner occupier who can contribute to the burdens of building management.
“Just dont see a renter at 10k a month destroying a place”
{who isn’t a rockster, like miu’s friends]
Plenty of precedent there.
I own a condo in a 48 unit building in Lakeview that I’ve rented out since 2006. In 2007 the board approved a rental unit cap and hired an attorney to amend the condo docs. I’m grandfathered in as only 1 of 8 rentals allowed at any one time. What this has done is lowered the value of the condos and basically killed sales in the building. Currently 2 other units like mine are on the market and are listed at prices well below the value of what my condo is worth based solely on the rental income it generates. If these owners could sell to investors the units would move and get much higher prices in my opinion. The building is FHA approved and has had a handful of foreclosures. It’s a nice building, well run and maintained, perhaps this is due to the low percentage of rental units. I do think in this market they could bump the rentals up a bit as a temporary measure to boost prices and sales. In a couple years bring it back down to the 8 units.
I’m the treasurer of my 22 unit HOA. The price of our units puts us in two markets – FHA buyers or investors. We don’t currently have HOA approval and are struggling with the decision on whether to pursue it or not, because we’re already over the 50% restriction of rented units. The problem is that our owners don’t want to limit the number of buyers they can sell to, but they basically have to choose one group or the other. In an association of this size it’s a tough decision.
Oh and I can imagine plenty of people who pay $10K per month in rent don’t think consequences apply to them.
Adding comment on rentals in small assns– my friend who looked at 1427 N. Dearborn (8-unit building) was ultimately very interested in a 6-unit building. One unit was rented and there were no rental restrictions. Apparently, there had been discussions about adding a rental cap but given the market, enough units didn’t want to limit rentals down the road in case it affected their ability to sell. She could not get conventional financing (no FHA due to price of units) due solely to the rental situation. Something about the percentage being too high (which seems easy in a small building even with one rental), and no one was willing to ok it given the size of the building. She said she thought she might have been able to make it happen somehow nonetheless but decided to pursue other options since she thought this could come back to bite her later. So apparently you can’t win in a small building. Bad to allow, and bad to prohibit.
Correct me if I am wrong, but I think the towers at 3600 N LSD voted to prohibit rentals.
In 2009 – 2010 a bunch of studios in that complex hit the market between 80 – 100K and I thought they’d continue to go down, but I haven’t seen anything listed there in that range since.
Condos are great to live in, but a pain to rent out . Even if they allow renting, the rules can change anytime.
I think no rental cap in a large building is a terrible idea. You end up with buildings like 1620 and 1720 S Michigan and 1600 S Indiana. Those are 50-80% RENTED and I’ve heard the buildings are getting wrecked.
I think a cap between 25 and 50% makes sense and is a good compromise.
Really anon? You think “Slooper (May 1, 2012, 10:44 am)” is sarcasm?
“Perhaps the responses were extensions of the theme?”
The bad thing about too many rentals in a large condo is not that “renters are slobs” but that you risk having a large number of units controlled by a single investor who is using the places as rent mines, will rent to anybody who can show a check stub or Section 8 voucher, and who does not love the building and regard it as “home” the way the owner-occupants do.
These investors do not want to invest one dime beyond what “makes sense”- that is, has a cash payback, and if you have two or three investors who own multiple units, they can outvote you. They don’t want to make necessary upgrades to keep the building functioning well, let alone spend money on things that make the place more attractive and home-like.
Marina City is an example of a building that was, for a long time, overweight with investor-owned units. For many years on end, there was a pane of plywood in the lobby window where plate glass should have been. The building had a lot of dubious tenants- one friend found out he was living in the apartment being used as a weapons drop by the El Rukn gang back in the late 80s. This building didn’t improve until the real estate rampage of the 00s.
“Really anon?”
No, not really. I’d already told HomeDebtor that his parody fell flat, because he’d had two people (earnestly) chastise him for his awful (awful!!) change of tune and (terrible, horrible, impolite!!!!) denigration of renters.
