Rob Armstrong

As a followup to this item, on Sunday July 20, the New York Times ran a great article on this very topic, written by Vivian Marino (article link below), which I think is right on the mark in covering the issue.

In the article, Ms Marino talks about a “new class of real estate investors- accidental landlords”, and walks through the stories of several actual owners who are (or have recently) dealt with the issue of not wanting or being able to sell their homes in the current market, and working through the issues of how to handle the property as a rental. Landlord-tenant, Fair Housing, caution about sourcing a lease to adequately protect the owner, managing vendors for repairs and maintenance, and the importance of screening tenants are important issues which the article raises.

Ms. Marino also talks about the value of professional Property Management, which I have discussed as well in earlier blogs. Essentially, managing a property effectively while navigating all of the above concerns can not only be challenging for an “accidental landlord”, but can also be a full time job. For what is a pretty nominal fee (generally $100-$200 a month on average), a Property Manager is a trusted professional resource who can provide expertise and has the knowledge and experience to manage properties effectively. Ms Marino also wisely points out that Property Managers “vary tremendously”, and owners should use references and referrals to find one they feel comfortable with. In addition to personal referrals from friends or colleagues, she also recommends NARPM (National Association of Residential Property Managers- http://www.narpm.org) as a referral resource. In addition to these, I personally find that a good way to tell how well a PM manages their properties is to drive by some of their properties. As you see signs or rental listings for a particular manager (and consider the impression their marketing makes on you as well), take a trip by the property. Is it well maintained, kept tidy (garbage cans off the street, etc), have they polished up all of the curb appeal elements? This is the best way to know how they will manage your property as well.

The only aspect that I felt the article under-represented was the “relax, it doesn’t have to keep you awake at night” factor. Of course turning your home into a rental property is a big deal, and yes as I’ve pointed out there are a lot of complicated issues that bear on the situation. But with a little bit of education and awareness about them, you will be able to make informed decisions, and you should do so, then let it go, don’t overthink or worry incessantly about it. If you are reading Property Management blogs and doing some cursory research, you understand the issues enough to know your resources.

“Landlords, if only by accident”, NYT July 20, 2008 is highly recommended reading for all of the “Accidental Landlords” out there.

http://www.nytimes.com/2008/07/20/realestate/20sqft.html?_r=… - Mon Jul 21 2008, 10:28

While Mr Berg's position is clearly expresses one extreme end of the issue posed, I suspect it does reflect some of the concerns that potential landlords have (which in my experience are generally unfounded). Unfortunately, it also doesn't accurately answer the writers questions per se.

To be sure, there are literally tens of thousands of residential property owners who rent out their single family properties, do quite well at it, and are very happy. The issues of risk Mr Berg raises have a broad level of missing detail, in that the financial makeup of a given rental will depend entirely on the makeup of the owners current financing of the property and the marketabiliy of the property. A well maintained home that's marketed well generally rents quickly and at the best market prices. (In addition, see my original answer below pertaining to the P&L and tax treatment of rental property, which have additional advantages).

As to the repair bills upon vacancy- a properly managed property wont' run into this, as tenant screening, on-site inspections, and adequate security/damage deposits are all well known tools in the rental industry. I will also underscore that using a professional property manager will minimize owners risk to the issues that Mr Berg mentions.

Hope this helps -

Rob - Wed Jun 25 2008, 08:03

Hi Keely-
Yours is a great question because it's one that many sellers are asking themselves these days.

Whether renting is an alternative to selling is something that's based on the specific needs of each seller. Some of the answers here have touched on that, in terms of cashflow, market forecast over the next 18-24 months, etc. I would add to this some additional things to consider as well:

-If an owner isn't depending on the sale in order to close an another purchase (for example, if they are moving and are actively looking or have made an offer on a new home which will be contingent on the sale of their existing home), than renting certainly should be something they consider. It is a buyers market right now, and while prices could continue to fluctuate in the short term, it could be prudent to hold onto the property as a rental for one or more years to see how things play out. Over the longer term, real estate historically has continued to increase in value- the question today is how much and over what timeline. So, waiting things out isn't a bad alternative if that's an option for the seller.

-Somthing that hasn't already been raised here is that income property (which is what a home becomes as a non-owner occupied rental) has financial benefits beyond simple rental cash flow. As income property, it's treated tax-wise somewhat like a business, meaning that operating expenses (utilities you pay, repairs, taxes, insurance, mortgage interest, management, etc), depreciation and other costs are deducted from the gross rental income in order to determine taxable income for the property. The affect can be a dramatic tax benefit depending on the specifics involved. So, owners should confer with a CPA or other resource to consider these benefits in addition to simple "rent less mortgage" cash flow impacts.

-Finally- being a landlord is not something that everyone is prepared to become. There are landlord-Tenant laws, tenant screening, vendor management (like, knowing a reliable plumber who doesn't charge an arm and a leg to fix a leaky faucet), tenant relations (for example, what are your options if the tenants break one or more of the terms of the lease?, or, what are your obligations if they want to paint the interior in leiu of part of the rent, etc), and myriad other issues that, unless an owner does a lot of research first and/or have the time to take on landlording as a "part time" or even "full time" job, s/he may not be effective at self-managing the rental. In these cases, using a professional property manager provides you with a trusted professional resource to navigate rental property issues confidently. I have some questions/criteria you should consider in choosing a property manager, and would be glad to share thoe with you.

