Word on the street is that banks don’t like giving mortgages out if you are trying to buy a condo when the percentage of rented-out units in the condominium is too high.
Example: Condo has 100 units; 25 are occupied by actual owners. The other 75 are occupied by renters, and owners are absent. You want to buy one of the units and the bank looks and sees this building (complex?) is 75% rented out. They say no to your mortgage.
Why is this?
They think renters are more likely to trash the building since they don’t own a stake in it, so the value of the condo will decline.
I guess they check tax records to find out the owners live somewhere else?
I agree that they are worried that a place with lots of renters will go downhill.
It also relates to the owners of the rental units. They view their rental units as investments, not homes. Consequently, they’re less inclined to keep them up, let alnoe make improvements.
Yes, in this case, banks are being wise to pay attention to variables that affect THEIR investment. They have enough risk with a condo as it is, and it increases greatly when the building becomes a rental property. Affects appreciation, creates possible depreciation and they have determined it is a bad risk.
Over the years, banks have been pretty good about determining their risks, but every time they break one of their golden rules, like the one you mentioned, they lose money. Need I reference a thousand stories about how they ignored down payment minimums, income minimums and credit report scores? So, let’s not convince them they should break another good lending rule.
A bank has to figure out what is likely to happen when you default. If the property increased in value, they can cover their losses. All the defaults plus declining prop prices = BIG losses.
Real estate person here. They also think that the mortgage payments depend on the rental payments (as they usually do) and if the tenants stop paying rent, they get evicted, they trash the place, the owners can’t pay the mortgage or maintenance, the unit goes to hell, the complex goes downhill, and the house values fall.