The Reluctant Landlord: Renting Out Your Home in a Weak Market

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It was an unsuccessful attempt to downsize for a smaller house payment that led Joseph Cortez, a Realtor in Corpus Christi, Texas, to become a landlord. “My wife and I started building a house because we were pregnant with our first child,” he explains. “In an attempt to downgrade our payment, we built a house Some homeowners who want to sell are renting out their homes, waiting for a market recovery. 300 square feet smaller than our current one. But in the process, we had several weather delays, and construction took longer than expected. My wife became more pregnant and she and the house were due around the same time.” When the Cortezes thought of moving with a newborn, they were overwhelmed, so they put their new house on the market. But it wasn’t as easy to sell as they had hoped. After a good deal of interest but no offers, the couple was asked if they would allow someone to rent for a year, then buy the home. “We took it,” he says. “We make approximately $15 a month in profit.” The circumstances may be different, but the story is the same for homeowners across the nation. As the market continues to sputter, some who had hoped to sell are now finding themselves turning into reluctant landlords. Deciding to Rent Out Your Home The decision to rent your home out can be a tough one, both emotionally and financially. Decide if the loss you would take by selling the home for less than you owe now is more than any loss you’d sustain while renting it out, says Bret Holmes, president of Advanced Management Group, a property management company based in Las Vegas. “You have to calculate if you were going to sell today, what kind of loss you’d take,” he says. “Then consider how much you’re going to lose in the gap between how much rent you’re bringing in and how long you want to rent it out.” For example, if you have a $100 negative cashflow each month you rent out your house and you think you’ll rent it for two years, you’ll lose $2,400 on the house over that period of time. If that’s more than you’ll lose by selling it at a loss, it’s probably best to just get it over with, Holmes explains. Otherwise, he says, renting it makes sense. Emotionally, of course, there’s an entirely other set of issues. “It creates emotional ties and makes it hard to see someone not take as great care of the property as the owner once did,” Cortez says. You have to step back and look at it objectively to be a better landlord. Know Your Local Laws The first thing you should do if you decide to rent is research your local laws. For some areas, you may have to have a business license if you want to rent your home. “We had to get a business license from the Washington, D.C., government when we leased our property,” explains Bronagh Hanley, who became a landlord when she moved from D.C. to the West coast with her husband and the couple decided they didn’t want to sell their home they’d worked on so hard for so long. But Hanley didn’t anticipate the difficulties with getting the document. “It took forever,” she said. “They had random repairs they wanted us to make, there was a substantial fee and they had to schedule an inspector to come to the house.” The whole process took about a month, and Hanley says this is something potential homeowner/landlords need to keep in mind because not only can it disrupt your timetable, it is also emotionally exhausting. Potential landlords also need to educate themselves about equal housing opportunity laws says Braun Mincher, president and managing broker of Aggie Real Estate, LLC and Aggie Commercial, LLC in Fort Collins, Colo. “If you do something like charge a larger deposit because a family has a pet, that’s fairly standard practice and wouldn’t be considered discrimination,” he explains. “But you obviously can’t change your practices based on race, sex, creed, culture, religion or anything else like that. It has to be based on your actual risk.” Finding the Right Rent Price Deciding what to charge on rent can be tricky, Mincher says, because often the amount you could rent a property for isn’t really connected to what you should be able to sell the property for.

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