I had a client who was in for a rental property coaching session. They had found a condo in a nice beachside location. The Price was $600,000 and HOA dues were $400 per month. Based on the due diligence we did for market rents, it seemed that they could rent it out for $2800 (PITI of $3600 not including the management fee or wear and tear on the unit).

When I asked why they wanted to buy this and carry such a big ($800+ per month) negative cash flow, they said because the Realtor said it would make a great Airbnb rental! Ahhhh. Yes. Oks

He went on to have me look up the AirBNB rates, then the VRBO rates and sure enough, he could get $250 per night. So possibly $7500 per month. Well now I get why he was so excited!

So, here’s the problem. More and more cities and Associations are passing laws, or amending their HOA CCR’s (covenant conditions and restrictions), to limit short term rentals (i.e. AirBNB and VRBO for example). People who live year-round in these condo complexes are noticing that the guests who are there for just the weekend, or even a week, are loud, careless and tend to use the facilities like the pool and laundry room with no consideration for the long term residents, who are often owners.

For example, a friend of mine lives in a condo by the beach and has for the last 25 years. She had people one floor up and across the hall who did laundry at 5:00 am, banged around, slamming hall doors, dragging baskets and strollers down stairs that early, playing music with their screen door open, and used the pool to entertain six kids during the day. When she tried to approach them about the rules in the building, they blew her off.

If you were renting a condo for a weekend, would you study the CCRs and by-laws to know the rules while you are there? No of course not. Does the owner of the unit before renting their property for the weekend, go over all the rules or post them in the condo? No of course not.

So when I asked my client if they did their due diligence on the property and they emphatically said, “Yes!”

I said, “Ok let’s see.”

Look up the city website, nothing. Phew. Look up the CCRs, nope, nothing there.

Read the minutes to the last 12 board meetings. There it was.

The condo membership had recently, in the last 6 months, voted to amend their CCRs to restrict any owner from renting out their condo for less than 1 month. Guests who were there for less than 1 month had to be reported to the HOA AND had to be staying with the owner (like visiting family).  So guess what? No AirBNB unless you want to live with your guests and register them with the HOA…

Even if you just see a motion to open the discussion to change the rules, I would not rely on short term rentals on a condo because just the fact that it’s being brought up, means it’s only a matter of time.

This little bit of coaching saved him big pain, aggravation and money loss. When you make $60,000 per year you cannot afford a negative cash flow of $800+ per month or the fines from a city government for breaking their laws.

Quote:I never put my money in a position in which votes or intents of other people will affect my net worth. This is why stocks and condos do not fit into my portfolio.” –Jimmy Napier, re-known note investor