One of the side effects of a slowing market is reduced liquidity. Home prices make selling less attractive, which has resulted in many people choosing to rent their homes instead. But these accidental landlords have a thing or two to learn.

Earl Hoppenrath owns Intown Properties, urban-focused sales and rental agencies in Austin and Dallas. He says what's happened nationwide is a loss of a lot of momentum.

"One-third of the market was non-occupying buyers at one time," says Hoppenrath. "Now investors can't get loans, so even if you're losing only 10 percent of buyers, that's significant."

That's left a lot of amateur investors stuck with properties they can't sell at a profit, so they look at renting as an alternative, but that solution isn't perfect either.

One in-town client had bought a condo in a high-rise as an investment, and didn't intend to live there. He came to Hoppenrath to rent it out. What the client didn't know was there were 27 other people in the 95-unit building who had the same idea. His expenses were $2,900 a month, but reverse auction rental prices among the other homeowners drove rents steadily down to $2,100, $2,000 and finally $1,900 per unit.

That left the client with lousy options -- hold out for $2,900 and remain vacant, or rent for $1,900 and lose $1,000 a month. He took the rental.

Here are the top four concepts accidental landlords should know.

1. You're not the only with a great idea. There's a reason one-third of homebuyers were investors or second home buyers in 2005 and 2006 -- money flowed like water, so a lot of people had the same idea -- get rich with real estate. Today, those same people are renting the homes they bought, and the sheer numbers are driving rental prices downward.

2. Underpricing works.. It's more cost effective to keep a property rented than it is to hold out for higher rent. Remember, it's about momentum. The market is a reality check, everybody does comps, but they are history, that's what happened yesterday, says Hoppenrath. "If you have your unit, and the one next door is exactly the same and they're cheaper, their's will rent first."

3. Meet your tenant. Whether you are using an agency or not, it's crucial to meet your prospective tenant before allowing them to sign the lease. The best thing to do is a walk-through so that you and the tenant can take stock of the condition of the property. The tenant is the custodian of your property. Use your instincts and rely on information other than the credit report. Just make sure you're not violating any fair housing laws. If there are issues from both standpoints, you both need to know.

4. Understand the true costs of renting vs. selling. Amateur investors think, "My mortgage is this, I should get that." Smart investors understand cash flow. If you declare another property as your homestead, you lose the homestead exemption on your rental. There's insurance, maintenance fees, the cost of make ready and the costs of clean up when the tenant moves out. If you use an agency to rent your property because you're out of state, you could pay as much as one month's rent in fees annually.

   You also need to guesstimate your vacancy costs. If you have a property as an investment for the long haul, and you do year-long leases, you probably have two weeks a year where you're not collecting rent, if you're pricing your unit to rent quickly.

"It all goes back to vacancy," says Hoppenrath.

Published: June 2, 2008

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Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. To contact Blanche, email her at . For more articles by Blanche, click here.