More homeowners see sense in renting

Sellers hang on to old houses by being landlords

Angela Smith checks the blinds in her home in El Sereno, Calif., in preparation to show to potential renters. Her job is moving and she's moving with it. But instead of selling her house in El Sereno, she's planning to rent it out. Low interest rates and high rents have more people getting into the rental business, leasing out their old homes when they move instead of selling.

LOS ANGELES — The real estate market has long worked on a simple system: If you want to buy a new house, sell the old one and use the equity for a down payment.

But the last few years of low ownership costs and rising rents have some move-up buyers trying a new approach: Buy the house. Keep the old. And rent it out.

Real estate firm Redfin recently asked 1,900 prospective home buyers nationwide what they planned to do with their old house when they bought a new one. As you’d expect, the majority said they would sell. But 39 percent said they’d rent it out. In Western markets that have seen big price growth lately, such as Los Angeles, the percentage was even higher.

“We certainly didn’t expect that,” said Ellen Haberle, Redfin’s real estate economist and the survey’s author.

It’s the first time that Redfin has conducted this kind of study. But real estate agents and property managers say they’re seeing the same thing: A noticeable uptick in the number of home buyers who want to rent out their old place.

“We’ve had more calls in the last two months with situations like this than we’ve had in two years,” said Trevor Henson of First Light Property Management in Manhattan Beach, Calif. “It is definitely on the upswing.”

If this trend holds, it could mean even fewer homes for sale in an already-tight market. But for a certain type of homeowner, becoming a landlord could make sense.

Rents are up in parts of the country. Buyers who bought at the bottom of the market in 2009 got a bargain. Then came years of opportunity to refinance into record-low interest rates. That means many owners can rent out their home for more than it costs them each month, even with taxes and other ownership costs figured in.

With the tenant covering the note, they can build equity — especially if home prices keep rising.

“It’s a market-based decision,” Mr. Henson said. “They know they can get really high rents right now. If I’m locked in on a 30-year fixed [mortgage] at 4 percent, and if home values are going up, it can make a lot of sense.”

Many of the new landlords are affluent and financially savvy, Ms. Haberle said. They see a chance to profit now.

“These amateur landlords aren’t people who are doing this for a living,” she said. “They just kind of happened into this opportunity.”

Vanessa Ginn, president of Platinum Property Management Group in Los Angeles, said she’s seeing a lot more people considering the idea. But being a landlord has its challenges, including fair-housing laws, tenant screening, and the potential for costly repairs. It can be particularly difficult for first-timers or homeowners who move out of town.

Ms. Haberle said many new landlords are skipping the professional manager — and the fee they charge — and doing it on their own, perhaps with the help of a neighbor. That’s what Angela Smith is planning.

The TV show that Ms. Smith works on is moving soon — either to Chicago or Atlanta — and she’s going with it. But if the show doesn’t work out, Ms. Smith wants to come back to her home in El Sereno, Calif.

She owes more on her home than it’s worth. But a mortgage modification lowered her monthly payment enough that she figures she can afford to rent it for $2,500, which is enough to cover payments, taxes, and upkeep.

She said she’s unsure if she’s going to buy a house in her new town. “I need a little time see how well I can manage this,” she said.