A growing number of homeowners are finding out what it means to be a landlord after failing to sell their homes in today’s economy. With home prices down nationwide, many don’t want to take a huge loss when they decide to move. They want to wait to see whether they can rebuild their equity—so they rent.
“People just really don’t want to be landlords, and they really have no choice,” said Dennis Dickstein, a Realtor at Real Estate One in Farmington Hills, Mich., who estimates that 20% of his deals are leases.
Mark and Rhonda LaVelle decided to buy a bigger home while the market was down. The couple had a 1,100-square-foot house in Royal Oak, Mich. to sell but decided to move when they found a 2,300-square-foot home about two miles away. They started renting their house in January after it had been on the market nine months.
“After paying two mortgages and the house wasn’t moving, we were at a point where we would have to sell it at a substantial loss or get someone else in who could pay the mortgage,” said Mark LaVelle, a freelance cameraman.
He and Rhonda, a television-news producer, turned the leasing over to his real estate agent.
“It’s been a great experience. We’re getting the full mortgage payment from the tenants,” Mark said. “My wife just wanted to wash her hands of the whole thing. She looks at it like a liability. I look at it as an investment.”
But it’s not always moving up that sparks a home rental.
Sometimes it’s a life change, such as marriage, college graduation, divorce or death in the family.
Many homeowners who decide to lease their homes use their real estate agents to handle the transaction, including background and credit checks.
The service generally will cost a landlord one month’s rent, while property management could cost 10-20% of the monthly rent. But with rent often set just high enough to cover the mortgage payment, some landlords do it themselves.
Dan Elsea, president of brokerage services for Real Estate One in Southfield, Mich., advises landlords not to be too turned off by potential tenants with bad credit.
“The people coming to them have gotten rid of their biggest expense, their mortgage, when they arrive at the door. They arrive with a reasonably clean income statement if they have a job,” he said. “You should look at the credit report, but don’t scrutinize it too closely. References are just as important.”
Other real estate agents agree.
James Silver, an agent with Keller Williams in Troy, Mich., said there are many good tenants to choose from. “As long as you get everything—a credit report, the last few pay stubs, references. As long as you have everything in front of you, you’re fine,” Silver said.
And the beauty of the rental market is that prices there have not fallen by 40%, as many parts of the sales market have. The reason is there are a lot of renters to feed demand.
“So many people have lost their homes—they are looking for a place to live,” said Linda Hiller Novak, a Realtor with Max Broock Realtors in Birmingham, Mich.
There are horror stories, of course, for untested landlords. Some learn quickly that the old saying, “Possession is nine-tenths of the law,” is true.
Steve Cole, an agent with Coldwell Banker Weir Manuel in Birmingham, said he knows a homeowner in Birmingham who rented his house to tenants who not only didn’t pay rent, they trashed the home before the landlord could evict them.
“When times are tough, people look to scam,” Cole said.
Tom Youngblood Jr., a human resources director, is renting his St. Clair Shores, Mich., home to a responsible tenant after having to evict the first one.
He was lucky. First off, a court clerk helped him figure out how to legally evict the tenant. He had to give the tenant seven days’ notice to pay or face eviction. Then he filed eviction paperwork with the court.
Last December, a judge ordered the tenant to pay or be out in 10 days. She chose to leave and did not damage the home, he said. If the tenant had not moved out within 10 days, a court officer would have done it for her.
It can take from 27-57 days to evict a tenant, according to the Michigan State University College of Law’s Rental Housing Clinic.
Youngblood’s home is now being rented by Danette Trice, an engineer design specialist at AT&T in Mt. Clemens. She had been living in Eastpointe, Mich., with her son, Ephraim Gibson Jr.
Ephraim has bronchitis, and the two had to move because the air-conditioning wasn’t working at their house. Her real estate agent helped her get a $100-a-month reduction in rent and made air-conditioning a requirement in the lease.
“I didn’t have to do this or that to move in,” Trice said. “There was new cabinetry in the kitchen, the appliances were nice and the tile was nice.”