Real Estate

Strategize Your Investment Before Investing in Your Strategies

Many investors and vacation homeowners purchase homes with the intention of leasing them either full-time or seasonally. But what if you were told that you were prohibited from using the property as a rental? It happens more often than you’d think.

Typically, Arizona homes built after’90 are located within a Homeowners Association with restrictions known as Covenants, Conditions and Restrictions (“CC…R’s). As a homeowner within the Association, you are bound by the restrictions imposed within these documents. Simply put, these documents regulate a homeowner’s use of the property.

Restrictions can range from landscaping, paint colors, window treatments and pets. CC…R’s should be read very carefully before purchasing a home to ensure you will enjoy your home the way you intended. Depending on how your Purchase Contract is written, you can usually cancel a home purchase within a specified time after reviewing these documents.

Some CC…R’s restrict owners from renting their homes. Some rules state that the property cannot be vacant for any length of time. Most homeowners are aware of the restrictions. During the real estate boom in 2004-2005 many new home builders would not allow someone to buy a home unless it was their primary residence. Even though many homeowners were aware of their responsibilities, the housing crashed left the homeowners no other choice but to break some of these rules. Of course, it was unintentional.

Rental properties have often been associated with higher crime rates, declining values and homes that are not maintained. Although this is a perception by most, it is usually not common in every community with rental homes. But a couple of bad apples ruin the bushel.

With the declining Real Estate market and more homeowners considering renting their homes, we are starting to see Homeowners Associations attempting to amend their CC…R’s to include rental home restrictions. Many people believe that CC…R’s cannot be amended. Amendments happen regarding all sorts of rules and regulations. Can this be true for rental properties too?

Most states have laws clearly stating that if you reside in a Homeowners Association that has CC…R’s, there is a contract between the property owner and the Homeowners Association. When you execute your purchase, the imposed restrictions are binding. Hence, you must follow the rules.

The issue with amending the CC…R’s after the purchase may be difficult but it can be done. When purchasing a home in a Homeowners Association, read the documents carefully. Consider the long term effects of the restrictions and how they may apply to your investment strategy.

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