What To Do When You Find Yourself An Accidental Landlord
When house prices go down home owners wince -especially if you need to sell! Dropped pricing can make selling your home a financial loss and may require you to to come up with a material amount of capital just to settle your existing mortgage, pay the bank penalty, or to cover Realtor fees. Fortunately, there is another option.
You can rent your home and weather the storm until the market bounces back.
The “what if” fears that come along with the idea of renting may deter many people from this option, but that doesn’t diminish its silver lining.
Have you ever experienced these fears in relation to renting?
>What if a pipe breaks in the night?
>What if something happens when we’re on holidays in Bermuda?
>What if the tenant destroys the place?
>And, of course, What if they don’t pay their rent??
Most of us have. Thankfully most of the “what if” scenarios we dream up rarely, if ever, come to pass. For every “what if” moment that comes to pass there are fifty or more that do not.
If you have a house that has negative equity or very little equity, renting your home out for the short term while property values rise is a great idea. Don’t worry, house prices always go up (eventually.) Research conducted by myself and the staff at Hope Street Real Estate Corp. would suggest that, on average, house prices have historically risen at the rate of about 4.5% per year for the past hundred or so years. If your house has negative equity currently, you may find that within a few years, the inflationary growth of the homes value will be sufficient to cover your expense of renting it - even at a monthly loss.
On that note, a practical concern about renting your house in a “down” market is that your rent may not even cover your mortgage. Your mortgage may be $3000.00 per month to own, but will only rent for $2500.00. In this scenario you are running a negative cash flow, but keep in mind this can change in very little time.
Also, you should factor in that your $500/ month loss can provide a valuable tax deduction which you can apply against your normal income.
Keep in mind this loss of cash on a monthly basis may be substantially less money than the total loss you face by selling in a poor market. One can either loose a few hundred dollars per month while renting your home, or loose a hundred thousand or more dollars by selling it while the market is down.\
Riding the market is a good long term solution in crummy market conditions. Many people who have found themselves “Landlords by Mistake” find themselves in much better situation when the market recovers. Some even discover they like the idea of owning rental properties and go on to develop their rental portfolio further.
