The Shared Ownership Scheme is a popular method of helping individuals achieve homeownership, especially for first-time buyers with financial constraints. This scheme allows potential homeowners to purchase a share of a property and pay specified rent to the Housing Association on the remainder.
While the primary intention of this scheme is to facilitate personal ownership, it leaves many wondering: can you rent shared ownership property out in the U.S.A.?
1. Understanding the Shared Ownership Scheme Overview
The Shared Ownership Scheme is designed to provide a pathway to homeownership for those who may struggle with the traditional home-buying process. By allowing individuals to buy a share of a property and pay rent on the unacquired portion, it aims to make it easier to own property.
This unique arrangement also allows individuals to increase their ownership stake over time through something called “staircasing.”
2. Challenges & Considerations
Renting out your shared ownership property may be an option — but it has its own challenges and considerations. Before deciding to lease your shared ownership home, it’s important that you’re aware of these obstacles and factors that may affect your decision.
2.1. Housing Association Approval
Whether or not permission will be granted for renting out a shared ownership property depends on careful evaluation by the Housing Association on individual cases. Detailed information must be provided by the homeowner, including details about the tenant (if known), agent details (if applicable), and a copy of the proposed tenancy agreement.
This scrutiny ensures compliance with terms stated in the shared ownership lease as well as informs The Housing Association of times when there’s an absence from homeowner occupancy at the property.
2.2 Mortgage Lender Consent
If you have a mortgage on your shared ownership property, obtaining approval from your mortgage lender is crucial. Your mortgage lender might require you to switch to a Buy-to-Let mortgage during the tenancy and revert back after — this ensures they remain compliant with their terms.
2.3 Subletting Restrictions
In many shared ownership leases, subletting is limited to the entire property — not partial subletting. Be sure to review your lease agreement and consider whether or not you’ll be able to align with these plans.
2.4 Landlord Responsibilities
Regardless of whether or not the property is occupied by a tenant, as the landlord in an arrangement where subletting occurs, you retain responsibilities outlined in your lease agreement. You must understand these obligations.
2.5 Legal and Financial Implications
Seek legal advice to fully understand potential costs, tax implications, and any additional legal obligations as a landlord when it comes to subletting. Understanding all of this will allow for informed decisions to be made.
Understand Tax and Depreciation Implications
Marty Zankich, the Owner of Chamberlin Real Estate, discusses some important financial considerations homeowners should take into account before deciding to rent out their shared ownership property:
“Renting out a shared-ownership property should be researched thoroughly before doing so. Subletting comes with permissions and tax implications, and though considered easy money, there’s a lot more to it.
If you make over a certain amount, depending on the state, you’ll have to pay income tax on what you bring in from subletting. This is particularly challenging come tax season because you may have to file several ways.
You’ll have to file with your spouse, your living partner as a business partner, or your loan company. This means that the amount you owe from the income you made subletting may differ based on whatever situation you may find yourself in.
Not to mention, the value that the home depreciates and the repairs you may have to make to it when letting someone rent the space out.
What money you put in can help you at tax time, but that amount, minus the depreciation that occurs naturally as the property ages, may not be worth the additional income you see from subletting.”
2.6 Continuous Communication
Throughout the process, keep open communication with the Housing Association, mortgage lender, and any other involved parties. This ensures transparency and helps prevent surprises down the road.
2.7 Market Conditions
Before deciding to rent out your property, assess local rental market conditions. Understanding demand, rental rates, and tenant expectations can influence your decision-making regarding your property and rental strategy.
2.8 Property Management
Consider whether or not managing the property yourself or hiring a professional property management service would be more beneficial for you in the long run — understanding the responsibilities associated with managing property is key for a smooth landlord experience.
2.9 Exit Strategy
A clear exit plan is crucial. Whatever the reason, whether you need to get it back for personal use or selling, knowing how to take it back will make moving out easier.
You need to know these things if you want a successful shared ownership property rental.
Be Objective in Rental Evaluations
Ryan Carrigan, the CEO/Founder of moveBuddha, suggests key factors to consider when evaluating shared ownership property rental requests:
“Renting out shared-ownership properties can be a complex process and isn’t something to be taken lightly.
I advise clients on all aspects of the moving industry, and I would always encourage them to proceed with caution in this situation, whether they are potential renters or shared property owners. I’ve heard some real horror stories in my time.
When evaluating any request to rent out a shared-ownership property, it’s essential to be objective, considered, and thorough. You need to make sure you have all the details required, and that you’re not swayed by anything other than logic.
Housing can be an emotive issue, after all, where we live has a huge impact on our lives. But you need to take this element out of it and maintain a strong sense of perspective.
