HOME
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Work from home as a
 The niche in a nutshell:
As
an Accidental Landlord (or intentional landlord), you are renting out
properties that you decided to postpone selling or to hang onto as
investments, or you are buying investment properties specifically to
rent out.
Top 5 Services Provided in this
Niche
- Homes
for individuals who cannot afford to buy
- Collection
of rent
- Handling
of maintenance issues
- Advertising
and marketing a home
- Finding
and screening tenants
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Top 5 Markets (US)
- Las Vegas,
NV
- Riverside/San
Bernardino, CA
- Miami,
FL
- Detroit,
MI
- Cleveland,
OH
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Pay Range for this Niche
It entirely depends on the home. If you
are renting out your own home, the pay range is the rent you receive.
If you are renting out another’s home for them, you would be
paid 6 to 10 percent of the monthly rent, depending on what your market
bears. |
Recommended Skillsets
- Organization
- Use
of spreadsheets and/or other money management tools like Quickbooks
- Knowledge
of state and local laws (www.thelpa.com is a great one for this)
- Familiarity
with Housing & Urban Development (HUD) Rules
- Like and
enjoy working with people
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Niche Overview:
A strange
phenomenon has
bewildered economists and changed the way homeowners look at the place
we call “home.”
It was a widely-held belief that our homes were a solid investment, one
that
would appreciate at a modest pace of 8 to 12 percent per year in good
markets,
and slightly lower in less-than-stellar economies, but ultimately when
we
retired we’d have a nest egg in our homes. Even better,
we’d get to create a
life in this place called home; the center of our family life, a refuge
from
our hectic work lives.
During the
creative loan era of
the early 2000s, some people moved their families to better
neighborhoods with
better schools. Some who were less risk-averse took out the sudden
instant
equity and purchased other homes with the money (I am one myself). Many
of us
moved up into bigger, better homes, living the American dream. Some of
us used
our homes to finance other houses, either getting caught up in the
buying
frenzy ourselves or becoming an unintended victim of others’
speculation.
Creative
Lending Begins
Due to this
incredible demand for
all things mortgage-backed, lenders began creative lending: requiring
low down
payments, allowing those with poor credit to obtain financing, and
permitting
individuals to simply “state their income” (the
so-called “stated income”
loans), which in turn led to little personal investment in the home.
For most
people, this was a blessing, and homes are now occupied by families
that are
thriving. Many others, however, need to move but cannot, because they
can’t
afford to pay the bank the amount that they are “upside
down” after the
bursting of the “bubble.” (Of course, whether the
market was in fact a “bubble”
is still up in the air, but signs of a bubble were certainly present.)
Banks began
offering to those who
never had the option of homeownership before –
individuals with
bankruptcies,
numerous foreclosures, and a history of not paying bills –
the chance to own
a part of the
American dream. One of my own family members with a history of
bankruptcy and
foreclosure was able to secure three mortgages during the early 2000s
– all
with no money down. Many Americans jumped at the chance, and the home
boom got
bigger. Creative loan options allowed homeowners to add what they
weren’t
qualified to pay to the principal balance of their home loan (as the
previously
mentioned “negative amortization” loans), but many
were unaware (though it was
thoroughly documented on the loan papers) that at some point, a
loan-to-value
cap would require them to make the full payment. Nor did many realize
that
their “introductory rate” would actually increase,
in some cases doubling or
tripling their payments by 2007-2009. This led to a desperate attempt
by many
to move into more affordable housing or make more money by moving
(again
requiring a home sale), which in turn caused a steep increase in home
inventory. By the summer of 2007, inventory for resale homes was at 10
months
and new homes at 8 months – historic levels since the time
organizations began
tracking these statistics.
So what happens
when homeowners
see their home worth $500,000 one year, and their neighbor’s
home selling for
$400,000 the next? (This may well have happened to you.) If they still
have equity,
they may opt to leave and buy a bigger home for fewer dollars
– essentially upgrading
while the getting is still good.
Reasons
to Move, Reasons to Rent
This is a
buyer’s market if there
has ever been one in my lifetime – or in my
parents’. Foreclosures are at an
all-time high, offering good deals for those who need to get into the
market.
But many people need to move, and either still believe they can get
$500,000 for
their home, or don’t have the equity left to sell for
$400,000 and even pay
their debt and obligations, much less put a down payment on a new home.
Others simply
cannot afford their mortgage and need to rent to someone who can, until
they
are back on their feet or interest rates allow for a refinance that
makes their
home affordable again.
