There is a new growing trend in the housing market that is being caused by the Recession in America. That trend is home owners who have unexpectedly become landlords – not by choice. While there may be various reasons behind this growing number of new landlords – the slump in the housing market has forced many people to put their homes up for rent, instead of selling them at a significant loss. Often times the homeowner owes a lot more on their home than what it is worth – so instead of taking a huge loss on the property, they rent it out. Sometimes the homeowner is forced to sell their home because of job loss, relocation, or their adjustable rate mortgage has increased and the home is no longer affordable. Regardless the reason – as long as home prices continue to lose their value, this number will keep growing higher.
Personal Experience
I always like to relate a macro economic event with an example that I have personally witnessed – the unexpected landlord trend is no exception. I have some family members who are a perfect example of how chaotic the housing market actually is. They got themselves so far over their heads with real estate transactions that they have become unexpected landlords for three of their four homes in the past few years. A few years back, the couple decided to retire and wanted to purchase their dream retirement home in a southern location. Unfortunately for them, they purchased this dream retirement home at the peak of the housing boom. At the time of the purchase, they already owned a condominium at a separate location that they used for family vacations. Their plan was to sell off the condo and their existing home and move into the new home they purchased. The proceeds from the sale of their two existing properties would then cover the cost of their new home purchase. That is when the housing market started to plunge and they couldn’t offload their current homes at the price they were asking for to be able to afford the new home purchased.
In the midst of the housing bust, they came across another property that appeared to be a great deal that they couldn’t pass up. So, they decided to purchase their fourth property that they could sit on and sell later for a huge profit. First of all, I would like to know how any bank(s) could lend to anyone who already had three properties that they could barely pay for. I guess that is how we got in the shape we are in. Anyways, the fourth property was purchased through an interest only loan. Almost two years later from the fourth purchase, they have been unable to unload either of their first two properties and the home values continue to depreciate. Now they are even trying to unload the fourth property because they can’t make the payments. Even this property (which was considered a great buy) is losing its value.
The couple has now become unexpected landlords with no end in sight. The ironic thing is that they can’t even afford to live in their retirement home that they want to live in. Because of the homes location, they can easily rent it out compared to their other three properties. To make matters worse, they have no landlord experience and are learning as they go. This has caused them to be inpatient and sign rental agreements with tenants at rent payments way below their monthly costs. In addition, their rental properties now span multiple states which has forced them to hire three different property management companies. Each of these management companies charges around 10% of the monthly rent on the properties.
This couple understands and takes full responsibility for their prior investments. I do not feel any sorrow for them, as it was their personal finance decision to overextend themselves to the point they are at. While I hope they can turn things around for themselves and offload some of their properties, they got themselves into this mess and need to accept why they are in the financial mess they are in. After all, they are not the only ones who have these sorts of problems. It is people like this couple and the banking system who got us into the trouble we are in!
Final Thoughts
As any previous reader of PFI knows, I hope to become a landlord someday to extend my passive income opportunities. I understand that becoming a landlord takes hard work and will never be passive until you can hire someone to manage the property. There are many people out there who never thought nor wanted to become a landlord that are now faced with these daunting tasks of managing a property. Could their be a need for more management companies in the coming future to take care of all these new rental properties? I always like to look for new trends and maybe this is a possibility?
Do you know of anyone who has a home they are renting because they can’t sell it?
Related posts:
- Recession in America – Home Foreclosures
- Recession in America – Abandoned Subdivisions
- Recession in America – Do It Yourself
- Recession in America – Gardening
- Recession in America – What about our pets?
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Brother,
I’m looking to do exactly that. I build an amazing home in Michigan 3 years ago…and 18 months ago I took a job in Cleveland. I’ve now had my 5500 sq. foot house up for sale here in Michigan for over 6 months and my realtor never brought anyone through it. That being said, I had two couples look through it to see if they would like to rent it. I need about $2200 a month to cover my expenses. Both couples chose to buy elsewhere. It is interesting times out there. I thank God that I work for an amazing company that lets me work from Michigan much of the time. I’ll keep you posted on how the home sale/rental goes!
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@Brandon – Michigan is tough! We were fortunate enough to sell our house about two years ago. Good luck as a landlord.