Deed Restrictions

When purchasing an investment property, it's critical to check for deed restrictions. These rules and regulations can limit what you do with your new purchase. While a deed restriction may frustrate new property owners, it plays a critical role in protecting home values and ensuring a safe community. 

What Are Deed Restrictions in Real Estate?

When purchasing an investment property, particularly for use as a midterm rental, it's critical to check for deed restrictions. These rules and regulations can significantly impact how you can utilize the property, affecting everything from the type of renovations you can undertake to the nature of tenant activities allowed. Deed restrictions are especially pertinent for midterm rentals, which cater to tenants staying for several months and may require specific modifications or usage terms that align with community standards. While managing these restrictions can be challenging, they play a critical role in maintaining property values and ensuring the community remains desirable for both short and long-term residents.

Common Types of Deed Restrictions

Deed restrictions can come in many forms, which will impose specific rules on how properties can be used, maintained, and renovated. They're meant to maintain home values and protect neighbors from unpleasant or dangerous activities.

These are some of the most common deed restrictions, though you should always check with local authorities like the county clerk's office to see if there are any others at play.

Property Use

Many deed restrictions will focus on how one can use the property, especially in a residential area. A deed-restricted house may be prohibited from being used as a business, such as for direct sales, in order to reduce foot traffic and vehicle disruptions in the community.

This will often restrict small balance commercial properties like warehouses, office buildings, or flex spaces. 

Building Size and Design

Property deed restrictions can dictate a certain number of bedrooms or bathrooms a property can have. This is meant to keep houses in the deed-restricted community at an equivalent size to one another, preventing significant fluctuations in property values. It may also ensure that the municipal water or septic system can handle the outflow from every house in the area.

Landscaping Requirements

Deed restrictions can limit how many trees you have in the front yard and restrict what kinds of fences you may have. Chain link fencing, for example, may be prohibited, or the rules may ban very tall privacy fences that could obstruct a neighbor's view.

A property owner may have to get permission to remove trees or shrubs from the property, and they may be barred from having certain types of landscaping, such as wildflowers or wild areas in their yard.

Vehicles

Deed restrictions often limit the number and type of vehicles a homeowner can have on their property. This can include, but is not limited to, boat trailers, campers, RVs, and farm equipment. A deed restriction can also restrict how many vehicles you can have on the land and what condition they can be in. 

Pets and Animals

These agreements also extend to animals, such as farm animals like cows, goats, and chickens. You may have a limit to how many animals you can have on the land, including how many cats and dogs can be on the property. 

Color Palettes

One of the most frequent HOA rules is that you will be limited in what color you can paint houses, garages, and outlying buildings, usually to a selection of muted colors. This is meant to ensure uniformity amongst all the homes in a subdivision. 

Approvals and Additions

Most deed restrictions require you to inform the governing body when you plan to make additions, whether that's adding an outlying building or putting a new wing on the house. Regulations may require contacting the local urban planning departments and submitting the proposal to the county clerk's office. 
 

Impact of Deed Restrictions on Property Value

Do deed restrictions endanger the profitability of your venture? This depends on how you leverage it. A deed-restricted home can be an advantageous investment, or the limitations can lead to severe difficulties in selling the home later. As such, you must be aware of the implications of deed restrictions on your real estate purchase. 

Marketability

One of the crucial roles of deed restrictions is to ensure that a deed-restricted community remains attractive for buyers and homeowners. Neat lawns, unobstructed views, and the reduction of nuisances like noise and unpleasant smells can all help to boost curb appeal.

If you're renting out the property, your tenants don't need to worry about deed restrictions as they won't be performing serious renovations. However, they will appreciate the quiet, orderly appearance of the area, which can be a major draw. Restrictions can thus improve marketability and ensure you have a steady stream of tenants who want to live in a well-maintained neighborhood.

A deed restriction also preserves the property's value, which can improve its ability to accrue equity. This will assist you in selling for a profit later down the line, as the house will be attractive to your buyers. 

Buyer Appeal

Some buyers may appreciate deed restrictions, especially if they value a tight-knit neighborhood with a robust community association. These may be young families looking for a quiet place to raise their children or house-proud retirees who want to live in a beautiful area.