Laura, friends who own/live in Marina Towers for many years tell same story of crazy tenants, poor maintenance, and scary moments until Marina Towers finally became “hot” again and regentrified. There are at least two types of owner-landlords of condos with very different circumstances and concerns: the “stuck” owner-occupant who rents out the unit to move elsewhere, but still cares about resale value, and the “LLC speculator” who buys cheap, finances unit, pumps-out rents, and doesn’t care much about resale because there’s little equity or recourse in play. Plenty of Section 8 in certain South Loop high-rises.
“Just dont see a renter at 10k a month destroying a place.”
Charlie Sheen or the angry Joe Walsh?
Basically if the rental cap is hurting resale value it means the true equilibrium price is below current prices.
I find the whole thing comical because rarely do different players chasing different economic rents have the direct chance to screw each other over. Rental caps allow this.
What are these owners doing that are currently renting out? Did they double down on real estate?
That sounds like a shrewd move from one got themselves stuck in the first place. NOT! HAHAHA.
The other day I saw a hilarious advert, I think it was on S Halsted in Pilsen area. It was a billboard from a developer stating something to the effect of “Stuck? Buy here now and we’ll guarantee renters for your condo for the next THREE YEARS!” The ol’ “double down” strategy, but rarely have I seen it this explicitly pitched by a developer.
It was especially comical to me because it reminded me of an old dog and dear friend who loved the cat’s litterbox. This pooch was very fond of cat turds, you see. And he would eat as many cat turds that were available so long as he had access to the litterbox. It was up to us to ensure that this pooch did not consume these cat turds, although the pooch surely perceived them as protein bars or tasty treats.
Similarly with condos and owners in this situation, it is up to the financiers to be the gatekeepers to the litterbox. It appears some developers have found ways to circumvent the dog owners and allow the dog access to sneak in and continue to munch on those cat turds via assisting with the doubling down.
Bob- would you rather bring a check for 50k+ to the table to close the sale or refinance at 3.75% and rent the place out for a couple of hundred bucks cash flow? That’s the situation for most people. Now what’s the ‘shrewd’ move?
“That’s the situation for most people. Now what’s the ‘shrewd’ move?”
My “shrewd move” was those trading up by buying. What’s the shrewd move when one has a job opportunity somewhere else or some other event that necessitates a move? Being tied down to one or two properties?
Sure it always used to be financially savvy to trade up as RE gains on primary residence were excluded up to 250/500k (single/married), _so long as they were rolled into a new residence_. You can thank the NAR for that little loophole.
Thing is when appreciation is out of the picture, as it is for the foreseeable future, that no longer is the case. Now you just have dumbasses doubling down out of habit.
“Bob- would you rather bring a check for 50k+”
Plus Phil let’s admit what we all know: very few of these people doubling down, or even just renting their condo out, realistically have 50k liquid or that they could get liquid to unload the place. Not without tapping their 401k/IRA. Not that dumping it would be financially savvy either, but that’s the reason they’re fighting over to rent it out.
What I’d rather do is what I’ve done: never having purchased in a boom market in the first place. But obviously hindsight is 20/20. What I’d rather do now? Stay put, or move out and rent if I had to would seem to make sense to me.
But they don’t want to rent. They think they’ve been burned once so what are the chances bad luck will strike twice in a row. And _if it is mostly the banks/taxpayers money_ on property #2, well then good for them the risk/reward still seems to make sense.
The “situation” for most people, as you describe it, was entirely self-created. By their stupid decisions/bad luck initially, but now by their continued desire to live a lifestyle they cannot afford but feel entitled to do so via utilizing financial shenanigans.
“Now, homedelete, I expect better of you. I have rented for a long, long time, and I don’t match that description, nor do most of the people I’ve had for neighbors.
As for renters being stupid because they’re “flushing money down the toilet” by renting, all I can say is HUH? I believe the people who bought in the years 2002-2006, and worse, the ones who HELOCed themselves into oblivion, were the real dummies. Do any of these millions of suckers have “equity” to show for it?
