I get it. I really do. You need to lease your Scottsdale home in the worst possible way.
Be it job trouble, an exotic mortgage that is done playing nice or any number of other financial ghoulies that have hitchhiked this recession, you need to get away from that house payment before it devours you. You’d sell the damn thing if you weren’t further underwater than Atlantis. Unwilling to crash your credit, or unable to qualify for a short sale, finding someone to pay the mortgage for you while you seek safe haven in cheaper digs is the most attractive play. Maybe you plan to move back in once things settle down a little bit.
Or perhaps you want to take advantage of the ridiculously low prices and even ridiculously lower interest rates to buy twice the house for half the payment.
Whether motivated by housing avarice or financial self-defense, the rental option is one being heavily leveraged by homeowners facing similar dilemmas. Before planting the “For Lease” sign and squeezing into the four hundred dollar a month studio apartment, however, there are a few precautions you must take.
For starters, you must screen rental applicants from a position of strength. Despite your desperation to fill your vacancy as expeditiously as possible, you can’t simply accept the first warm body that walks through the door. The only thing deadlier to a landlord’s bottom line than a vacancy is a deadbeat tenant. In addition to nonpayment of rent, there is also the concern over property damage, outstanding utility bills and the hassle/expense of eviction. Half-hearted screening of applicants is a shortcut you cannot afford to take.
To that point, however, I offer a caveat as my next piece of advice. The rental market is actually quite vibrant at present and full of demand. From where is all of this demand coming? From people who have walked away from or short sold their homes. People with recent bankruptcies due to job loss. As such, many of the old rules for defining the acceptability of a tenant no longer apply. If you hold out for only those with 750 credit and 100k salaried income, you are in for a long wait. Those people are still out there, but they’re called “buyers.”
You certainly don’t want to rent to someone as hard up as yourself, lest you would just be trading troubles, but you must be wiling to consider those with a few bumps in the credit road.
Differentiating between keepers and flakes often comes down to the overall credit history, not just the current score. Give me the guy whose credit is 550 due to a recent short sale, for example, provided that his previous history is spotless. That’s a quality individual who just had the misfortune of buying a house in 2005. Even someone with a recent bankruptcy is often worth a gamble if the credit damage is limited to the immediate year. In fact, that recent BK means he will have little residual debt and can’t seek protection from you for non-payment for another eight years (assumes a Chapter 7, differs for other forms of BK). Now the guy with a five year history of late pays, judgments, etc? Don’t fall for the story about the ex-wife who didn’t pay the credit card bills. Send him packing.
Next, I highly recommend taking out a home warranty policy. While you will swallow hard on the several hundred dollar (that you don’t have) policy, it is an absolute must for those who would ordinarily be far too cash-strapped to take on the role of landlord. If you negotiate for the tenant to be responsible for the first sixty dollars or so of repairs, and the landlord for any amount over and above that, you can offset the service call deductible. Anything within the scope of the policy (you MUST read coverage information closely prior to purchase of the policy) will be covered over and above that tenant paid expense.
Going into a rental agreement naked (no policy) is potential suicide given your financial hardship. Don’t let an exploding hot water heater send you into bankruptcy or cost you your house.
You will also want to strongly consider offering prospective tenants landscaping and pool service. Again, this runs counter to the cost saving instinct, but consider it insurance. If there is one rule I have learned in Real Estate, it is that tenants can’t/won’t adequately care for your pool and lawn. The trees won’t get the deep water soaking. The pool will turn green and plead for new plaster. Not only does a tenant want to save on utility costs wherever he can, but he just doesn’t care about your property all that much. Lacking the pride of ownership, even the good ones are apt suffer the occasional forgetfulness that can necessitate thousands of dollars worth of repairs.
Lastly, bite the bullet and hire an agent to get the thing rented. Property management service might be an extravagance that you cannot afford, but the one time cost of leasing a property through a REALTOR is generally less than a month’s worth of rent. Get the thing on the MLS and lease it quickly, and you will end up saving money in the vacancy department. You’ll likely command a higher lease rate as well. Moreover, you will enlist someone to help walk you through all of the facets previously referenced.
It’s not ideal, and it’s not what you had in mind when you bought the house back in the high times, but it’s survival. Take the right steps and leasing your Scottsdale home can give you the reprieve you need to get your house back in order. So to speak.