Whether you’re a seasoned real estate investor looking to expand your portfolio or a first-time homebuyer trying to navigate the property market, I’ll be the first to tell you that understanding deed restrictions is absolutely crucial.
Why?
These legal limitations can make or break your investment plans… and ignoring them can cost you thousands of dollars down the road.
Trust me, you don’t want to have your ROI reduced or eaten away by issues with deed restrictions.
Let’s dive into what deed restrictions are, why they matter, and explore 10 common examples that could impact your next property purchase or investment decision.
What Are Deed Restrictions?
Think of deed restrictions as the fine print that comes with property ownership. They’re legal limitations or rules that govern how you can use your property, and they’re typically written right into the property deed itself. These restrictions travel with the property, meaning they’ll affect every future owner, not just you.
Deed restrictions are created in several ways. Sometimes they’re established by the original developer of a subdivision who wants to maintain a certain character or property values in the neighborhood. Other times, they’re added by previous property owners, homeowners associations, or even local government entities.
Once they’re in place, these restrictions are legally enforceable and can only be changed through specific legal processes.
Here’s what makes deed restrictions particularly important: They directly impact your property rights and what you can do with your investment.
Pretty big deal, in my opinion.
Unlike city ordinances or zoning laws that might change over time, deed restrictions tend to be more permanent and binding, which is why it’s so important for you to understand.
Why Deed Restrictions Matter
From a legal standpoint, violating deed restrictions can result in lawsuits, fines, and even forced compliance that could cost you significant money. But the practical implications go beyond just legal troubles.
For real estate investors, deed restrictions can limit your ability to maximize rental income or renovate properties for better returns. For homeowners, they might restrict everything from the color you can paint your house to whether you can run a business from your home office.
Consider this scenario: You purchase a property planning to convert it into a short-term rental, only to discover there’s a deed restriction prohibiting rentals of less than 30 days. Suddenly, your Airbnb investment strategy is dead in the water, and you’re stuck with a property that doesn’t fit your business model.
That’s why smart investors and homeowners always research deed restrictions before closing on any property purchase.
10 Common Examples of Deed Restrictions
1. Pet and Animal Limitations
One of the most common deed restrictions involves pets and animals. These restrictions might limit the number of pets you can have, specify certain breeds that are prohibited, or even ban pets entirely in some communities.
Example application: A deed restriction might state “no more than two household pets per residence” or “pit bulls, rottweilers, and dobermans are prohibited.” Some upscale neighborhoods even restrict exotic pets or farm animals.
Investor advice: If you’re targeting pet-friendly rentals, these restrictions could significantly limit your tenant pool. Always verify pet restrictions before purchasing rental properties.
2. Business Use and Home-Based Business Restrictions
Many residential deed restrictions prohibit running businesses from your home, while others may allow certain types of home-based businesses with limitations.
Example application: A restriction might read “no commercial or business activities shall be conducted on the premises” or “home-based businesses are permitted provided they generate no customer traffic and use no external signage.”
Investor advice: This is crucial for anyone planning to use property for business purposes or rent to entrepreneurs who work from home. Some restrictions are strict enough to prohibit even online businesses or consulting work.
3. Vehicle Parking and Storage Limitations
Vehicle restrictions are incredibly common and can cover everything from the types of vehicles allowed to where they can be parked.
Example application: Common restrictions include “no commercial vehicles, RVs, boats, or trailers may be parked in driveways or visible from the street” or “no more than two vehicles per household may be parked in driveways.”
Investor advice: These restrictions can affect both your tenants’ satisfaction and your ability to use the property for certain purposes. Some restrictions even prohibit car repairs or maintenance in driveways.
4. Fees and Penalties for Non-Compliance
Many deed restrictions include specific penalties for violations, ranging from daily fines to legal action.
Example application: “Violation of any restriction shall result in a fine of $100 per day until compliance is achieved” or “the homeowners association may take legal action to enforce compliance, with all legal costs paid by the violating party.”
Investor advice: Understanding penalty structures is essential for budgeting and risk assessment. Some communities have escalating fine structures that can quickly become expensive.
5. Architectural and Aesthetic Rules
These restrictions govern the appearance of your property, including everything from exterior colors to fence heights and architectural styles.
Example application: “All exterior paint colors must be approved by the architectural review board” or “fences shall not exceed 6 feet in height and must be constructed of wood or approved composite materials in earth tones only.”
