Can you be an "accidental landlord" ?

Reading this article from Rismedia called: “sign of the times, accidental landlords”, it reminded me of several situations I have seen recently here in the Bay Area, with clients who became exactly that: an accidental landlord.

What do you do indeed when you need to move, but your property would not sell for what you bought it for?

One solution is to sell it at a loss, and recuperate this loss in the new purchase, which is going to be less expensive too; but you cannot do this as easily nowadays. It used to be that you could purchase a home and get a “bridge loan” from the house you were moving from. The bridge loan was predicated on the house being sold within 2 or 3 months. Banks did not have any problem doing this because they were pretty sure your old house would sell fairly quickly. You cannot get such a bridge loan today, and therefore you have to sell your previous house first, and then move to temporary housing and start looking for your new house. Not very convenient…

Another solution is to buy subject to the sale of your current home. This is harder to do than to say; often it means you’d have to pay more, to compensate for a weak bargaining position. It is almost impossible to do if you are looking for a desirable property, and other people want it too.

The remaining option is to rent out your previous house and purchase your new home. But there again the banks are a lot tighter with their money (hum.., your money…), and the rules are much stricter. The ideal is when you have enough income to qualify for 2 loans easily. If you are not in this ideal case, you need to show that your previous house has a tenant in place before they will lend you on your purchase. And there you go, you are an “accidental landlord”.

People do not intend to remain a landlord for long, just the time for the market to improve enough that it will make sense to sell. But actually, if you are going to have savings, it makes sense to spread them over several investment vehicles: the usual suspects are “real estate”, CD’s, bonds, stocks and cash. Over the long term, a real estate investment can be a good retirement account. But remember to check with your tax advisor: depending on your specific situation, the tax implications will not be the same.

If you think you may find yourself in such a situation, call me to discuss your options.
Thanks for reading!
Francis
http://www.frolland.com/
http://www.francisrolland.com/

In the Valley: sell or become a landlord?

Sell or become a landlord?  That is the question.  A study by Zillow recently showed that more than 1/4 of homeowners considering a move in the next 3 years were considering renting out their home.

This question is being asked more often right now as people either are moving away from the Valley, or want to move up or down to change something to their present lifestyle. 
It is asked more often now that values have gone down from, may be, a high purchase price 3 or 4 years ago.
It is asked more often now that banks do not grant "bridge loans" like they used to, and now that rental prices go up (Nationwide, but also locally), and that it seems like just a matter of time until prices go up from where they stand now (even if it is not doing so like it was in the past 15 years).

To keep a property for ever makes a lot of sense to diversify one's portfolio.  It can and should be, long-term, a part of a retirement account if you already have a lot of money in the banking system.  Down the line, in 20 years, it will seem like impossible to afford to rent the house that today seems so high in price.

Today, as many people loose their property to short sale or foreclosure, they need to find a place to live, and this explains in part why there is pressure on rental prices.

If you are faced with this dilemna, consider the following factors:
- your confidence in the future of home values in the Valley,
- the tax implications, which could be positive or neutral for you depending on your tax situation and income, and the way the property would be managed,
- how comfortable you are with 2 mortgages,
- appeal of that kind of diversification of your retirement assets,
- who will manage the property?
- are you cut out to be a landlord?

Note: if you are moving up or down in lifestyle, the money that you may "lose" in the sale of your real estate asset might be quite equivalent to what you will gain by buying a cheaper replacement property.  So then it is a question of strategizing such a move.  If you are in this situation, contact me and we will review all the options together.

Thanks for reading,
Francis

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