Patty Manzi's Tri-Valley Real Estate Blog

There has been much publicity in the media, and no doubt from your local real estate agent, that the time has come that house payments may be less expensive than rent payments.

While this is certainly true in some geographic areas, like right here in the Pleasanton & Tri-Valley areas, there is more to maintaining a household than the actual house payment itself.  Once you make the leap from renter to homeowner, many maintenance issues and expenses that a landlord has taken care of now become the responsibility of the homeowner.  These additional expenses could wipe out any monthly savings you were expecting to gain in your reduced payment.

For example:

• Utilities – as a homeowner these are now solely your responsibility (water, garbage, gas/electric, cable, phone, internet) .
• Property Taxes – in Alameda County, taxes are approximately 1.25% of the purchase price of the home.  ($500,000 home = $6250 year in property taxes, or $520.84 per month).
• HOA Fees – if you buy in a homeowners association, be prepared to pay monthly.  The cost depends on amenities at the complex (pool, common areas, maintenance, etc.)  Do your homework on this!
• Yard maintenance – you now have to buy a lawn mower, edger, blower, tree/shrub trimmer OR hire a gardener
• Pool maintenance – you must consult with an expert at your local pool store on how to maintain your pool, then purchase chlorine, a brush, net, and other chemicals and cleaning supplies OR hire a pool service to maintain your pool.
• General Home Repairs and Appliances – the home you buy might be in great shape when you buy it, but over time, you will need to maintain many things that may have been taken care of by a landlord while you were renting.  New water heater = $1000; New heater = $3000; new air conditioner = $5000 +; new refrigerator = $2500; washer/dryer=$1500, New Roof – $10,000+; along with various other repairs like, leaky faucets, plumbing leaks, plumbing stoppages, electrical issues, painting, flooring, garage doors/openers, leaky windows, roof leaks, chimney cracks, fences & gates,  the list goes on.
• Insurance – if you have a mortgage, you will be required to carry homeowners insurance on your property. The cost of the insurance is based on the replacement value of your home.  For example on my 1800 sf home in Pleasanton, my annual insurance is approximately $700.  If you are in a flood zone, add another $500+ per year.  If you want Earthquake Insurance, add some more $$.

So, when you are planning to make the leap from renting to homeownership, make sure you consider ALL the expenses you will incur, not just the amount of your house payment. Some of the expenses can be tax deductible, but many are not.

As always, it is a good idea to consult with a real estate professional, professional lender, and CPA to help you gather information to assist you in your home buying decision.

With the increased number of people losing their homes to foreclosure & short sale there is an increase in the number of people needing to rent.  A few things to be prepared for if you find yourself renting a home after many years of owning;   Landlords will require a rental application and most charge a screening fee to check your credit, criminal,  and rental (eviction) history.  You may also need to provide documents to verify employment and income.  Many landlords and property management companies have a minimum credit score that is acceptable to be considered a candidate for renting.  The more information you can provide to prove your credit worthiness, the better. 

Expect to come up with not only your first months rent, but up to 2 times the rent amount as a security deposit.  Additional security funds can be required if you have pets.   Signing a 12-month lease is customary, but some landlords are willing to provide shorter term leases with an increase in the rent amount. 

If you are in doubts or questions about practices by landlords or property management companies, you can contact Fair Housing for advice and information.  You can also enlist the help of your local real estate agent or property management company to help you find rental properties and represent you in the leasing process.

I was watching a TV show this evening, you know those shows where the TV real estate agent helps someone sell their home.  This young couple inherited a small home and subsequently took out an equity loan to remodel the whole house.  After a few years and children on the way they purchase a newer bigger home to accommodate their growing family.  They now had two mortgages and were faced with a major decision; rent out the house for more money than their mortgage payment, or sell the home for the same amount of money they owe on the mortgage. 

Seems like a no brainer to me, rent the house out and make a few bucks.  I was very surprised when they chose to sell the house, and I was even more surprised when the real estate agent agreed with them (well, not really that surprised at the latter, afterall it is a TV show about selling homes!).  Their major reason for not renting out the house was their perception that it was a “hassle to be a landlord”. 

The home was listed just above what they owed on their mortgage and after several weeks on the market the home wasn’t getting many showings.  In comes the TV Agent suggesting the reason the home isn’t selling is the decor so he brings in someone to stage the home – which the buyer pays for.  A few weeks later with still no offers the agent suggest a price reduction.   They get an offer but its a low offer and after a few counters back and forth, the buyer walks away over $5,000.  So the house sits a few more weeks, another price reduction….you get the idea.  After 3 months they’ve paid for a stager, reduced the price to below their mortgage balance, made 3 mortgage payments, paid for utilities and yard maintenance and are very, very. frustrated.  The next offer that comes in they accept immediately just to dump the home and move on with their life.  They end up  $35,000 out of pocket to walk away from this whole mess!

Their initial reason for not renting the home was they perceived it to be a ‘hassle’.  I’m not sure what they really meant by that.  Did they mean its a hassle finding a tenant, keeping a tenant, keeping it rented, collecting rent, performing maintenance and repairs, or what?  If they had had a ‘real’ agent maybe they would have been advised that they can advertise for free on many websites to find tenants, they can pre-screen their tenants by doing credit, criminal and eviction history checks, get employment verifications and proof of income, call previous landlords, and have their tenants sign a written, legally binding lease agreement.  By doing this a landlord can ensure they are protecting themselves and helping to ensure they are getting a good tenant who will pay their rent on time and follow through with their lease agreement.   Another option is to enlist the services of a property management company.  They typically charge a percentage of the monthly rent, or a flat fee to conduct all the services necessary to manage the property leaving the owner free from the day to day responsibilities.

The really sad thing is that it will take this poor couple years to make up that $35,000 deficit from the sale.  If they had rented out the home from the beginning, they would have had a positive cash flow instead of a negative and over time would be building equity.  Equity they could use in the future to send their kids to college, or use for their retirement, or both! 

If you are facing the same situation or thinking of purchasing rental properties, make sure you are being advised properly by an experienced real estate professional who has your best interests in mind.