Sellers: Beware of Renting Your Home While Waiting for the Market to Rebound

Westcoe Realtors, Riverside California…There are two type of landlords in the real estate market these days…those who purchased their investment property with the intent to rent it for some period of time, and those who are only offering their personal residences for rent because they feel they cannot sell at today’s prices. 

The former represent people who entered into this investment arena knowing full well the inherent responsibilities of being a landlord, and purchased their real estate solely for the money-making potential the property contains.

The latter are individuals or families who did not intend to ever rent their home, but due to circumstances not of their choosing, feel they are now forced into becoming a landlord until home values rise to a level deemed high enough to eventually sell.  It is to these people that today’s real estate topic is addressed…because you really need to know what you are getting into before turning your residence into a rental.

Most sellers we encounter these days who head down this rental road with their personal residence do so because they “want to wait for the market to rebound and get a higher price for their home.”  That thinking is fine as long as you are aware of just how long you may need to wait. There is an article on the front page of the Riverside Press Enterprise today that quotes some economic guru…and it is his opinion that our current suppressed real estate pricing market is with us “until 2010, and that it will take another year after that for us to get back many of the jobs lost during this time.”  All this has an effect on housing sales, and housing prices.

Who knows if any “expert” has a better take on the future than anyone else…but the simple fact is that waiting for housing prices to rebound to anywhere near their previous levels definitely will take some time…years by almost everyone’s account.  First we need to hit bottom with our home prices..and we are almost there.   Then we need to bounce around along the bottom for some time while all the bank repos sell…and only when the banks have pretty much exhausted their supply of repossessions can prices begin to climb again.

So…when considering whether to sell at today’s prices or not, sellers should factor in the time frame they will be playing the landlord game…because we now tell our investors who purchase a home solely for investment that they should plan on owning this property for at least 5 years to get the most from their investment…and sellers who feel forced to rent should heed the same advice.

Secondly, there is a different mindset between an investor who bought a property solely to rent it, and a seller who is renting because they have to…and it has to do with upgrades and emotional attachment.  Renting out “your own home” is difficult.  You have probably upgraded it far more than you would have if it were bought simply as a rental, and there is certainly a much larger emotional attachment to your “home” as opposed to a rental. 

Therefore, are you really ready to see your home neglected by a well intentioned tenant, who by definition, will not care as much about your “home” as you did?  This is a huge issue, and not one to be taken lightly.  You have little emotional involvement in the purchase of a rental property…fix it up, new paint and carpet, and off you go.  If it gets trashed by someone else, it is a pain…but it is a financial pain, not an emotional one.  Having a tenant trash your “home” is far different…and far more painful.  Be aware of this very real emotional aspect to renting out your “home”.

Lastly, there are tax implications when turning a residence into a rental, and you really need to check with your tax professional for that information. Westcoe is not qualified to give this advice, but we know enough to make sure you seek the opinion of someone who is.

In the end, we understand that this real estate market has thrust many issues upon sellers that they did not plan on…and sometimes, the choices are difficult.  However, we just want to make sure that when faced with these choices, you fully understand the implications and impacts of whatever choice you make.  That’s what we are here for.