Accidental Landlord | Why Fewer People are Selling Their Homes

Hey all, Zach McDonald, your real estate agent with Real Property Associates, and today we’re going to discuss why some homeowners are accidentally becoming landlords.

It’s no secret that mortgage rates have increased dramatically over the past year, plus people were getting rates in the mid to upper twos, and now we’re seeing mortgage rates hovering in the seven in a quarter range according to Mortgage News Daily’s, most recent surveys, and as you start to think about it, that’s a big jump in mortgage rates. And Freddie Mac, in their most recent blog post, shared a graphic from the National Mortgage Database. This graphic shows that a large majority of mortgage holders, 61%, to be more exact, almost two thirds have mortgages that are below 4%, and 23% fall into the category of below 3%. And if you’re thinking about it, inflation has been way more than that 3% number and really more than that three to 4% number over the past couple of years. So as we’re considering the mortgages, I think that’s a huge factor as we talk about accidental landlords and why some people might be holding onto their houses instead of selling them.

In fact, as we look at King and Snohomish County, we’ll dive into the Seattle area more specifically. But this does apply I think, in a lot of other markets. But in King County, 30.8% fewer listings in 2023 so far. So through August, 2023 in King County, we’ve seen 7,000, about 7,000 fewer listings hit the market. And that’s just for the single family homes. And the percentage is very similar. It’s about 24% fewer condo listings. Snohomish County, also in the Seattle area, 37.1% fewer new listings through August, 2023. That’s about 3,600 fewer listings. And if we look at the condo data, Inno County, we’re seeing about 38% fewer condo listings. That’s a big, big delta. Now, some people might just be holding onto their house because they don’t want to trade their mortgage for a higher one. So that’s one category of people that fit into why there are fewer listings right now.

That’s a huge reason actually. But I think there’s also this other subset where you have people that are buying a new house, maybe they can afford to make the jump or maybe they have to make the jump, maybe they moved out of the area, but the prospect of trading that mortgage that they have at 2.5% or 3%, or even 3.5%, doesn’t sound super appealing when they look at the math and they see, okay, well, if I can rent my house for 3,500, $4,000 a month, I could have a cash flowing rental property and watch the market continue to get better and have a lot more equity in my house. So I think there are people falling into this category, and that doesn’t help when we’re low on housing inventory. But what it has done is it’s helped stabilize the housing market in the Seattle area.

And I find myself in this same position I’ve mentioned that we’re working on selling our house. And I emphasize working because as of filming this video, we still haven’t sold our house. It’s been on the market now a couple months, and we have a house that’s kind of in that second home category, at least as far as prices go at this point. It’s bigger than most people need. It’s also at a higher price point in the location. Really, it’s below the median for the zip code, but it is a more expensive house in the neighborhood. We could go through why it hasn’t sold and have that conversation. But for this video, the point is that we’re starting to talk about maybe holding onto the house if we don’t get a certain price for it, because at our current mortgage, our mortgage is if you include the taxes and the insurance piece into the bundle, right?

It’s 27 50, something like that a month. And our house could rent for somewhere between 30 $504,000 a month, most likely, which makes it cashflow. And at the same time, somebody would be helping us pay down our debt over time, right? They’re going to be giving us some equity. And then the other piece is that the market’s a little bit depressed right now and it will rebound here in the near future. And even if it doesn’t happen super quick, it will continue to appreciate in the long run. And if you look at that, that’s really what most people when they are looking at buying into real estate investments, they’re looking for, they want cashflow, at least they want to break even. They’re also looking for the debt pay down or equity built just by those payments being made and they’re not having to make those payments.

And then at the same time, you’ve got the appreciation over time. So from the outside looking in, it’s a great way to get started with real estate investing. And again, we never had the intention to become landlords. And I’ve shared this in another video that’s titled Don’t Convert Your Primary Residence Into a Rental Property. And that video has all sorts of fun comments. It is not meant to be an exhaustive video or a prescriptive video. Hey, don’t do this in every situation. It’s more angled at someone like me who doesn’t really want to be a long-term landlord. Maybe I could consider doing it for the short run, but I don’t want to do it forever. And in that video, we talk about some of the capital gains rules and how that would apply in a situation like this.

So if you want to get a little bit more nuanced into maybe the dark side of keeping it, if you don’t want to have a long-term rental, you can take a look at that video. But in this one, I think if you’re looking to get into real estate investing or you’re open to the idea of having a longer term rental, that might make a lot of sense to hold onto the property, especially given your mortgage might be low enough where you’re just kicking butt on a monthly basis, you’re beating inflation, your money’s invested in a great spot that’s cash flowing for you, somebody else is paying down your debt. And you’re also getting to see the appreciation over the long run. So I think if you look at real estate, real estate’s one of the most tried and true investments you’re going to make. Again, a lot of people that’s just a primary residence and they hop to the next primary residence.

And if you can do that a few times, you can cash out some equity or roll it over into the next purchase. But it’s a way to jump up the ladder in your real estate investments. But again, if you can hold onto it long-term, you can also go at it this route. So right now, it’s tough to buy a rental property that cash flows, especially a residential property when you’re getting a higher mortgage rate. And if you’re buying an investment property, the rates are even higher than they are going to be for somebody that’s buying it as a primary residence. So you’ve got a higher rate, you’re paying a lot of points to get your rate, and you’re also most likely not cashflowing on your property because of the monthly payments. Now, again, future prospects, yeah, you’ll be able to cashflow it and it’s going to appreciate you’re probably getting a better price right now.

But at the same time, you’re not niggling this formula where you are if you were to keep something that you already have and convert it into a rental. So I don’t know. I don’t know if I’m going to do it. I’m open to it. I’m at least thinking about it at the moment. But I wanted to make this video because I keep hearing this term accidental landlord, and people are asking me about what they should do, should they keep their house rented out, should they sell their house. And I really think that’s a nuanced discussion, and it applies to everybody a little bit differently, but those golden handcuffs are real, and I don’t think it’s necessarily a bad idea to keep that house as a rental. Thanks so much for watching our discussion on accidental landlords, and if you’re somebody who’s debating this very topic yourself, feel free to drop a comment or reach out, especially if you’re in the Seattle Metro area. I’d be happy to be a resource for you. And if you want to see more videos like this specifically around the Seattle housing market, please consider subscribing to the channel.