Are you one of the hundreds of thousands of “accidental landlords” who find themselves owning and managing a rental property or two though you never thought of yourself as a real estate investor?
Perhaps during the housing depression you had to move but didn’t want to sell your house for less than you paid for it. Or you inherited a house that could earn you more money as a rental until prices rose enough to make it worth selling. Maybe you realized you would be better renting your underwater home and living in a rental yourself until you could build up enough equity to refinance or sell.
One thing that accidental landlords have in common is that they consider themselves temporary landlords who did what they needed to do to make some lemonade from the lemon of the housing depression. They took on the burden of ownership and management of properties that otherwise would have sold at a loss. The experience has converted some to become active investors but now, as prices appreciate in most markets around the country, most accidental investors are ready for their reward.
This is a great time to sell
Many accidental landlords are looking for a long-awaited pay day when their property appreciates to an attractive level. The good news is that this is a great time to sell. Rental properties, especially those that are rented and have a good track record in terms of rents and vacancy rates, are in great demand. Foreclosures and short sales are declining in most markets. Huge institutional investors are gobbling up tens of thousands of investment properties in markets where they are active. Smaller investors, located in most of the nation’s real estate markets, are eager to find good properties.
Home values continue to rock and roll. Forecasts that the recovery would peter out in the middle of the summer did not happen and price increases through July and August continued at a double digit pace. Obviously not every market is doing well… and some are doing better than the median. Realtor.com’s report is one of the nation’s largest, and a good, current source of information list prices and inventories.
But do it now
Will prices continue to rise at this pace? Several factors suggest that the answer is no. First, interest rates have risen a little over a percent at point, though not enough to stall the housing recovery. However, further increases are expected should the economy improve. Second, home buyers are continuing to have a hard time getting financing even though lending standards have relaxed slightly. Finally, the extraordinarily low inventories that have driven the recovery for the past two years are disappearing as sellers respond by listing their homes. As inventories rise, pressure on a prices will decline.
Here are four points for accidental landlords to consider when selling their rental properties.
Do you really want to sell?
Consider that keeping your rental property might be a better option than investment alternatives. Serious real estate investors invest for the cash flow created by the rents and consider appreciation the icing on the cake. Single family rents are arising at an annualized rate of about 6 percent right now. If you have a mortgage on your rental property, refinance it while rates are at historic lows and charge rents calculated to cover the mortgage, upkeep and profit to a level competitive with rents in your market. In your calculations, consider tax treatment of rental income. You may find that you are doing better than you can with alternative investments.
If you decide to sell, sell your rental property as a rented investment property with a tenant under a lease rather than an empty house. Selling a rental home without a tenant is like selling a business without customers. You have invested years of work to rehab it, maintain it and market it as a rental property. You have a track record that will make it easier to sell to an investor. The fact that your property is rented makes it much more valuable to an investor than if you sold it as a home for an owner occupant.
It you plan to sell next year, start preparing now. Do some research on your marketplace. Get your tenant to sign a one year or longer lease at a competitive lease. Make sure repairs and upkeep are in order. Consult with a real estate agent before the end of the year.
Hire an agent who knows the local investment market. Investment properties are a different category than homes for owner-occupants. Investors rarely buy homes off the multiple listing services, which is where the major listing sites and sites hosted by brokers get their listings. Rather they are looking for deals from lenders and real estate brokers who specialize in the investment market. Consider Hiring Shawn Penoyer, a Realtor with Keller Williams Peachtree Road, who specializes in this business rather than one who works mostly with families looking for a home.