At the same time, others may resent having rules about what they can do with their own property and, thus, will look for a home without any restriction on its use. Should you choose to sell in the future, you'll need to consider the buyer and what they're looking for in the area. A real estate agent can prove helpful when marketing a deed-restricted home. 

Development and Selling Challenges

When buying a property with a deed restriction, you'll need to think about your plans and whether the rules will limit them. This includes additions, remodeling, and landscaping choices meant to help you attract renters.

Some deed restrictions can be arcane and very specific, potentially leading to issues with local governments that can be costly and headache-inducing. You'll need to carefully read the local deed restriction FAQs ahead of time to prevent any challenges.

Selling, too, can be an issue if there are stringent deed restrictions, as some potential homeowners shy away. To understand how this may impact a specific property, go through previous listings in the area and see whether they spent an extended time on the market due to the restrictions. 

Navigating Deed Restrictions: A Guide for Buyers and Sellers

Any person purchasing a property, whether an investor or a homeowner, needs to understand the impact of deed restrictions on their sale. A deed restriction can lead to legal challenges in the future and hinder your renovation plans, so when you sell, you may run into issues with marketability. As such, take the time to research the specific deed restrictions and consider how you can work with them rather than against them.

Due Diligence

Just as you investigate title issues before signing a contract, you must also look at deed restrictions. Pull property records with the county clerk or municipal clerk during the early stages of navigating a sale to see what deed restrictions, if any, are applicable.

Also known as real property records, these records tell you about the title history of the property and any restrictions on its usage. These public records are readily available at the local clerk's office, sometimes for a nominal fee. The title company will likely have a copy too.

Legal Advice

In some cases, it's possible to remove deed restrictions through a form called a restriction release, which you will take to the municipal clerks as a petition. The governing body, such as the homeowners association, will then have to consent to have the restriction removed. Sometimes, they will refuse, in which case you may need legal counsel.

Some deed restrictions expire, while others are in perpetuity. You'll need to learn the expiration date. If it's in the near future, it may be best to wait for your renovations until you're free and clear.

Understanding Implications of Deed Restrictions

HOA rules may significantly limit what you can do with the property in the future. For example, you may not be able to turn the building into a flex space or separate it into a duplex. Think these matters through before you sign anything.

If you're holding title with others, sit down together and develop a plan that determines whether you want to challenge the deed restriction or, if not, how you will navigate its rules. 

Deed Restrictions vs. Zoning Laws: Understanding the Difference

Both zoning restrictions and deed restrictions will determine the ways that you can use property, but they do so in different ways. Each has its role, but zoning restrictions tend to be more universal. Nearly everywhere has zoning laws, but only some places have deed restrictions. Let's take a closer look.

Deed Restrictions

A deed restriction is on property rather than land. This may not seem like an important distinction, but remember that property includes the land and anything built on it, while land is only about the actual patch of ground. This means that deed restrictions apply to houses and their grounds. They're usually put in place after houses have been built.

The deed restriction is usually enforced by a homeowners association, sometimes at the behest of the original developer, and is meant to protect the neighborhood's value. Not every house will have a deed restriction, and they are more easily amenable than a zoning regulation as long as you have the cooperation of the HOA. 

Zoning Laws

Zoning laws are public property records that say what can be built on a specific section of a municipality. A common one is delineating commercial, residential, and industrial areas. They are not easy to amend, and they are more universal, and controlled by a city government rather than individual neighborhoods.

For example, zoning restrictions will say whether you can put a gas station in the middle of a suburban neighborhood. You can think of it like this — a zoning law tells you where you can put a house, but a deed restriction tells you what it can look like and what kind of landscaping it can have. 

The Role of Deed Restrictions in Real Estate Planning

Before taking ownership of a property, you must understand how deed restrictions dictate how you can renovate and manage it. These rules are implemented to ensure that a community maintains its property value and remains an attractive, quality place to live.

In addition, they can help forestall common rental property issues such as loud noise and pet violations by providing you with a clear list of rules to provide to tenants.

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