Investors entering marketplace by renting their Primary Residence

Posted by admin  at April 15th, 2014

A new trend emerging in the real estate market is move-up buyers renting out their previous residence rather than selling it. Traditionally, new homebuyers would likely place their old home on the market and use the equity from the sale towards their new home purchase. However, low ownership costs and escalating rents are convincing move-up buyers to practice this new approach.

Los Angeles, a market that is seeing steady price growth, is exhibiting this trend. The supply of homes on the market for sale will diminish further if this trend continues. However, this unique approach bodes well for new landlords. Rents in Los Angeles County have climbed to a new average of $1,435 per month, with an expected increase of 5 percent for 2015.

Buyers who purchased homes when the market was bottoming out in 2009 likely secured excellent deals. These homes could then be refinanced using record-low interest rates. Owners could now rent out the home they are moving out of for more than their mortgage and other ownership costs. This trend is not something that was pre-determined by owners. These new landlords are typically wealthy and are aware of financial trends. Rising rents allow for this new strategy to make sense.

Some of these new landlords are seeking help from established property managers. There are fair housing laws, tenant screening, upkeep, and rent collection practices that these new landlords may not be aware of. Renting out a home and managing it becomes particularly challenging for move-up owners that have chosen to take their money to another state for their next home purchase. Even with this knowledge, most new landlords are electing not to pursue professional managers who typically charge 10 percent of the rent.

Source: http://articles.latimes.com/2014/apr/05/business/la-fi-first-time-landlords-20140405