- If you have paid your mortgage as agreed, your mortgage balance should be at least 20% lower. If you bought a home for $500,000 and owed $450,000, the balance should be no more than $370,000. You now have an equity position of 75% or less loan to value.
- After 10 years, for that same $450,000 original loan, the monthly principal reduction is almost $1,000. Each month the landlord is creating equity simply by making the monthly payment.
- If the property was a breakeven in 2005, rents should have increased 25 to 50% and now the property should be profitable. Even if there were a slight loss in 2005, e.g., the rent was $2,000 and the total monthly cost was $2,300, the rent should now be $2,500 and the expense still at $2,300. Even if prices were to decline again, the positive cash flow should be immune to lower prices.
The Accidental Landlord Dilemma
Progressive Property Management - Sunday, July 10, 2016
We have quite a few current owners who bought a property in 2005 or 2006 just before the real estate crash, and rather than sell the home at a discount in the years following, kept the property as a rental. They may have preferred to sell the property, and had no intention of initially keeping it as a rental, and therefore, became an “accidental” rather than an intentional landlord. Many of these owners were relocated during the recession or decided to buy another home at a discount, but either couldn’t sell without having a real financial loss, or refused to take a paper loss. So, for last 10 years they had this property as a rental, but now that home values in most of the country have reached pre-recession prices, and the accidental landlord can now be a determined seller and not lose any money. But should you? Here are some reasons to keep this property as a rental: