The would-be, could-be landlord.

I have a friend who just bought a half-million dollar house on the lake for about $300,000. Why so cheap? The previous owners left it in sorry condition, and he plans to fix it up over the next couple of years, while living in it, and sell it for a hefty profit. The trouble is that he’s currently trying to sell his old house… and not having much luck in the current real estate market. Its been on the market for over two months, with only 5 showings. A second showing had him hopeful last week, but still no offers. Not even any low offers. And its a nice house.

If he has to keep paying two mortgages for too long, he might have to start dipping into his 401K. I suggested the idea of renting it out, while waiting for the market to improve. Even if he can’t rent the house for the entire cost of his mortgage, he’d be losing less money than he would if the house were to sit empty for a year. The house would actually be a perfect setup for a group of college or post-college roommates — four bedrooms and three baths, a four car garage, nice fenced in yard, and a home theater room in the basement.

He’s uneasy with renting, though. “What if the tenants damage it?” “What if they don’t pay, and then I have to evict them?” “It’s too nice of a house to use as a rental.” It seems to me that all of these questions can be easily solved by 1) Homeowner’s insurance, 2) Careful tenant selection and screening, including credit checks and previous landlord references, and 3) A security deposit.

With the foreclosure situation, I would expect that a lot of families who would otherwise own might be looking to rent.

Landlording isn’t for everyone, though. I’d hate to try to talk him into it, in the case that he would get a case of bad luck with tenants and property management… But I do think that he’s overlooking a good opportunity.

2 thoughts on “The would-be, could-be landlord.

  1. I agree with your observation that it seems like a perfect opportunity to rent the house out. I am in a simlar situation with a fix-up house that I purchased to live in, repair, and sell. But with the market as it is, the best option may be to rent it out. The question is, why sell at a low price when we can just hold it for awhile, collect rent and sell it for a higher price in a year or two?

    On the other hand, my original plan was to use the cash from the sale of the fixer-upper to help pay for the next house. Therein lies the dilemma.

  2. Buyers are in great shape during a buyer’s market. Sellers are hurting.

    Your friend is a buyer and a seller – so he should just about break even. If he reallly did get a $500k house for $300k then it’s because of the lousy market. The smart move might be to price the house he’s selling so that it gets some showings and generates some offers.

    This wouldn’t be a discount – per se – it would be pricing it at the actual market level. He’s gonna give up some of that $200 windfall but hey, when you’re buying and selling in a buyer’s market the knife cuts both ways.

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