November 25th, 2006 5:23 pm
Renting a House in Foreclosure
Many of you have told me to rent out my vacant houses while I’m trying to sell it, since I still have a couple of months before foreclosure process runs its course. I can rent it month-to-month for a discounted rate and fully disclose my situation to the renters so there are no surprises.
I’m not paying the mortgage so why not collect some cash, right? I’ve though about it but here are the issues I see with renting a house in foreclosure while trying to sell it:
1. Harder to show. Showing/marketing the house will be much harder when it’s occupied. I have to do the 24-hour notice thing and schedule showing appointments. The buyers right now are picky/flaky and I need to be flexible to accommodate their schedule. Also, buyer’s agents love vacant houses because they can show it anytime using the realtor lockbox.
2. Messy House. I will have to deal with tenant’s stuff and their messes. I can’t expect them to keep it in show-ready condition all the time. I will not be able to stage the house for maximum appeal. This will decrease my chances of selling it because I’m competing with so much inventory right now. The buyers are picky!
3. Easy for Tenants To Take Advantage of Me. What keeps the tenants, knowing my situation, from stopping to pay rent, refusing to cooperate on showings, thrashing the house and refusing to move out?
I will collect their security deposit + 1st month rent and and may never see any more money. Then, if I do manage to find a buyer I will have to try to evict the deadbeat tenants. In California that can take a long time and lots of $$.
I know all about deadbeat tenants…
I had my first experience as a landlord back in 2002 (I was 19) when I bought my first property. It was a 3 bedroom 2 bath condo I bought for 100K to use as a primary residence. It needed some cosmetic work. I fixed it up myself with my dad’s help and lived in it for almost a year.
Then I decided to quit my full-time web development job and do freelance website design and run a hosting company. The business didn’t take-off like I hoped and I couldn’t afford to pay my mortgage anymore. So I moved back in with my parents and rented the condo out.
I made every land-lording mistake in the book. I rented to a friend and his family and didn’t check their background. I found out later that they came in straight from an eviction right into my condo. I did collect their employment and rental history but I didn’t actually call to verify anything. I figured if they are providing the info, they have nothing to hide. How naive!
The only money I ever saw was the security deposit and first month’s rent. It was a different story every time for the next two months.
Long story short, I decided to sell the condo and buy them out. It was cheaper than trying to evict and continuing to make mortgage payments with no rent coming in. I offered them cash (which I borrowed from a friend) to move out within 2 weeks. They did.
The market was heating up in 2003 and I sold the condo for a $35,000 profit. That more than covered my tenant problems and I never missed a payment! This time around the market is not going to save me.
Yeah yeah, I know. I can thoroughly screen the tenants and all that good stuff. But I don’t have the luxury of time and money to be doing a lot of advertising and screening.
And think about it… What kind of a tenant is likely to rent a house from somebody who is in foreclosure and will be loosing a house in a couple of months? A fly-by-night type of a tenant, most likely.
Or should I just rent the houses out to whoever, collect as much money upfront as I can, let the houses go to foreclosure and let the bank deal with it? That’s not right!