NCPA - National Center for Policy Analysis


September 8, 2009

With housing prices still in the dumps, many Americans are finding themselves in the uncomfortable position of landlord.  Some have been forced to relocate for a job and can't sell their houses.  Others have moved, but are holding on to their previous homes, hoping for prices to rebound before selling.  Many are finding that rent checks don't come close to covering their mortgage payments, says the Wall Street Journal.

Hard data are scant on how many homeowners are renting out their homes, but anecdotal evidence suggests numbers are up. In one indication of the trend, more homeowners are converting their homeowners insurance to landlord policies that cover the additional risks of leasing out a home:

  • Allstate Corp., the second largest home insurer in the U.S., reported a 27 percent increase in conversions in the first quarter from the previous year.
  • Some want rental income to supplement retirement savings, while others are renting out their homes because they live in areas where a handful of distressed sales have skewed home prices downward.
  • Economists say homeowners who have equity in such homes may be right to delay selling, as sales have started picking up; however, they should be realistic as sales of lower and moderately priced homes are recovering faster than homes at the upper end.

However, experts generally advise against becoming a landlord in hopes of recouping lost home value:

  • Generally, utilities, maintenance and repairs run higher with tenants than when the owner occupies the house.
  • Collecting enough rent to cover the note on a home purchased at the height of the housing boom may be impossible.
  • Rental income is taxable, but can be offset with business expenses -- including mortgage interest, real-estate taxes and homeowners insurance -- and depreciation.

Source: M.P. McQueen, "Homeowners Become Reluctant Landlords," Wall Street Journal, September 3, 2009.

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