People may be
facing still other
concerns or issues, such as job changes, which are a common reason why
people
move. (This may be a relatively short move within the same state, or a
major
move to another state.) Unfortunately, however, many people have taken
home
equity lines of credit (HELOCs) and second mortgages to pay off debt,
take
lavish vacations, or even purchase additional property with a euphoric
ignorance that the market could ever go down. For them, a sudden job
change at
the same time that their home dropped 20% or more in value in one year
left a
sense of disbelief, and an unwillingness to “let the home
go” for such a “cheap
price” (disregarding the 5-straight-year price increase!).
This is mostly a
psychological phenomenon, but many people took equity up to 95% or 100%
of the
value of the home, and when the value disappeared, they were unable to
move,
because they couldn’t pay off their primary and secondary
debt obligations on
the home. Many others even have third mortgages.
Retirement is
another reason
people are forced to move. Some may have retired and suddenly found
themselves living
on nest eggs that are netting them less monthly income than they had
hoped or
planned for, or they want to move closer to family or retire to a
warmer
climate. Many retiring boomers have suddenly found themselves with
hundreds of
thousands of dollars less than they’d expected, and many have
chosen to rent
out their homes and wait for the market to rebound.
Health issues are
listed among the
top three reasons for bankruptcy in the US,
and they certainly are cause
for financial distress – including the inability to pay for a
mortgage.
Expensive treatments may not be covered by insurance, and homeowners
borrow
money until there is nothing left. Perhaps you too have been forced to
decide
between doctors and mortgages – first borrowing against
equity in your home,
car and even your “fall-back savings” or retirement
and 401(k). Many people
with health issues who needed to move to be close to better doctors or
to
reduce their expenses have been unable to sell their homes, and have
rented
them out – and subsequently rented inexpensive places, and
hope to ride out the
market.
Renting
for Profit
Some see the
demand growing for
rental housing in the future and feel that renting out their home will
be
profitable. There has been an increase in rental demands in our country
– the
higher home prices went, the fewer people could afford them. But people
have
been choosing renting over owning for a variety of reasons: lower
costs,
ability to move more easily, and the number of great rentals on the
market, as
speculators and investors bought new properties only to put them on the
rental
market within days of taking ownership!
There continues to
be an increase
in demand for rentals due to high foreclosure rates and a tightening of
the
credit market, so if you do choose to rent out your home you should
have no
shortage of potential renters! It’s always tough to decide
when to buy or rent,
and many web sites and online calculators (and plenty of lenders) will
offer to
help you make that decision. Look at the numbers with an unbiased eye
and strive
to make a decision that works best for you.
As mentioned, many
people who
choose to rent out their home intend to “ride out the
market,” and you may be
contemplating this yourself. Investors have been using this tactic
since the
initial decline in home prices, and it’s now becoming common
practice for
everyday homeowners.
So what happens if
you do need to
rent out your home and ride out the market? What if you need to move to
another
part of the state or country or even retire, yet you cannot afford to
sell your
home? What if you don’t want to sell your house for less than
you paid for it,
despite the real estate loss on your taxes? One option is to take the
equity
out of the house (assuming there is any, and it’s sufficient
as a down payment
for the other home you’re trying to buy), buy the other house
(taking advantage
of the buyers’ market we see today and will see for awhile to
come), and rent
out the first house as you wait for the market to rebound.
For many, this is
the best
solution. You essentially get two fantastic investments – one
that was
purchased at what I believe is the bottom of the market (the new home),
and one
you can wait it out with – the home you rented.
Alternatively, you may decide
to rent out your present home and become a renter yourself, taking
advantage of
investors offering tremendous rental incentives. This might suit if
your goal
is to cut back on expenses (but be mindful of the tax advantages
you’ll have to
forego!).
Today,
thankfully, you can use technology to
make this transition from owning a home to renting out a home as
seamless as
possible.
Recommended Reading
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Tools of the Trade
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Organizations &
Associations
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Resource Links
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 About
Dr. Danielle Babb
Dr.
Danielle Babb
is a technologist and real estate analyst featured on Fox Business, Fox
News
and MSNBC for her expertise in technology and real estate. Blending the
two
using quantitative analysis, she combines technology, analysis of real
estate
and statistics into her work as a faculty member and into her books. In
two
years, she has released five books, including: Make
Money Teaching Online, Commissions
at Risk, Real Estate v2.0,
Finding Foreclosures
and, coming Spring
2008, The Accidental Landlord. Dr.
Dani presents across the US
on a variety of issues affecting the economy. Her web site is www.drdaniellebabb.com
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