Many Sellers Becoming Landlords
After years of living in a real estate bubble, many of us grew accustomed to real estate prices perpetually increasing. There was a big push for home ownership during the first part of this decade and why not-financing was easy and cheap, and people were making money hand over fist from the appreciation of their homes. Some places saw more growth than others, but a rising tide lifted real estate values just about everywhere year after year.
When we fast forward to 2009, though, we see a vastly different picture. More than 20% of Americans now live in a home that they are underwater in-they owe a lender more than they could get if they sold the house on the open market today. Even sellers that could break even or make money on their home are having a hard time selling at an acceptable price in this market.
Instead of selling into a buyer’s market, some sellers are choosing to become landlords, keeping the property but renting the home out as an alternative to selling.
The demand for rental properties has remained strong in this market for a couple of reasons. First, there will always be people who simply can’t afford to buy, even at today’s reduced prices. Second, some people have the income to buy, but they lack the attractive credit history that lenders are looking for when issuing mortgage loans today. Finally, there is some fear that the market will continue to fall, and people are hesitant to buy an asset that could continue to depreciate.
Most people are renting out properties temporarily, hoping to sell once the market recovers. This could slow the recovery of housing prices, as inventory levels should stay high when sellers who have taken their homes off the market list them once again.
Renting can be an attractive alternative to selling, but it has its drawbacks too. First, you have to be able to find tenants in a market that has much more available rental inventory than usual. Often, the rent you’re able to collect is not enough to cover the monthly mortgage payment, let alone taxes, insurance, maintenance, and homeowner’s fees. Even if you’re able to find renters, dealing with renters can come with its own set of headaches and risks that you should be prepared for.
Even with these potential drawbacks, renting can make a lot of sense if you’re frustrated with the prospects of selling your home in this market.
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