Investor advice: Architectural restrictions can significantly impact renovation costs and timelines. Always factor in approval processes and potential delays when planning improvements.
6. Rental Limitations
Rental restrictions are common, especially in coveted neighborhoods where residents want to limit transient occupancy.
Example application: “Properties may not be rented for periods shorter than 12 months” or “short-term rentals of less than 30 days are strictly prohibited.”
Investor advice: This can be a deal-breaker for many investment strategies. Always verify rental restrictions before purchasing any property you plan to rent out, whether short-term or long-term.
7. Occupancy Limits
These restrictions control how many people can live in a property, sometimes based on square footage, number of bedrooms, or family relationships, which can directly affect your ROI as an investor.
Example application: “No more than two adults may occupy a one-bedroom unit” or “occupancy is limited to immediate family members only.”
Investor advice: Occupancy limits can affect your rental income potential and tenant screening process. They’re particularly important in markets where you might rent to students or multiple roommates.
8. Landscaping Standards
Landscaping restrictions ensure neighborhoods maintain a certain appearance but can limit your freedom to modify outdoor spaces.
Example application: “Front yards must maintain at least 70% grass coverage” or “no vegetable gardens are permitted in front yards, and all landscaping changes require approval.”
Investor advice: Factor landscaping maintenance costs and restrictions into your investment calculations. Some communities have strict standards that require professional upkeep.
9. Use Restrictions
These broad restrictions define what the property can be used for, often limiting use to residential purposes only.
Example application: “Property shall be used for single-family residential purposes only” or “no commercial, industrial, or multi-family use is permitted.”
Investor advice: Use restrictions are fundamental to your investment strategy. They can prevent conversions, additions of accessory dwelling units, or other value-add improvements.
10. Transfer Restrictions and Right of First Refusal
Some deed restrictions give certain parties the right to purchase the property before it can be sold to others, or require approval for transfers.
Example application: “The homeowners association has a 30-day right of first refusal on all property sales” or “transfers to non-family members require approval from the community board.”
Investor advice: These restrictions can complicate exit strategies and affect the timeline for selling properties. They might also impact the pool of potential buyers.
How to Identify Deed Restrictions When Buying Property
Finding deed restrictions requires thorough due diligence, but it’s not complicated if you know where to look. Start with the property deed itself, which should be available through your county recorder’s office or online database. Many counties now provide digital access to property records.
Your title company will typically provide a preliminary title report that should highlight major restrictions, but don’t rely solely on this. Request copies of any referenced documents, especially CC&Rs (Covenants, Conditions, and Restrictions) if the property is in a planned community.
Here’s your due diligence checklist:
- Review the actual property deed
- Obtain and read any CC&Rs or HOA documents
- Check with the local planning department for any municipal restrictions
- Walk the neighborhood and talk to neighbors about common restrictions
- Have your real estate attorney review all restriction documents
Don’t forget to ask specific questions during your property search. Ask your real estate agent to identify any known restrictions, and make sure your purchase contract includes contingencies that allow you to back out if unacceptable restrictions are discovered.
Frequently Asked Questions
How can deed restrictions be changed or removed?
Changing or removing deed restrictions typically requires legal action and can be complex. In many cases, you’ll need approval from other affected property owners, sometimes requiring a majority or supermajority vote.
Some restrictions include sunset clauses that allow them to expire automatically after a certain period. Others might be removable if they’re found to be outdated, discriminatory, or no longer serve their original purpose.
Do deed restrictions expire?
Some deed restrictions include automatic expiration dates, while others are perpetual unless actively removed. Many older restrictions do have built-in expiration dates, typically 20-30 years from when they were created, with automatic renewal clauses unless property owners vote to remove them.
Can deed restrictions affect property value?
Absolutely. Deed restrictions can both positively and negatively impact property values. Restrictions that maintain neighborhood character and prevent unsightly modifications often support property values.
But, overly restrictive covenants that limit property use can decrease values, especially if they prevent common improvements or uses that buyers desire.
The Bottom Line: Deed Restrictions
Understanding deed restrictions isn’t just about avoiding legal trouble; it’s about making informed investment decisions that align with your goals and protecting your property rights as a homeowner.
These restrictions can significantly impact everything from your renovation plans to your rental income potential.
The key takeaway?
Never skip the due diligence process when it comes to deed restrictions. Whether you’re buying your first home or your fiftieth investment property, taking the time to thoroughly research and understand any restrictions could save you thousands of dollars and countless headaches down the road.