Last note, I saw an answer earlier about renting in the short term while you try to sell the property. My advice with this is to be very careful before doing something like this. Month to month rental carries vastly different legal obligations than a lease, and in Seattle, month to month tenancies are heavily weighted toward the tenant, not the landlord. In short, they give you less control over your property or the terms of your tenancy. Also, properties for sale are much harder to rent because tenants know that the tenancy may not be stable, and no one wants to have to move unexpectedly.

Leases, on the other hand, are by far perferable for a landlord, however by law go with the property- meaning that a tenant under a 1 year lease cannot be forced out of the property is sold before the lease term.

I know I've thrown a lot of information out here, but wanted to provide some depth around the question. Good luck with your endeavors! - Sat Jun 14 2008, 12:44

As a followup to this item, on Sunday July 20, the New York Times ran a great article on this very topic, written by Vivian Marino (article link below), which I think is right on the mark in covering the issue.

In the article, Ms Marino talks about a “new class of real estate investors- accidental landlords”, and walks through the stories of several actual owners who are (or have recently) dealt with the issue of not wanting or being able to sell their homes in the current market, and working through the issues of how to handle the property as a rental. Landlord-tenant, Fair Housing, caution about sourcing a lease to adequately protect the owner, managing vendors for repairs and maintenance, and the importance of screening tenants are important issues which the article raises.

Ms. Marino also talks about the value of professional Property Management, which I have discussed as well in earlier blogs. Essentially, managing a property effectively while navigating all of the above concerns can not only be challenging for an “accidental landlord”, but can also be a full time job. For what is a pretty nominal fee (generally $100-$200 a month on average), a Property Manager is a trusted professional resource who can provide expertise and has the knowledge and experience to manage properties effectively. Ms Marino also wisely points out that Property Managers “vary tremendously”, and owners should use references and referrals to find one they feel comfortable with. In addition to personal referrals from friends or colleagues, she also recommends NARPM (National Association of Residential Property Managers- http://www.narpm.org) as a referral resource. In addition to these, I personally find that a good way to tell how well a PM manages their properties is to drive by some of their properties. As you see signs or rental listings for a particular manager (and consider the impression their marketing makes on you as well), take a trip by the property. Is it well maintained, kept tidy (garbage cans off the street, etc), have they polished up all of the curb appeal elements? This is the best way to know how they will manage your property as well.

The only aspect that I felt the article under-represented was the “relax, it doesn’t have to keep you awake at night” factor. Of course turning your home into a rental property is a big deal, and yes as I’ve pointed out there are a lot of complicated issues that bear on the situation. But with a little bit of education and awareness about them, you will be able to make informed decisions, and you should do so, then let it go, don’t overthink or worry incessantly about it. If you are reading Property Management blogs and doing some cursory research, you understand the issues enough to know your resources.

“Landlords, if only by accident”, NYT July 20, 2008 is highly recommended reading for all of the “Accidental Landlords” out there.

http://www.nytimes.com/2008/07/20/realestate/20sqft.html?_r=… - Mon Jul 21 2008, 10:27

Hi Jocelyn,
I provided a version of this answer to a similar question, so it's worth responding here as well, as a lot of owners are really struggling with this very question these days (you definitely are not alone!).

Whether renting is an alternative to selling is something that's based on the specific needs of each seller. Many owners rightly think about rental cashflow, as well as the market forecast over the next 18-24 months. I would add to this some additional things to consider as well:

-If you aren't depending on the sale in order to close an another purchase , than renting certainly should be something you consider. It is a buyers market right now, and while prices could continue to fluctuate in the short term, it could be prudent to hold onto the property as a rental for one or more years to see how things play out. Over the longer term, real estate historically has continued to increase in value- the question today is how much and over what timeline. So, waiting things out isn't a bad alternative if that's an option for you.

-Somthing that you should also think through is that income property (which is what a home becomes as a non-owner occupied rental) has financial benefits beyond simple rental cash flow. As income property, it's treated tax-wise somewhat like a business, meaning that operating expenses (utilities you pay, repairs, taxes, insurance, mortgage interest, management, etc), depreciation and other costs are deducted from the gross rental income in order to determine taxable income for the property. The affect can be a dramatic tax benefit depending on the specifics involved. So, owners should confer with a CPA or other resource to consider these benefits in addition to simple "rent less mortgage" cash flow impacts.

-Finally- being a landlord is not something that everyone is prepared to become. There are landlord-Tenant laws, tenant screening, vendor management (like, knowing a reliable plumber who doesn't charge an arm and a leg to fix a leaky faucet), tenant relations (for example, what are your options if the tenants break one or more of the terms of the lease?, or, what are your obligations if they want to paint the interior in leiu of part of the rent, etc), and myriad other issues that, unless an owner does a lot of research first and/or have the time to take on landlording as a "part time" or even "full time" job, s/he may not be effective at self-managing the rental. In these cases, using a professional property manager provides you with a trusted professional resource to navigate rental property issues confidently. I have some questions/criteria you should consider in choosing a property manager, and would be glad to share those with you.

I know I've thrown a lot of information out here, but wanted to provide some depth around the question. Good luck with your home (and welcome to West Seattle!)

Rob - Sat Jun 14 2008, 13:03