Home sellers become reluctant landlords in slow market

Jun 16 2011 - 12:17pm

When Spencer Strahl and his wife, Maureen, decided last summer to relocate to Omaha, Neb., they figured he'd remain in North Carolina's Triangle Research area to sell their home while she would take their three children and start her new marketing job.

But three months after listing their home for sale, the Strahls, both 42, realized their plan wasn't going to work. The house had few showings and no offers. So they did what an increasing number of frustrated sellers are doing: They kept the house on the market, but put it up for rent.

"Three or four years ago, we never would have dreamt that we would have to put our house up for rent," Spencer Strahl said.

Sellers like the Strahls must decide: Severely discount price to speed a home sale, or try an income-producing rental and wait for the market to improve.

Many become reluctant landlords. The number of single-family rentals nationwide jumped by 2.3 million from 2006 to 2010, after increasing by 720,000 during the first half of the decade, according to Harvard's Joint Center for Housing Studies.

The rise in single-family rentals is a sign that many believe a housing recovery is a way off. It's also further evidence of just how much of a buyer's market it has become.

"I've got a bunch of clients that over the last year have wrestled with this question," said Norman Block, who owns a realty company in Cary, N.C.

Clients are more open to the idea of renting after learning that U.S. tax law allows a homeowner to rent a home for a time and still claim it as a primary residence, Block said. Retaining that distinction allows a seller to exclude up to $250,000 in gains -- and up to $500,000 for couples filing jointly -- from taxable income.

While sellers who bought at the market's peak are unlikely to realize much profit, the rule can have major implications for those who have owned their homes for a long time.

The home rental market is one of the few real estate sectors to have benefited from the residential real estate crash.

The U.S. homeownership rate has declined for six straight years and is at its lowest point since 1998, the U.S. Census Bureau says.

Although many more single-family homes are for rent, a lot more people are trying to rent them.

Meanwhile, the foreclosure crisis has turned waves of homeowners into renters, and many of those people won't be able to buy another home for years because of bad credit. Others are renting because they can't sell their existing home, or because they consider ownership too risky.

There are downsides to going from homeowner to landlord. A tenant is unlikely to take care of the property the way an owner would.

When the house is placed back on the market, it may need fixing. It also can be harder to sell a home with tenants.

"That's a very different proposition than just moving out and selling it," said Todd Crenshaw, an owner of Red Door Co., a property management firm in Carrboro, N.C.

Red Door has seen rental rates soften as the supply of rental homes begins to outstrip demand. The dynamic is familiar to those trying to sell homes in the current market.

"Basically, it's the owners who can undercut their competition who keep their property rented," Crenshaw said.

Block said it typically takes his firm 60 to 90 days to find a tenant. Crenshaw said he tells customers that if a home hasn't rented within 45 days, they may need to reduce the rent.

It took the Strahls more than six months to find a renter. The tenant signed a 12-month lease, but hopes to convert it to a lease-to-own agreement within six months.

A house that had been on the market for $275,000 to $300,000 now rents for $1,600 a month, 10 percent of which goes to the Strahls' property management company.

"We found the house that we thought we were going to live in forever," Spencer Strahl said. "But once the economy did what it did, we had to make a choice between staying there and possibly my wife never working again or making a move."

(Distributed by Scripps Howard News Service, www.scrippsnews.com.)

 

From Around the Web

  +