If you’re about 35 years old and you bought your first house between 2002 and 2007, you may fall into the category of what we call the “accidental landlord.” The accidental landlord is someone who purchased their ‘starter home’ at a younger age (early to mid-20s) with the full intent of staying there a good 7 to 10 years, selling, and moving on up like the Beverly Hill Billies.
However, the Great Recession of 2008 threw you a curve ball and that “All American Dream” turned into the “All American Accidental Landlord.” You were sitting on mortgage about 50% more than what the home was worth and there was no way that’d you dip into your family’s hard earned savings to pay off the bank. The dilemma is that you’ve outgrown this little starter home that you purchased while you were young and naïve. Your kids are now sharing the same bathroom, your wife is complaining about “not enough room,” and you’re sick and tired of dreaming about that bigger home. So, what do you do? Some people walk away from the home (e.g., short-sale) and let their credit take a hit. Bad move, we don’t recommend that. Some people decide to rent it out and become “accidental landlords” while they move on up in the world like the Beverly Hill Billies. That’s the smart move – becoming an accidental landlord. You might think it’s not so smart now, but remember that real estate is a long-term investment. And that is what this article is all about. We want to provide the accidental landlords with a few tips.
- Be careful about hiring a property management firm. Yes, it sounds appealing to hire a “professional” to handle that little property of yours – but do you really think giving up the first month of rent and 10% month-over-month is worth it? With so many tools available today, notably VerticalRent, why would you need to hire an overpriced property management firm? You can quickly advertise your property, screen applicants, and fill the vacancy on your own. Even better is that you can use VerticalRent to collect rent electronically on a month-to-month basis. Afraid of repairs and maintenance? Relax, that’s what Angie’s List is for!
- Meditate and Trust that the Market will improve. It’s easy to let yourself slip into the despairs of discontent about your first home. The market sucks, we get it. You lost a bundle of money after the 2008 recession and you’re still bitter over the whole ordeal. Besides, your house isn’t in the best neighborhood and nobody will offer you the price you paid for it over 10 years ago. Relax. Just like the stock market, the real estate market ebbs and flows. Up and down. Sometimes the down is much longer than the up – but eventually, your home will creep back up in value.
- Consider a Rent-to-Own Agreement. So, if you’re really against the idea of staying an accidental landlord over the course of time – we recommend that you consider a rent-to-own agreement with your next tenant. Sell the American Dream to them and allow them to absorb your debt. For instance, perhaps you could negotiate a 3-year rent-to-own agreement where you try to recoup some of the losses and then offload the home to these tenants. Perhaps their credit is subpar and they want to re-establish themselves. It might be a win-win for the both of you!