Unable to sell, some homeowners become landlords

Jacquie Buschbacher works as a property manager, but she never thought she would be renting out her own home.

After her Crystal Lake town house languished on the market for nine months with few buyers showing interest, Buschbacher changed her mind. Living with her boyfriend, she decided that the town house was a burden that she no longer needed.

"It's hard to sit by and pay utility bills and a mortgage for a home you don't live in," Buschbacher said.

Like many McHenry County homeowners, Buschbacher is looking for someone to rent her home while it sits on the market.

Although it is hard to tell exactly how many people are renting out their homes, real estate experts say the practice is becoming more popular. At the same time, more people want to rent as a result of record-high foreclosure rates and the tight credit markets. In addition, some see renting as a safe bet as home prices continue to drop.

"Interest in rentals is shooting up," said Donna Leahy, a real estate agent with Prudential First Realty in Crystal Lake.

McHenry County's home rental market is about a tenth of the size of its purchase market. In McHenry County, 355 single-family or attached homes – such as town houses and duplexes – were listed on Multiple Listing Service for rent on a recent day in December, Leahy said. On the same day, 3,533 homes were listed for sale in McHenry County. However, there is no way to track how many homes are listed both for sale and for rent, Leahy said.

The numbers are similar in Crystal Lake. On a recent day this month, 75 homes were listed on Multiple Listing Service for rent in Crystal Lake compared with 689 listed for sale, Leahy said. As of Dec. 19, 157 homes in Crystal Lake had been rented during 2008.

The weak housing market combined with an ongoing recession has made renting more attractive to owners. Some homeowners end up becoming landlords because they already have moved and can't afford to pay two mortgages while waiting for a buyer. Others are renting now with hopes that home prices will rebound later.

Tara High wants to sell her house in Huntley, but after two years on the market, she now is looking for a renter instead of a buyer.

In 2006, she listed the home on Hunter Trail for $370,000. High has reduced the price several times, and it now is listed at $325,000. The four-bedroom home with a loft, two-and-a-half bathrooms and a three-car garage also is listed for rent at $2,300 a month, a price that High said won't even cover the mortgage.

"We finally decided to rent because it just wasn't selling," she said. "It's our last option."

Renting is one way to get out from under mortgage payments, but it can be a daunting prospect.

"It's scary to have someone in the house," High said.

Owners-turned-landlords must be sure that rent is paid and the house stays in ready-to-sell condition.

Before listing a house for rent, it's a good idea to do some research, said Jim Haisler, CEO of the McHenry County Association of Realtors. Consulting a property management company, a real estate agent and an attorney also can help, he said.

Neophyte landlords "need to know what they are getting into," Haisler said.

One of the most important decisions for a prospective landlord is finding the right renter, Leahy said. She helps her clients get credit applications and rental applications, check references, and obtain a security deposit.

Checking a tenant's credit increasingly is important because many renters have lost a home to foreclosure, Leahy said.

Homeowners also must decide whether they are going to allow pets in their rental home. They also must be prepared to put more money into the property after the renter leaves to clean the carpets and paint the walls, Leahy said.

As demand for rental properties increased, the McHenry County Association of Realtors developed rental agreement forms it now distributes to its members, Haisler said. Real estate agents are venturing further into the rental market as the housing slump continues. He also said lease and other rent-to-own options have become more popular. When leasing a house, a portion of the monthly rent is used toward a down payment, Haisler said.

Web sites such as iRentToOwn.com have sprung up to help both buyers and sellers. There are dozens of homes in Illinois listed on iRentToOwn.com.

"Given the current economic conditions, there is an incredible opportunity to capitalize on the rent-to-own concept," said John Kobs, CEO and founder of iRentToOwn Corp. in Los Angeles.

Leasing also can help owners avoid messy – or destructive – tenants. Lessees have more incentive to take care of the house since they one day will own it.

"The quality of a rent-to-own tenant is much higher than a standard renter," Kobs said.

Users on iRentToOwn.com can search for properties and advertise properties. It also has programs to help prospective owners obtain the credit that they need to buy in the future.

"Rent to own has become a real option for a lot of people," Haisler said.

However, he advised both lessees and landlords to consult an attorney when drafting and signing a rent-to-own agreement.

"You need to have an attorney involved to protect both parties," Haisler said.

Renting can be risky. Buschbacher knows that from her work as a property manager, but she is hoping to find a tenant soon despite some of her fears.

"When you rent, you are taking a risk," she said. "But it's a risk I'm willing to take at this point."