Look at the small print and consider all the potential implications of your evaluation. This includes the legal and financial consequences, which can be considerable.
My advice is to always make sure you have as many facts as possible.
The situations I’ve seen where things have gone wrong are usually down to a lack of information, and people not knowing the full picture.
The more data you have, the easier it will be to make an informed, intelligent decision.”
3. Additional Costs and Tax Implications
Renting out a shared ownership property comes with financial considerations beyond the typical responsibilities of homeownership. Homeowners should be aware of potential additional costs and tax implications associated with subletting a property. Seeking advice from financial and tax specialists is recommended to navigate these complexities and make informed decisions.
4. Frequently Asked Questions
4.1. Can I automatically rent out my shared ownership property?
No, ownership of a Shared Ownership Lease does not grant an automatic right to sublet or rent out the property. Approval from the Housing Association overseeing the scheme is required.
4.2. What scenarios could lead to permission for renting out a shared ownership property?
Permission may be granted in exceptional circumstances such as temporary work contracts, extended periods of working abroad, medical needs, or providing care for a relative. Each case is assessed individually by the Housing Association.
4.3. What information is required for the Housing Association’s assessment?
Homeowners seeking permission to rent out their shared ownership property need to provide details about the tenant, agent information (if applicable), and a copy of the proposed tenancy agreement.
4.4. Does permission to sublet extend to renting out only a part of the property?
No, in most cases, the Housing Association will likely grant permission for subletting the entire property to a tenant. Partial subletting, like renting out a spare bedroom, is generally not permitted.
4.5. What responsibilities do I retain as a landlord when subletting my shared ownership property?
Regardless of whether the property is sublet or not, homeowners retain responsibilities as landlords outlined in the terms of the shared ownership lease. These responsibilities should be clearly understood and fulfilled.
4.6. Are there additional costs and tax implications associated with subletting a shared ownership property?
Yes, homeowners should be aware of potential additional costs and tax implications when subletting a property. Seeking advice from financial and tax specialists is recommended to navigate these complexities and make informed decisions.
4.7. Can I rent out my shared ownership property if I have a full staircase to 100% ownership?
Yes, once you have fully staircases and own the entire property, you are generally entitled to rent it out. However, it is important to inform both the housing association and mortgage lender, as this might affect the terms of your mortgage.
Legal Insights for Renting Shared Ownership Properties
Adrienne Fischer, the Founder/Attorney at Basecamp Legal, advises on legal requirements, contracts, and liabilities associated with renting shared ownership properties:
“Given the scope of experiences shared above, I don’t directly possess expertise in the real estate field, including matters related to renting out shared ownership properties.
My professional journey has revolved around different industries, focusing on legal intricacies and operational challenges within business and property management from a legal standpoint.
Therefore, I’ll provide you with insights accrued from general legal experiences that could apply to the field of shared ownership properties.
One key consideration when renting out shared ownership property is understanding the specific terms outlined in the shared ownership agreement or lease. These documents often contain clauses that restrict or outright prohibit subletting.
It’s crucial to review these documents thoroughly and consult with a real estate attorney to ensure compliance.
From my legal practice, we’ve had to navigate various contract terms for businesses, ensuring they don’t inadvertently breach their agreements. This principle is directly applicable to shared ownership agreements.
Another aspect to consider is the financial implications, including tax considerations when renting out a shared property. As part of my work, helping clients set up LLCs for property management, we delve into the tax efficiencies and obligations that come with property ownership and rental income.
This knowledge is pertinent because knowing how renting out a portion of your property affects your taxes is crucial to avoid any unwelcome surprises come tax season.
Finally, if you’re considering renting out your shared ownership property, understanding local regulations and housing laws is paramount.
Legally, every jurisdiction has its unique set of regulations governing rental properties, including those under shared ownership schemes.
In past consultations, navigating local laws was essential for our clients to remain compliant and avoid penalties. Therefore, always ensure you’re aware of and adhere to these regulations.
In synopsis, while my direct experience with renting out shared ownership properties is limited, the foundational legal principles of contract review, financial implications, and compliance with local laws that I’ve encountered in my legal practice are broadly applicable to this scenario.”
Closing Thoughts
In conclusion, the ability to rent out a shared ownership property in the United States is subject to careful evaluation by the Housing Association overseeing the Shared Ownership Scheme.
While the scheme provides a valuable opportunity for individuals to step onto the property ladder, renting out a shared ownership property involves navigating specific rules, obtaining approvals, and understanding associated responsibilities.
Aspiring landlords in shared ownership properties should approach this decision with a thorough understanding of the scheme’s guidelines and seek professional advice to ensure compliance with legal and financial obligations.
Guest Author: Saket Kumar
Last Updated on by Saket Kumar