Unexpected Surprises For Underwater Homeowners
Maria Wells, who sells real estate, finds herself in an interesting position of becoming a landlord. She never wanted to invest in properties but she has wound up owning two. One hers, but today she is married and lives with her husband, while the other was owned by her son but he moved for his job. Since she’s underwater on mortgages for both houses, she cannot sell them and has no option but to rent them.
The list of such “accidental landlords” is growing. Wells finds herself at an advantage today because the rental market is good. She makes sure these properties are well maintained but does not use a property manager. The rent she gets pays off the mortgage and taxes but she does want to sell her properties when she has enough equity.
That’s because she’s had mixed experiences with her tenants as she points out a particularly horrific incident where a particular tenant got the water filter changed and left town. There was 500 gallons of water and the cost of it all was enormous; around fifty thousand dollars.
According to a report by Zillow, home prices might be rising but about 1/4th of home owners still owe more to mortgage than the price of their property. These underwater borrowers, around 13 million of them, would have to put money into their loan to get out of their houses. 9 million borrowers, not completely underwater, can’t move because they don’t have enough equity.
According to Todd Allen, a realtor in North Virginia, as the market dropped, people opted for major decisions like moving. He says that thanks to the lending guidelines and higher incomes in D.C Metro area, people had an opportunity to buy a second home. But as landlords they often incur losses rather than generating income.
Aarti Patel, moved from Greenville SC to Washington D.C for work reasons and had to take a decision on the house she had built in 2007. Since selling the house wasn’t profitable, she rented it but landed into great trouble on several occasions and in one particular instance had to get a tenant evicted.
Patel has no intention of going back to Greenville but renting takes a lot of coordination and she’s trying to get around $2,000 out of her tenants. Done with the hassle she recently sold the house although it meant incurring a huge loss. Short sale wasn’t an option for her because the process is time consuming and it could have affected her credit drastically as well.
Accidental landlords, according to realtors, have added to the woes of low inventory in the market. When a buyer is also a seller, the inventory is fine. However now, when the buyer becomes a landlord, the inventory is impacted negatively.
Based on a reading from CoreLogic home prices have gone up; about 10% from last year. However they are still a lot lower from the time when the market was booming and many home owners made their purchases.
While there are millions who have managed to come above water, there are many more under it. The numbers are staggering; 48% in Atlanta, 54% in Las Vegas, 37% in Sacramento and Miami. For homeowners to see good equity it might be a long wait; years of price gain to be precise.