Renters Feel Effects Of The Cooling Market Too
(Many people previously believed that a slowing housing market only affected buyers and sellers.)
But now, an increasing number of people are seeing how the housing market affects renters too.
Before, most people thought that if you rented a house, apartment or condo, you were safe from the grueling effects of a cooling housing market, but this is no longer the case at all.
Now, not only are renters experiencing higher rents because of the slowing market, but they also have the risk of being kicked out of their unit if their landlord’s property gets foreclosed.
A September 25, 2006 article by Kelly Bennett of The VoiceofSanDiego.com, “Your landlord’s in trouble if the grass is long,” discusses some problems that renters may face during the slow market.
“Soon, renters may get tangled up in that market correction -- if landlords start going into foreclosure on their investment properties and have to kick out the tenants without much warning. And while most analysts agree that's a long-shot scenario for most real estate investors, the heated market inspired a lot of novices to jump onto the landlord scene. And those people often had little, if any, understanding of what might happen if the market stopped appreciating so dramatically.”
So now, as mortgage payments get harder and harder to make, we may be seeing more inexperienced landlords being forced to close up shop. Many newspapers headlines are already proclaiming that the, ‘Wave of Foreclosures is upon us!’
The biggest thing an investor thinks about when they decide to buy a property to rent out is their cash flow. They have to consider their mortgage payments in relation to the rent that will be coming in from the tenant.
Now that the market is not securing the equity and appreciation that it had in previous years, things could get tough.
“When the market practically guaranteed sizable appreciation each year, the landlords could operate with negative cash flow with the knowledge that if it got really tough, they could refinance with the increased equity and float the mortgage again.”
“So landlords who bought properties last year could find themselves in trouble -- the impact of the countywide 2.2 percent drop in median resale price means they may not have the option of refinancing if their cash flow dips too far negative to hold on. And if a landlord starts defaulting on mortgage payments and the property goes into foreclosure, some tenants of the property could become caught in the gears of the very housing market machine they tried to stay out of by renting.”
According to most state laws, a landlord is not required to notify a renter of any financial difficulty they may be having. But, there are some tall-tell signs that a landlord may be in the early stages of foreclosure.
One huge red flag is if basic upkeep on the house begins to stall or lag. If the gardener is no longer making visits, or if the water is temporarily turned off, these could all be signs that something has gone awry. Be sure to keep your eyes and ears peeled for signs that the property you live in is being foreclosed upon. You do not want to be forced to move at the last minute, because of an irresponsible landlord.