Worse, market rate renters like myself are subsidizing buyers, both in backing, directly or indirectly, the GSEs and the FHA, as well as by being unable to deduct any portion of our rent while home BORROWERS are able to deduct their interest. The deduction for interest alone is a massive subsidy for borrowers at the expense of renters and cash buyers.
I’d rather have a building of responsible renters than people who think that they “own” a place because they were able to scrape together the 3% down for a FHA loan on a place that costs 4X their income. After watching people I know A. buy a $550K house with a combined income of $100k with an ARM in 2007, and b) viewing a number of condos stripped and/or vandalized by “owners” who were foreclosed, I really wish I could just get a lifetime lease on my beautiful rental so I could reno the kitchen and bath and feel that I wouldn’t lose my little investment when the building changes hands, or converts to condo in the next wave of insanity, which I hope I won’t live long enough to see.”
~~~
I love you SO HARD right now, Laura. There aren’t enough +1’s in the world for that comment.
Buy here now and we’ll guarantee renters for your condo for the next THREE YEARS!”
sounds like INVSCO tactics.
^ lol
Wells Fargo is denying a conventional mortgage for the building @100 E. 14th St. Does any one know much about what is going on at that building?
Perhaps the outcome of this crisis is to rent condo’s and own single family homes
“Wells Fargo is denying a conventional mortgage for the building @100 E. 14th St. Does any one know much about what is going on at that building?”
I’m not aware of any issues there. Something like 12 or 14 units have closed in the last year of which only one was distressed, which isn’t bad at all. And they’ve been closing conventional.
“Plenty of precedent there.”
“Charlie Sheen or the angry Joe Walsh?”
As I was typing it I was thinking about the Ed Begley Jr- Hotel Manager scene from “Best in Show”
“”they probably didn’t realize there was a toilet in the room”
But I was walking and typing so I let it go… I’ll still bet very few apartments that are rented on CPW get the copper pulled out like HD’s associates tend to do.
Condos are high(er) priced apartments
its that simple
AS an owner I do not want renters, unless, of course I want to rent my units out
“I do not believe in caps. Let the free market rule!”
jp3chicago: the free market is ruling — regardless of whether you want to buy and occupy, or buy and rent, you have the ability to purchase a unit in a building either with strict limits, loose limits or no limits.
Our building has a limit of 2 rental among our 16 units. I think that is perfectly appropriate. I understand that it limits the pool of potential buyers, but I think the tradeoff is reasonable. Renters (and owners who rent their units) definitely aren’t as invested in the building as owner-occupiers.
“and doesn’t care much about resale because there’s little equity or recourse in play.”
What does that mean? Are you saying that investor-owned can walk away from their properties with no consequences? I don’t know the recourse rules in Illinois (a link to a primer would be much appreciated).
Frankly, I think a total “owner occupied” ideology is a fantasy. I know many buildings have it, but right now the market is for single-family homes, and there are many out there looking to buy but are stuck with underwater condos that would be worth it as rentals.
My personal feeling? Those who want to rent out should take action. Push to get legislation changed so City Hall, Cook County, or Springfield isn’t the obstacle. Then impress on the board association. If people step up and yet the board yells “NO!”, then simply formulate a plan and make a real threat to walk away or short sale…thus damaging the value of their condos.
I know it sounds mean, but one could make strict rules on renting so you don’t end up with a mess or drama. I just think in the long run the condo market will never pick up again if people can’t do more with their properties other than live in them.
I know in 2007 my building was 75% senior citizens, but now they’re all passing on, thus their next of kin are selling them off cheap or worse there is no next of kin, so we spend months with no assessments out of that unit until the bank finally sells it for the property taxes. Something has to change if people want the condo market to pick back up. There needs to be a bigger incentive to buy than just “a place to live”.
I bought a unit for my daughter to live in in 2005. She had a family and moved on, but by then the market tanked, so I rented it. I now count on that money, as I am older. Then the HOA capped rentals at 25%. My latest tenant is leaving, and I am told I must get in line and wait to rent it out again. I can’t afford that, so will have to sell for whatever I can get. I lose, and the building may lose too, because I can’t afford to be as picky as about a buyer as I was about my tenants.