Plan B for some home home sellers: Be a landlordAfter six years in a condo, Madison resident Jessica Ramirez Torres is ready for a bigger home, but the market isn't cooperating.
By: By Karen Rivedal, The Wisconsin State Journal, Superior Telegram
After six years in a condo, Madison resident Jessica Ramirez Torres is ready for a bigger home, but the market isn't cooperating.
She tried to sell the renovated, 900-square-foot unit on the East Side for more than eight months, at less than $100,000. Almost nobody showed any interest, and the one offer she did get was "way below" what she was asking, she said.
So Torres, 32, like a number of hard-pressed but determined home sellers tired of being stymied by the housing slump -- at least in terms of desired price -- pivoted over to Plan B and decided to become a temporary landlord.
For the next year or two, she will take advantage of a hot rental market to pay the mortgage, while moving back home to save more money for a down payment on the house she wants to buy with her boyfriend. She thinks it's likely the housing market will be better then, and she'll be able to sell her condo without taking a big financial hit.
Even so, she said, the decision wasn't easy to make.
"We didn't want to be landlords at all," she said. "We didn't want to have to deal with getting a tenant. It's an option we didn't think about until it was brought to our attention."
But certainly not everyone is sold on renting.
Sonja Durkee of Pewaukee just spent the past six weeks remodeling and staging a home on Barlow Street in Madison that belongs to her son and daughter-in-law, Ben and Jayme Durkee. The young couple weren't able to sell it over the past 11 months, and they must move to California on July 1 for her son, a new doctor, to take a job at a hospital as part of his training.
Durkee and her husband spent $12,000 improving the small house on the Near West Side in the hope that it will sell now, and they think that gamble is a better risk than putting renters in it, she said.
"Even if you rent it for one year to someone, it will never look the same," Durkee said. "People just don't take care of a place as well if it's not their own."
No other choice
Some people, though, may have little choice but to rent their homes if they aren't able to sell in a required time frame or for the right amount.
Frustrated home sellers who might take a turn at acting landlord include people who have to move for a new job, or those who need to upsize or downsize because of changing family situations.
Homeowners who owe much more than their property is worth are also possible candidates, as are those who can't pay their mortgages because of job loss, sickness or other financial setbacks.
"We've advised the rental thing, rather than sitting on the market for a long time, when the market wasn't moving," said Marie "Buzz" Hetzer, manager of Stark Company Realtors' central Madison office. "It wouldn't be our advice today, because things priced right are selling again."
Though it's still not always happening at the price people need or want, Hetzer acknowledged.
In the first quarter of this year, Dane County's median sales price was stuck at about 2004 levels, according to South Central Wisconsin MLS data analyzed by Madison-based Keller Williams agent Dan Miller.
"A lot depends on their financial situation and what their monthly cash flow is," Miller said, about whether he'd recommend clients consider renting.
If people must sell quickly, he said, pricing correctly to cut their losses and move on may be better, he said.
"You don't know what's going to happen to the market," he said. "No one can predict the future and prices aren't necessarily going to be any better next year. There are a lot of reasons to consider not renting and just (focus on) getting your place sold."
"This is an option that works for us, because we're able to do it," Torres countered. "Some other people wouldn't be able to do it."
Fears and unease
Torres said she decided to try becoming a landlord after a recent call from Greg Augustine, owner of MadisonHome Rentals.com. He made a pitch for how his new company could help.
For a fee of between 6 and 10 percent of the monthly rent, Augustine said he would set a rental price to cover all her expenses and his fee, write up a contract, screen and sign tenants, collect rent and manage the place. He would send her what was left after paying expenses and even take any late-night emergency phone calls about over-flowing toilets or frozen pipes.
That sounded good to Torres, whose first tenants, a married couple with a baby, move in May 15. They signed a one-year lease.
"The (tenants) have two dogs, so we were a little worried about that," she said. "But as long as they know what they're responsible for and I don't have to deal with it, then it's fine."
Of course even with good management, tenants can damage a property beyond what a security deposit will cover, and they can run into trouble paying the rent, too, which can lead to foreclosure as easily as an owner's inability to pay would, if it's not caught quickly and replacement tenants found.
Those kinds of concerns -- especially about their home getting damaged after owners have often just recently sunk money into it to upgrade it for sale -- are part of the fears his clients often have, Augustine said, as well as just general unease about it.
For some, the idea of letting any stranger live in their homes, even at a profit and for a limited period of time, is too strange to consider.
"It's something that people don't associate with their house," Augustine said. "Their house was their home when they bought it. It was a big investment for them. When they think renting, they think about 'landlords,' and landlords don't have the rosiest reputations."
Augustine's home-rental company, formed last year, is part of a growing industry niche aimed at helping the market's newest small landlords -- most of whom never expected to be in such an unfamiliar position -- dive into the hot rental market. Good tenants in theory shouldn't be hard to find, with a rental vacancy rate of only 2 percent, according to estimates from Madison Gas and Electric.
Madison-based Apartment Matchmakers, co-founded in 2008 by Lynn Lanning and Deann MacPherson, also has a division that specializes in managing properties for those who choose to rent out their homes or condos.
Lanning said she offers a full-service rental option, much like Augustine described his services, and a "caretaker" option for those who want to try to sell the property while they rent it. That approach involves a month-to-month lease that charges slightly lower rent for tenants who take good care of the place while allowing for showings and moving out within 60 days if a purchase offer is accepted.
Though independent statistics generally aren't available, Lanning said she's seen demand for this type of business go way up in recent years -- from both owners and potential renters. She also described it as being a large part of the 150 percent growth she said her company has seen over the past year.
"I can't get enough single-family homes in West Madison (available for rent) for under $2,200 a month this time of year," she said. "More and more, real estate agents and homeowners are coming to us to do this."
At the same time, though, Lanning echoed agents who said the improving local market -- sales have been up over last year for the last nine months -- could reduce the need for small landlord services before too long.
"This year I am starting to see the selling market get a little better," she said. "We've lost two full-rental listings that were beat out by accepted (purchase) offers. That's a good thing."
(c)2012 The Wisconsin State Journal (Madison, Wis.)
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