Tough times can turn homeowners into landlords

Housing slump is turning some owners into landlords

Dave and Gina Schudi are renting out their former home until the market turns around.  Matt York / AP

Because of falling house prices, Dave Schudi decided to rent his old house rather than sell.

So when they bought a new one, they rented out their old home.

"It all depends on the market," said Dave Schudi, who plans to sell the old house eventually. "We've got good renters in there."

Falling house prices and a slow market are forcing more homeowners to consider renting properties.

It's something Tampa, Fla., real-estate agent Julia Vakulenko suggests to potential clients.

"Basically, we ask all the people who contact us, 'Must you sell it right now?' " she said. "Most likely, it will just sit there or maybe sell below the market value."

For many, the role of landlord is something they had never considered. If done right, however, renting out a home can help the owner ride out the housing slump, said Vakulenko, of Tampa4U.com. But the process does require doing some research, said Vakulenko, who owns five rental properties.

She often refers clients to property-management companies who can determine what their home would rent for and whether there's a market for it. Homeowners are often disappointed to learn that their home would rent for less than their mortgage payment, added John Nuzzolese, president of the Landlord Protection Agency in East Meadow, N.Y.

"Whether it's for sale or for rent, it's only worth what people are willing to pay for it," he said. "People have to be realistic and put themselves in the tenants' shoes."

Real-estate analyst Danielle Babb often sends people to www.rentometer.com to see what the going rent is in their area. The Web site allows users to see what comparable properties in the area charge.

Once you've set a rent range, determine your demographic -- students, families, young professionals -- and market the house to them, said Babb, author of The Accidental Landlord. Babb, who owns 27 rental properties, wrote the book after watching friends and colleagues trying to rent out houses they couldn't sell.

"You've got to think like a renter. There's lots of availability," she said. "They're going to choose the most exciting option."

Babb, Nuzzolese and Vakulenko offered these suggestions for homeowners considering renting their home.

• Familiarize yourself with local laws dealing with rental properties. It's important to understand the eviction process, how to handle security deposits and what type of access you have to the property once it's rented.

• Determine whether you want to select the tenant and handle property issues or hire a company to do it. If you take on the responsibility, you are obliged to fix any problems (leaky faucets, broken furnace, etc.) or find professionals to do it.

• Develop a rental application. Ask questions on the application that will help you quickly determine whether you want this person for a tenant. Consider asking about pets, smoking and employment, for example.

• Ask for references. Call former landlords and ask about the person's rental history. Verify that the references listed are really landlords and not the applicant's friends posing as landlords.

• Screen potential tenants. Once you've narrowed your field of potential tenants, hire a service to run a criminal and financial background check on the applicants. Be wary of tenants with previous evictions or bankruptcies.

• Consult with a lawyer or The Landlord Protection Agency ( www.thelpa.com) before writing a lease. A well-written lease is crucial to protect your property. It will help you evict a tenant or hold him accountable for damage if necessary.

• Collect a security deposit equal to one month's rent. This will help cover any damage to the property and protect you if a tenant moves without paying rent.

• Perform a walk-through of the property with the tenant before he or she moves in. During the walk-through, make notes and take photos of any property damage such as chips in the tile, spots on carpeting, etc. You and the tenant should sign the paper as an acknowledgment of what condition the property was in at the start of the lease.

• Check on the property. Drive by at least once a month and look for signs of trouble such as garbage in the yard or excessive wear and tear. Make arrangements to walk through the property three months into the lease to see how well the tenant is caring for it. (Make sure you give the proper notice required for entering the property.)

• Don't accept partial rent payments. Accepting money from tenants who are not paying the full rent can make evicting them more difficult.

"Whether it's for sale or for rent, it's only worth what people are willing to pay for it," says John Nuzzolese, landlord adviser.

Once you've set a rent range, determine your demographic -- students, families, young professionals -- and market the house to them.