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Even with home prices on the rise in some areas many homeowners continue to be plagued by the aftermath of the market crash. Last year it was estimated that 13 million homeowners across the United States were still underwater, and another 9 million had little or no equity resulting in the need for some major adjustments. As a result, many homeowners found themselves leasing out their old homes when it came time to move, in the role of “reluctant” or “accidental” landlords. Undoubtedly, many predicted that by 2014 there would be no need to continue in that role as the housing market was sure to continue grow. Unfortunately for would-be sellers, home value growth appears to be slowing, and average U.S. home values nationwide remain about 20% below their 2006 zenith.
Landlords like Maria Wells, who never had any interest in becoming a landlord, found herself managing not one but two rental properties when both she and her son experienced life events which required them to move on from their homes. While she has gotten by, she cites one tenant who cost her fifty thousand dollars in repairs. She has anxiously awaited the opportunity to sell: “When I get enough equity, I will definitely sell.” At the time of this report, she had not yet done so.
Likewise, Arati Patel experienced similar circumstances when she was forced to move to Washington, DC for employment. She left behind a home in Greenville, SC, which she had purchased for bubble pricing in 2007. Knowing she would be unable to sell for the amount she wanted, she decided to become a landlord as well. Patel stated “It was a bit of a nightmare because I don’t live in Greenville…I have no desire to go back to Greenville because my life is in DC. It was a lot of coordination and I am still trying to collect over $2,000 from my tenants.” Patel was reportedly able to sell her home sometime last year, but did take a significant loss – a dreaded outcome for many.
Stories like Well’s and Patel’s exist around the country, but all is not lost as many veteran landlords know. Experts say accidental landlords could benefit from a shift in their thinking about their circumstances. According to licensed realtor Ronald LaBeet of North Carolina, “Most homeowners who are upside down think of themselves as ‘unfortunate’ or ‘unlucky’ because they don’t have equity in their homes, and have no real idea of when that will change. But, another way to think of it is getting help paying the mortgage while you build equity. Investors do it all the time. Homeowners who can do that are already ahead of the game.”
Kelly Joyner, another North Carolina realtor, believes accidental landlords should change their entire focus: “I don’t see homeowners who are upside down on their mortgages as accidental landlords; I see them as accidental investors. If you think about it, they already have many big advantages over the average investor: (1) they know the neighborhood, (2) they know the home inside out and what it would take to improve it both aesthetically and mechanically speaking, (3) they probably have some idea of what the vacancy rates would be like and, perhaps most important, (4) they already have the financing in place. Joyner adds, “…now they no longer have a problem, they have the greatest of opportunities.”
Do you agree that a mindset change for accidental landlords could potentially change the game? What other considerations should there be for accidental landlords? What prompted you to become a landlord, necessity or desire?
