How Rentals Affect a Condo's Value

Condo complexes that are mostly occupied by renters could be worth less.

Condo complexes that are mostly occupied by renters could be worth less.

Are you worried that renting out your condominium will reduce its value or that a large number of renters in your building might make each unit worth less? How your condo's value is affected could depend upon where your unit is located, how many other units are rented out in the complex and how tenants treat the property. In some parts of the country, renting is common, but a large proportion of renters in a condo complex can affect the value of all the units in the property. In any case, if your condo is kept in good shape, it is likely to be worth more than if it falls into disrepair because you have careless tenants or have left it vacant.

Condo Rentals

Owners tend to take better care of their property than renters, and this might be true even when a large security deposit is required. Because part of the value of your own unit will depend upon that unit's condition, you might lose value if you happen to lease to careless renters. Of course, some revenue for anticipated repairs should be built into your lease, and your landlord insurance might cover others. Making prompt repairs and encouraging tenants to report problems can help you keep your property more valuable.

Renter Majority

Property values tend to fall or remain stagnant in properties that are mostly occupied by renters. Many condo associations limit the number of units that are used for rentals in their buildings because the association board members believe a lot of renters reduces property values. According to a Market Watch article, "Condo Owners Face Rental Hurdles," the rental unit cap is less than 50 percent in many Chicago buildings, and caps below 30 percent are not uncommon. This is to avoid a perception of having a transient population, keep units maintained and avoid financing hurdles.

Silver Lining

In any case, half a loaf might be better than none. It would be better to own a condo unit in a complex that is occupied by a majority of renters than one that is barely occupied. Consider the fact that many homeowner insurance policies have exclusions for houses that have been vacant for more than 30 days. According to a Bankrate articles, "Insuring Your Vacant Home," this is because vacant homes attract vandals and thieves. Good tenants can enhance the value of a condo by keeping it in good repair, reporting problems and discouraging common threats to vacant homes by their presence.

Condo Mortgages

The Department of Housing and Urban Development says that to obtain a Federal Housing Administration backed loan, the condominium building owner occupancy rate has to be more than 50 percent. FHA loans comprise almost 50 percent of the total home-loan market, as of publication, and the FHA helps homeowners get into loans with lower down payments, lower closing costs and easier qualification rules. This reduces loan options for middle class families for properties that are mostly renter occupied. A reduction in available loans means that fewer buyers can qualify, and this is bound to soften prices for some condominiums.

 

About the Author

Based outside of Houston, ML Katz has been writing financial articles since 2000. During that time, she also worked as a financial professional and website developer. She received a Bachelor of Business Administration with a concentration in information systems from the University of Texas, Austin in 1981.

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