There is another conflict brewing between investors and first time home-buyers, and this time the home buyers may win. In the more affordable areas of the Silicon Valley distressed properties, ie short sales and reos have been popular with investors and first time buyers. Many would be owner occupiers lose out on great opportunities to investors who have all cash. Since condos are the least expensive properties, have the fewest maintenance issue, and tend to bring in more rent per dollar spent they are popular with investors. Coupled with the more restrictive lending practices on condos, many bay area developments are now in a position where the number of owner occupied units has fallen to a critical level. Owners of these properties are having trouble refinancing and buyers trying to get loans are being rejected by the lenders. As a result, many complexes are starting to pass new HOA regulations limiting the number of rentals allowed in the condo development.
These restrictions can be a double edged sword. If they occur in a building where the delinquency rate on the HOA dues is too high then a buyer will not be able to get a loan anyway and it will effectively cut off all sales. In the future when the market has settled down the rental restriction could put a damper on future sales. However, if they are not instituted it may become impossible for anyone but investors to purchase in some condo complexes, which in itself will lower values not to mention make things harder for the first time home buyer. It will also make it impossible for current homeowners to ever refinance in some of these buildings.
I do not have the answer here as to what is right or wrong here. I can only give some advise on what to do if you want to purchase or sell a condo and want to get the information about potential rental restrictions.
1. Ask your agent to find out if the HOA docs are available yet. If it is an reo they most likely will not be and a
short sale very likely not
2. If the docs are not available before you make an offer ask your agent to ask the listing agent for the number of the HOA management company
3. Call the management company and ask about any current or contemplated rental restrictions
It is not that hard to find out and can save a lot of time and possibly money.
If you have any questions about short sales in San Mateo or Santa Clara Counties please feel free to contact me.