How To Become an Accidental Landlord
…and what you should expect. Having a problem selling your home? Real estate investment may be in your future if you are trying to sell a home.
I saw an article that mentioned the lenders are moving more aggressively on foreclosures. This can be good and bad for the economy, but this is not a post about a new foreclosure crisis, and how you can profit by becoming a real estate investor. This post is focusing on the seller, and the fact that the seller may find themselves in a new business venture: being a real estate investor. One good aspect of the coming flood of new foreclosures is that we can begin to move this threat to the real estate market off of the books. Foreclosures have the tendency to suppress real estate prices, so sellers cannot always find buyers who are willing to pay their asking price. Foreclosures also mean that there is a great deal of inventory to choose, so builders slow down their production, which also means that sellers have more competition. These two factors concerning foreclosures hit sellers probably the hardest, but there are other factors hurting sellers. In the end, sellers may find themselves waiting for a buyer.
The problem with waiting is that your life is in limbo, and you cannot afford a house that is just sitting there. I was speaking with a neighbor who is planning on selling his home in the future. He mentioned that our neighborhood is quite desirable. My reply was a hesitant agreement. I pointed out that many of my clients wish to move closer into the city center, since that is where they work. People no longer want a two hour commute to work. They also want to be closer to the activities that they enjoy. I went further with mentioning that for some of my clients there is a desire for space at an affordable price, so they are willing to move farther from the city center. Our neighborhood is outside of the main freeway loop around the city center, and we did not have the grand space at a low price. If you worked in certain locations, our neighborhood was great. We then looked at the houses around his own home. His one neighbor appears to have abandoned their house. The house across the street from his was for sale, then a rental property, then for sale, and now a rental property again (all in the last year). The other house next to his had been on the market for almost a year, but the home is now a rental property. A house slightly down the street from him has been on the market for sale twice in the last few years, but the home is still a rental property. In all of these cases, the sellers can find renters, but they cannot find buyers. My neighbor stated that these sales had problems, which was true, but there is no flawless sale of a home. The sellers had become accidental landlords to avoid having to pay for a home that they were not using.
What should these sellers expect now that they are landlords? The first problem is now you are running a business. Once you become a landlord/real estate investor, you have to realize that you are running a business. Treat the situation like a business, and you will start to avoid mistakes.Be come familiar with the laws. Keep books on income and expenses. Have contacts. Understand what your tax situation will be. One way to resolve many of these issues is to hire a property manager. The next problem is maintenance. Renters simply do not maintain a home the same way that an owner will. You may be thinking worst case scenario here, but I mean the little things. A leaky faucet does not seem like a big deal. I saw a home where the water from the leaky faucet ran off of the counter down the side of the cabinet onto a wall. The wall has moisture damage with a hole in the wall. These small damages can add up. The solution is to have a home warranty insurance to deal with certain issues, but to maybe also have the property inspected every year. Another problem can be your renters. If you are not willing to deal with them, you can be setting yourself up for problems. Some problems may be handled when you have a property manager and home warranty insurance, but then you will get the oddball problems. None of the renters can find a key to the house, so they break down the back door (this is why you need the yearly inspection). A crime occurred in the neighborhood, so the renters want a security system installed, but they do not want to pay more in rent. Another renter is angry at his neighbors, and he wants you to become involved in the squabble (whereupon you find out that the origin of the fight is that your renter is a peeping tom). A common situation in this economy is that your renter loses his job, so he cannot afford your price. Do you ask him to leave, and go through the process of finding a new tenant, or do you lower the rent? You may think that you are renting to a stable person, but you never know.
For every problem, there is a solution. Becoming an accidental landlord may not be a bad thing. This is not an entirely passive income stream, but renting your old home is close to being passive. If you take the time to deal with each situation, make plans, and do your homework, becoming a landlord might be a good thing for your income. What would I do if I found that I might have to rent my home instead of selling? I think that I would talk things over with my accountant first. He would have the tax advice and probably some income advice. I would then talk to my real estate agent about property managers, or I would study up on what I would need to know about managing my home as a rental property. The real estate agent may be qualified to be a property manager, but they may also help you find a renter. I would then look into home warranty companies, finding the one that best suits my needs (this means that you need to read what the insurance covers). If I am not hiring a property manager, I wold check into finding legal rental contracts that would suit my needs. This may mean seeking the advice of a lawyer who specializes in real estate law. You may not need the help of a lawyer or property manager, but this simply indicates that you should make the time to study the subject before acting. The point here is that there are professionals who can help you become a landlord, or you can go it alone. Good luck.
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