Kyle Becker in front of his Virginia home, holding a picture of the Missouri house he now rents — reluctantly. (© Stephen Voss)
With housing prices still in the dumps, many Americans are finding themselves in the uncomfortable position of landlord.
Some have been forced to relocate for a job and can't sell their houses. Others have moved, but are holding on to their previous homes, hoping for prices to rebound before selling. Many are finding that rent checks don't come close to covering their mortgage payments.
Hard data are scant on how many homeowners are renting out their homes, but anecdotal evidence suggests numbers are up. In one indication of the trend: More homeowners are converting their homeowners insurance to landlord policies that cover the additional risks of leasing out a home. Allstate, the second-largest home insurer in the U.S., reported a 27% increase in conversions in the first quarter from the previous year.
"The number of rental homes available is greater today than it was a year ago due to the foreclosure crisis," says Mike Nelson, president of Rental Home Professionals Inc., a multiple-listing service of rental homes owned by the National Association of Residential Property Managers in Chesapeake, Va.
In Frederick, Md., real-estate agent Jim Bass says that because of rising demand, a couple of months ago his real-estate group started offering property-management services, tending to the rented homes of absent owners. Bass says a client recently rented out his 4,700-square-foot house, which had failed to sell after being listed for $790,000. Now a tenant pays $2,995 per month — a shortfall of $2,000 from the $4,995 mortgage payment. The homeowner "feels that two years from now, the market will improve to the point where he can recapture that," Bass says.
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Experts generally advise against becoming a landlord in hopes of recouping lost home value. In some hard-hit parts of the country, such as Florida, Nevada, Arizona and parts of Ohio, prices may not climb back to mid-2000s levels any time soon. Landlords have to pony up money each year for property taxes, insurance, maintenance and repairs. Meanwhile, demand for rentals in many parts of the U.S. isn't strong. Apartment vacancy rates nationally are the highest in more than two decades, and rents are falling in some areas, compounding the difficulty of finding a good, steady tenant.
Homeowners who owe more than a house is worth in very depressed areas may be better off selling even in a short sale, whereby the bank agrees to accept less than the full amount owed on the mortgage, says economist Edward Leamer, director of the UCLA Anderson Forecast. Your credit rating takes a serious hit, but, he says, "better to take your losses and move on."
Kyle Becker, 27, and his wife didn't think they had much of a choice in becoming landlords. The couple and their infant son moved from Columbia, Mo., to Winchester, Va., last year so Becker could attend pharmacy school at Shenandoah University.
Before they moved, they listed their three-bedroom, two-bath ranch house in May 2008 for $139,000. They had bought it in 2005 for $110,000 and put $30,000 into roofing and siding. By February, they hadn't received a single bid.
"We had only seven lookers over the course of a year," Becker says. Meanwhile, the couple was paying $1,200 a month in rent for a Virginia house. Last spring, the Beckers finally leased the Missouri house for $675 a month — $225 less than their mortgage payment.
Because the home was no longer owner-occupied, Becker was unable to refinance his 6.1% mortgage when 30-year rates dipped below 5% briefly.
If he had to do it all over again, Becker says he might have chopped the price of his house in Missouri, where sales have been stagnant.
