Adventures in Real Estate: Living Through The “Landlord by Force” Market

I received a call today from someone who had come across a listing flier for a condo I am marketing for sale. They were not looking to purchase the property, but instead they were looking for help to find their next rental. See, they had been in a long term lease on another place in town, but their landlord had decided to sell after just 3 years of ownership. This person asked me if this was common.

My first response was, no, this is not terribly common. Does it happen sometimes, yes, but … well, actually…

I had to stop myself and reconsider the market we have been in for the last six years. The bursting of the real estate bubble has put us in a “landlord by force” market. We hear often about the world of foreclosures and short sales, but another player in today’s market is the one who can afford the payment, but had to move, or those with assets too large to qualify for a short sale. They have had to relocate, or life (marriage, kids, etc) didn’t wait for them to have a convenient time to sell for a profit and move up. So, rather than sell these folks had to become landlords. They didn’t want to become landlords, they wanted to profit from their property at re-sale, but they went on the search for tenants none-the-less.

“Landlords by force” are a whole different animal than investor landlords. At some level a landlord by force likely considers themselves in some form of crisis and is looking to be in the game as briefly as possible. Whereas an investor is playing the long game: they are waiting it out for the property to become “cash positive” on a month to month basis, then they want to pay the place off so that the rent becomes straight income.

Those who have become landlords, but didn’t want to be, have a tough decision to make at the end of each lease period and that decision is centered around some of these questions:

  • Can I sell now, or do I need to hold out another year and wait for a stronger market?
  • Is it worth it to continue doing this, or do I just take the loss now and set myself free of the headache?
  • What if I were to embrace this for the long term, am I up for it?
  • How have my tenants been, and do I want them to stay/go?
  • How much is it costing me for upkeep?
  • etc…

The Tenant Side:

More and more we will see the outcome of this dialogue effecting tenants and their desire to stay in a property. As our market turns upward and especially if condo prices begin to grow again more and more tenants will attempt to renew their lease and find that the owner is unwilling to do so because they plan to sell the property. In a normal market this is not nearly as common, but we are at least a few years away from seeing a normal market again, even in the DC metro area.

Are you a tenant who has been caught in this scenario, care to share your story below? How about the other side, did you become a landlord by force and not by choice? I’d love to see some first hand testimony.

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