Reluctant landlords in metro Detroit rent to pay mortgages

Reluctant landlords in metro Detroit rent to pay mortgages

Posted: Aug. 30, 2010
Reluctant landlords in metro Detroit rent to pay mortgages
Real estate leases zoom to 20% of deals
BY GRETA GUEST
FREE PRESS BUSINESS WRITER

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First of two parts




Tom Youngblood Jr., 38, lived every landlord's worst nightmare with his first rental -- he learned all about eviction law when his tenant wouldn't pay up.

"She paid me the first month, and then October rolled around and she started giving me empty promises," he said. "My first taste of it was tough."

The human resources director for Detroit Testing Laboratory in Warren is among hundreds of homeowners across metro Detroit becoming reluctant landlords because they can't sell their homes.


About 20% of metro real estate transactions now are leases, compared with fewer than 5% in a normal market, said Dan Elsea, president of brokerage services for Real Estate One in Southfield.


Youngblood rented only because he couldn't sell his St. Clair Shores home after 26 months of trying. He and his wife, Andrea, had already purchased a larger home in Macomb Township.

"It took me a long time to convince my wife to rent out the house," he said.

Before you become a landlord, Elsea advises mapping out where you want to be in the next few years. "You should figure renting for the next four to five years and be mentally prepared for that," he said.

Converting the reluctant landlord

A growing number of metro Detroiters are finding out what it means to be a landlord after failing to sell their homes in one of the worst housing slumps in history.

With home prices in the metro area down an average of 32% in the past five years, many don't want to take a huge loss when they decide to move. They want to wait to see whether they can rebuild their equity. So they rent.

"People just really don't want to be landlords, and they really have no choice," said Dennis Dickstein, a Realtor at Real Estate One in Farmington Hills, who estimates that 20% of his deals are leases.

Mark and Rhonda LaVelle decided to buy a bigger home while the market was down. The couple had a 1,100-square-foot house in Royal Oak to sell but decided to move when they found a 2,300-square-foot home about 2 miles away, also in Royal Oak. They started renting their old house in January after it had been on the market nine months.

"After paying two mortgages and the house wasn't moving, we were at a point where we would have to sell it at a substantial loss or get someone else in who could pay the mortgage," said Mark LaVelle, 38, a freelance cameraman.

He and his wife, Rhonda LaVelle, 37, an executive producer at WDIV-TV (Channel 4), turned the leasing over to his real estate agent.

"It's been a great experience. We're getting the full mortgage payment from the tenants," Mark LaVelle said. "My wife just wanted to wash her hands of the whole thing. She looks at it like a liability. I look at it as an investment."

Services can do the work
But it's not always moving up that sparks a home rental.

Sometimes it's a life change, such as a marriage, college graduation, divorce or death in the family.

Many homeowners who decide to lease their homes use their Realtors to handle the transaction, including background and credit checks.

The service generally will cost a landlord one month's rent, while property management could cost 10%-20% of the monthly rent. But with rent often set just high enough to cover the mortgage payment, some landlords do it themselves.

Dan Elsea, president of brokerage services for Real Estate One in Southfield, advises landlords not to be too turned off by potential tenants with bad credit.

"The people coming to them have gotten rid of their biggest expense, their mortgage, when they arrive at the door. They arrive with a reasonably clean income statement if they have a job," he said. "You should look at the credit report, but don't scrutinize it too closely. References are just as important."

Other Realtors agree.

James Silver, an agent with Keller Williams in Troy, said there are many good tenants to choose from.

"As long as you get everything ... a credit report, the last few pay stubs, references. As long as you have everything in front of you, you're fine," Silver said.

And the beauty of the rental market is that prices there have not fallen by 40%, as many parts of the sales market have. The reason is there are a lot of renters to feed demand.

"So many people have lost their homes ... they are looking for a place to live," said Linda Hiller Novak, a Realtor with Max Broock Realtors in Birmingham.

Beware of deadbeats
There are horror stories, of course, for untested landlords. Some learn quickly that the old saying "Possession is nine-tenths of the law" is true.

Steve Cole, an agent with Coldwell Banker Weir Manuel in Birmingham, said he knows a homeowner in Birmingham who rented his house to tenants who not only didn't pay rent, they trashed the home before the landlord could evict them.

"When times are tough, people look to scam," Cole said.

Tom Youngblood Jr., a 38-year-old human resources director, is renting his St. Clair Shores home to a responsible tenant after having to evict the first one.

He was lucky. First off, a court clerk helped him figure out how to legally evict the tenant. He had to give the tenant seven days' notice to pay or face eviction. Then he filed eviction paperwork with the court.

Last December, a judge ordered the tenant to pay or be out in 10 days. She chose to leave and did not damage the home, he said. If the tenant had not moved out within 10 days, a court officer would have done it for her.

It can take from 27 to 57 days to evict a tenant, according to the Michigan State University College of Law's Rental Housing Clinic.

Youngblood's home is now being rented by Danette Trice, 30, an engineer design specialist at AT&T in Mt. Clemens. She had been living in Eastpointe with her son, Ephraim Gibson Jr., 4.

Ephraim has bronchitis, and the two had to move because the air-conditioning wasn't working at their house. Her Realtor helped her get a $100-a-month reduction in rent and made air-conditioning a requirement in the lease.

"I didn't have to do this or that to move in," Trice said. "There was new cabinetry in the kitchen, the appliances were nice and the tile was nice." The right move

Dickstein helped Cyndee Pote, who works in advertising and marketing for Real Estate One's corporate offices in Southfield, lease her Southfield home earlier this summer after Pote, her husband and three children moved to a 2,400-square-foot home in Bloomfield Hills.

Pote and her husband, Jason Pote, had their 980-square-foot house on the market for a year with no offers. Houses in the neighborhood were going for $50,000, and she had paid $94,000. Once it was put up for rent, the showings increased, and they had it rented within a week.

The young man who rented it lived just 10 houses down the street and was losing that rental because the owner let it go into foreclosure. Dickstein did a background check, a credit check and contacted the renter's employer before letting him rent the home.

"The rental market was strong. We were able to cover our mortgage and then some," Cyndee Pote said.

Contact GRETA GUEST: 313-223-4192 or gguest@freepress.com

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