I was chatting with a past client and friend recently about the real estate business, and he mentioned how he enjoyed my last post…”The power of low mortgage interest rates“. We then transitioned into a discussion about refinancing, finishing basements, and our current investment properties. I quickly realized that he and his wife had a very similar story to me and my wife. So that discussion spawned the term “Reluctant Landlord(s)”. The overall real estate market crash has created a whole tribe of people that I like to call “Reluctant Landlords”.
A reluctant landlord is someone who had zero intention of owning a a rental property but due to market conditions has chosen to rent the property versus selling it at a loss.
Every circumstance is different, but many owners purchased their starter properties (small single families, condos, townhouses, etc.) within 5-10% of the peak market only to see their home’s value quickly drop 25-30% when the bubble burst. Then over the last 4-5 years while some people have been forced to sell at a loss, short sale, or foreclose these
crazy folks have stuck it out and actually chosen to leverage themselves even more by buying a second property while their current one is underwater. There are some benefits (perceived and real) to doing this:
- You are not selling a property for a loss (no one wants to do that).
- Having a rental property has tax benefits. Please seek the advice of a tax professional to maximize this benefit. Maybe even talk to my friends at IgotTaxes.com.
- Real Estate as an investment:
- Owning real estate is a great way to diversify your investment portfolio. Most investment gurus will tell you that their are three rock solid ways to accumulate wealth: paper assets (stocks, bonds, etc.), owning your own business, and real estate.
- If you think about it. You may have bought at the peak, but by hanging onto the property and purchasing another one at a lower price point (due to market decreases) is sort of like hedging your original investment and allows you to recover the “value” over time.
If you are interested in becoming a reluctant landlord, or maybe you want to become a not so reluctant rental property owner then I have a couple resources for you…
- Read “HOLD: How to find, buy, and rent houses for wealth“. It’s fantastic! It is easy to read and covers all the benefits to rental properties.
- Talk to a lender. Whether you are getting approved to purchase a new home that you are going to live in OR an investment property, it is vitally important to do some preliminary work to see if you can even qualify for another mortgage.
- Call a Realtor (preferably someone at True North Realty) to talk about the current rental market, the overall real estate market, and desirable neighborhoods.