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Rent or Sell?
Some of the downtown condo owners decide to rent their units instead of selling them. Sometimes the owners need to move but have not owned the units long enough to have any equity, in fact they bring money to the closing.
Selling real estate is not always the most attractive option, and sometimes people have to move, especially when there is a job change, or maybe a new baby.
Having a home on the market and having renters in it doesn't work out very well. Most renters do not want to be bothered by showings. As a Realtor I find the units with renters in them the hardest to sell. Sometimes the tenants don't take the time to tidy up before a showing and sometimes they say no when someone tries to make an appointment to see the unit. It is possible to put a condo on the market while a tenant is living in it but it is unusually not the ideal situation.
The condos in downtown St. Paul seem to be fairly easy to rent out. Consider finding a tenant, especially if there is no equity in the unit. It is even possible to own one home and rent it out and buy another. Property tends to appreciate in value over time, and there are some tax advantages for landlords.
Some condo associations do not allow for units to be rented out.
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I have to seriously disagree with such simplistic advice. Owning and managing rental properties can be a good move, but it takes a much deeper understanding of the business behind being a landlord. My family has owned and managed rental properties for decades, and I chuckle at all the recent advice for everyone to rent out properties they can’t sell.
Being a landlord is hard work; finding new tenants, maintaining the property between tenants, and handling the myriad of issues that can come up all take serious effort by the owner of the property. If it isn’t hard work, odds are, you’re losing money.
At the very least, you should make an additional 10% in rent over all the monthly costs for the condo (mortgage, taxes, utilities, association fees, etc). This money is for when you have to pay to fix things, pay assessments on the condo, or pay the bills when there is no tenant. When you do eventually try to sell, it is often easiest with an empty condo, but that also means you will have to pay the bills those months it is on the market.
Given how much condo’s have cost, and comparing that to recent rental rates, I have not seen many people able to make nearly enough renting out condos. What I do see, is that owners will rent out properties to reduce their monthly out of pocket expenses on empty condos. Often these people are still paying out 100s of dollars a month over the rent to pay all the bills. Which adds up to thousands of dollars in losses each year, which gets much worse if they can’t find a tenant or have unexpected maintenance bills.
The owners are still losing money, they either do it quickly and sell at a loss, or they lose thousands and thousands of dollars a year renting the property. Expecting appreciation to bail you out of bad rental property is horrible advice.
Put simply, for recent memory many people have bought homes on the advice of real estate professionals who spoke of endless appreciation. Many of these people now own homes worth considerably less than they paid. These same real estate professionals are now advising they become landlords, with little to no understanding or explanation of the business model, but again based on the promise/expectations of future appreciation. Fool me once, shame on you. Fool me twice, shame on me.
All great points Nate. No it isn't easy to be a landlord which is why most people don't want to do it. Some people do it and it works very well for them. There are no easy answers for people who do not have enough money to sell property that is worth less than it was when they bought it.
Good point about the appreciation thing. Not sure I have ever talked anyone into buying anything but that is the busines model. I have talked people out of buying property too.
Teresa - what do you mean by your comment "that is the business model"?
MT - what I meant by that is that I don't ever talk anyone into buying anything but that is the expectation. Buyers sometimes think as Nate writes that we talk people into buying homes and sellers expect us to talk someone into buying theirs. I am in full time 100% commission sales, which is not for wimps or whiners. The business model, or the way I make money is by selling. To some selling is about talking people into buying things so I would consider that a business model.
While it is probably different for houses v. condos, taking the rental route really saved our bacon. We've been able to reunite our family and because we are "absentee landlords" we pay a kid to mow the grass, a gardener to weed, shell out for appliance insurance via the utility company and have an on-fall handyman to make sure the house is cared for the tenants are happy.
We make a little profit on the deal, but as Nate says we keep it near to pay for what needs repaired.
I think this is good advice, here in Tucson AZ we have a lot of sellers who realize they cannot sell their home with out writing large checks to cover the amount they are upside down. These sellers turn into overnight landlords, time will tell how many of these landlords get burned a lot of people don’t realize the power most tenants have when they are responsible for an asset of yours worth hundreds of thousands of dollars.
Actually, for what it is worth, I don't think individual Realtors talk people into buying specific homes. Based on my experience it doesn't work that way. However, the organizations that represent Realtors as a group do run numerous ads that try to influence people into buying, fear tactics and misinformation (promises of never ending apprecaition) have been all too common. And like it or not, the opinions that leave roll down hill.
I've known many current and prior landlords over the years. None of them have ever described it as easy money, unless they were also selling a get-rich-quick book. It's not the type of advice I would ever give lightly, especially considering that the variables that influence your success are already set (the price paid for the property vs the rent it will earn).
There are legal considerations. What are your legal rights and responsibilities as a landlord? Do you understand the tenants' rights? Your tenants probably do, and they can get free legal advice to take you to court (in Minnesota at least).
There are financial considerations. Becoming a landlord because you are financial strapped due to being unable to sell a home, just compounds a bad situation. Renters don't always pay rent. And, the landlord is still on the hook for maintenance costs. Do you have the skills, tools and time to fix things yourself or will you have to pay more money to have someone else do it?
Based on my experience, suggesting someone become a landlord because they can't sell their home, is like suggesting someone become a doctor because they are sick. It might help solve your problem, but only after years of hard work.