The real estate market has long worked on a simple system: If you want to buy a new house, sell the old one and use the equity for a down payment.
But the last few years of low ownership costs and rising rents have some move-up buyers trying a new approach: Buy the new house. Keep the old one. And rent it out.
Real estate firm Redfin recently asked 1,900 prospective home buyers nationwide what they planned to do with their old house when they bought a new one. As you’d expect, the majority said they would sell. But 39% said they’d rent it out. In Western markets like Los Angeles that have seen big price growth lately, the percentage was even higher.
“We certainly didn’t expect that,” said Ellen Haberle, Redfin’s real estate economist and the survey’s author.
It’s the first time that Redfin has conducted this kind of study. But real estate agents and property managers say they’re seeing the same thing: a noticeable uptick in the number of home buyers who want to rent out their old place.
“We’ve had more calls in the last two months with situations like this than we’ve had in two years,” said Trevor Henson, managing partner at First Light Property Management in Manhattan Beach. “It is definitely on the upswing.”
If this trend holds, it could mean even fewer homes for sale in an already tight market. But for a certain type of homeowner, becoming a landlord could make a lot of sense.
Rents are up, having climbed in each of the last three years to now average $1,435 a month in Los Angeles County, according to USC’s Casden Multifamily Housing Forecast. They’re expected to climb nearly 4% more by 2015.
Buyers who bought at the bottom of the market in 2009 got a bargain. Then came years of opportunity to refinance into record-low interest rates. That means many owners can rent out their home for more than it costs them each month, even with taxes and other ownership costs figured in.
With the tenant covering the note, they can build equity — especially if home prices continue to rise.