A while I ago I wrote about how the sluggish real estate market turned some homeowners who wanted to sell their homes into landlords. They maybe had purchased another home or needed to relocate for a job and couldn't sell their homes due to the housing crash. Still others inherited real estate and because the market was so bad they held on to it and rented it out. The market conditions effectively forced them into becoming landlords.
One study showed that there were three times as many "accidental" landlords/investors as traditional real estate investors. These accidental landlords just don't consider themselves to be investors because they unintentionally fell into the rental business.
For investors, the business of being a landlord might come easier due to years of experience, but for those who were pushed into it, the learning curve is often steep.
So as the market starts to rebuild, the question is will these accidental landlords help create more inventory by listing their rentals for sale? Homeowners who were underwater and hanging on to their homes until the market improved are now, in some areas, getting the opportunity to get out of the landlord business by selling.
However, today, many of those accidental landlords are now deciding that the shove into the business of being a landlord wasn't such a bad idea. Rents are increasing, the housing marketing is recovering and being a landlord is becoming more appealing. So they're sticking with it.
This is causing a lower inventory because typically a buyer is also a seller, therefore inventory evens out. But, in some cases, now the buyers are remaining landlords, causing a negative impact on the housing inventory.
Housing prices are on the rise, by more than 10 percent from a year ago, according to CoreLogic, which means millions are no longer owing more than their home is worth. But, in many areas there are still loads of homeowners underwater. These homeowners will need to see significant price increases to build equity and that could take years. That also could mean more accidental landlords will emerge.
If you're considering renting out your home and getting into the business of being a landlord, here are a few things to consider.
What's the cash flow? Chances are you're not selling because there's not enough equity in the home and you would have to come up with a lot of cash to close and satisfy your home loan. That may not be appealing or even possible. So you're renting your home out instead. However, it's important to understand what your cash flow potential is. Be sure to add up your mortgage, property taxes, insurance, and any other household expenses such as trash collection and compare that to the amount you'll bring in monthly for rent. Hopefully, it's a positive cash flow each month. If not, you may have to take a second look at the possibility of selling.
Be prepared to be on call. As a landlord, there will be issues that come up. If you don't hire a company to handle these, you'll be the person your tenants call. Develop a system and lay out the details in your rental papers. Being proactive and explaining all the details will ensure a smoother experience for you and your tenants.
Know that the property could decrease in value. Your home will likely not be maintained with the care you had for it. If you decide to list your rental property while it's still occupied, you'll want to make sure you check the condition of it before it's shown. Tenants don't have the same incentive.
Don't let these things deter you from becoming a landlord. Instead consider all your options, do your research on the current market conditions in your area, and gauge your patience, financial ability, and long-term plans before you commit to either renting or selling your home. Looking at the big picture will help you not to over-react and make a snap decision. There are options...so choose them wisely.