From Investopedia –
“Statistically speaking, Americans have a one in five chance of living in a home that’s part of an HOA, according to a data analysis by applied microeconomist Wyatt G. Clarke. Since Clarke’s estimate was drawn up (in 2017), properties with HOAs have further surged.”
Therefore there is a good chance that you’ll be showing properties to your investors that are a part of an HOA.
With this in mind, it’s important to understand how the HOAs work in your location, what regulations and restrictions they impose on short-term rental activities, and how these may impact the investment goals your clients have.
You’ll need to know that:
- HOA boards are typically made up of primary residents who are expected to show up to board meetings and discuss issues.
- Where there are short-term rentals, there may be movements to ban them, however, it takes time and effort and if there are investor-owners on the board, this can hamper efforts.
- The Association would need the majority vote as well as the vote of each active participant in STR activity in order to change the current rules and regulations (CC & Rs).
- One argument is that STR activity does not violate rules because the rental is a license to use the property and not a lease.
Wilkinson Vs Chiwawa Association (2008)
This was a landmark case where a majority of homeowners in an HOA voted to amend the Association bylaws and forbid rentals under a 6-month occupancy period.
17 homeowners fought the ruling and won an amendment from 6 months to 1 month. The homeowners took it back to court and won the right to rent for shorter periods.
In 2014, the Washington Supreme court concluded that an owner’s receipt of money from vacationing guests for the use of the owner’s unit does not change the use from residential to commercial, at least where the owner does not provide “on-site services”.
“The trial court granted the Wilkinsons’ motion for summary judgment in full, holding the 2011 bar on short-term rentals invalid and unenforceable. CP at 1087–89; Verbatim Report of Proceedings (Dec. 15, 2011) (1 VRP) at 34–35. The court concluded that the Pope & Talbot and 1988/1992 covenants “contemplated that there could be rentals,” and that “[t]here were no limitations on those rentals.” 1 VRP at 34. The trial court granted the Wilkinsons’ motion for summary judgment, holding the 2011 amendment was invalid. 1 VRP at 35. The trial court rejected the Association’s arguments that residential rentals of any duration are a “commercial” use of land and that renting a home to unrelated persons violates the single-family residential use covenant. “
https://caselaw.findlaw.com/wa-supreme-court/1663864.html
There is more useful information here:
https://caselaw.findlaw.com/wa-supreme-court/1663864.html
Every HOA will have different CC&Rs so it is important to carefully read these before considering selling an investor a home within an HOA. Contact individual HOAs directly to find out what their rulings are on short-term rental and how they define the terms ‘rental’ and ‘lease’.