The biggest problem with home foreclosure circumstances is that owners over paid for their home. That part is obvious. The next problem is that the home owner has his cake and wants to eat it too and that can be impossible if the owner cannot cover and make the required payments. Professional real estate investors and all other investors have a saying “Never fall in love with your investments.” That is the hardest thing for home owners not to do. Understanding this is where the owner has to start evaluating whether to keep a home and walk away leaving a foreclosure.
One way around potential foreclosure is to find out how much the house can be rented out for. There is no guarantee that the numbers will come out in favor of your keeping your home rather than going into foreclosure but it is the place you have to start. First and foremost , now more than when you bought the home to live in, your home is now an “investment” and it is best to treat it that way. It is not a failed investment till you can no longer afford to hold it as an asset. If you find out you can rent out the home you own for $2500 a month and you owe $3100 a month on the mortgage (including taxes and insurance) and retain a job to make the payments, your cost of retaining the home is exactly $600 a month which comes to $7200 per year. If you continue paying the mortgage you may not be gaining immediate equity but you are paying off the loan for $7200 a year instead of $37.000 per year! That is a big savings. Chances are your home is in fairly good working order to rent out if you recently purchased it. A lot of real estate agents and brokers do buy a lot of homes and actually loose money for the first few years of ownership this way by rent thing out for slightly less than their holding costs. The costs are equal to putting $600 a month into the stock market as an ongoing investment not because you immediately get a return but because you plan to do it for a long period of time and reap the benefits later. Investments are long term and not immediate gambling or speculation. Your monthly loss thus becomes a $600 investment in the property. Beware before you rent it you need to contact your insurance agent and change your insurance from home owners to investor’s insurance. Real Estate brokers and agents who are now buying cheap foreclosures don’t want to tell everyone their trade secrets. The primary secret being it often takes monthly investments to initially buy and retain investment quality real estate before the property starts paying for itself in full.
Don’t forget that you can always refinance the home to save on your own payments when the opportunity arises. Do it immediately. After 2-5 years of sweating it out you may be able to raise the rent so that you will be making a net profit. The lower your monthly cost the better. If you happen to be paying just $100 a month after receiving the rent you are doing damn well because you own a home you eventually will be able to raise rents on for just just $1200 a year! Real estate brokers and agents will buy as many homes as they can afford to pay this on out of their income and eventually they will find themselves owning 100s of homes that net $400-$1000 a month after inflation melts away the existing mortgage payments verses the rent. They can get way over $100,000 a month that way. You, the accidental real estate investor instead of owner occupied home owner, may net $1000 a month on just one house for over 30 years even before your mortgage is paid off. It won’t hurt you.
There are other benefits in retaining ownership and renting it out , at the lowest possible monthly loss (investment) possible. The first benefit of ownership is over time YOU WILL BE ABLE TO RAISE THE RENT thanks to inevitable inflation as the US government has declared war on deflation of any kind, The second benefit is that you can always walk away from the property later on. The third benefit of continued ownership is creative ways to rent it out that yield more income and the forth benefit is that you can retain parts of the home in your rental /lease agreement to retain use of storage space in any part of the house including attic, basement, garage etc (These retained areas you are not renting out you get for your monthly investment.) The Firth benefit is your home becomes an investment and / or a business and more expenses are deductible from your income taxes than before. If a hot water heater needs replacing as the land lord you get to deduct it as a business expense as opposed to it being a home living expense. check with your accountant to find out the benefits in this regard.
The main creative way to rent your home for more than a single unit rental is to rent out each bed room separately. This particularly works well in places like Portland , Oregon where environmental kook regulations have made available housing stock artificially scarce. Better yet if your home is near any university or college you can get top dollars per room. Renting out separate rooms can net between $350 a month each to $700 a month and maybe more. You can also rent out the basement as art studio space, the attic, the garage etc. A neighbor might want to rent your back yard for a garden. ($200 a month?) In Portland college kids rent out a 4 bedroom home for $3000 a month and profit from doing so because they get to live in one room there themselves, they share the living room, kitchen and bath rooms. They rent out the other 3 bed rooms for $600 each and the basement for $300 and the attic for $600 and every month they net income of $2700 and only pay $300 for their own room. Others hype the price and net more than they pay in rent every month by renting out separate spaces in the attic and the basement and also renting out the couch to a couch surfer in the living room.
Other creative renting ideas are the underground bed and breakfast. If you have 4 bed rooms to rent you can actually find business people and salesmen or people with mistresses who will rent a room by the day or by the week. It costs them a lot less than the cheapest hotel in town and is more incognito. For higher end homes renting by the day can net much bigger bucks. There are homes in places like Malibu right on the beach that are secretly operating as hotels and the owners know they can get $600 -$1000 per room per night which is cheaper than any comparable luxury beach front hotel in the area. It also does not hurt that celebrities are living in the homes on either side. (The price for a room next to Barbara Streisand’s home on the Malibu strip per day could be $5000 a night and the paparazzi are willing to pay that 365 days a year.) That is not the case with your humble near foreclosure home but you get the picture. A friend of mine lived near a golf course where there is an international event once every few years and got offered $40,000 rent for a couple of weeks and my friend was too stupid at the time to go for the deal! Say you can get $40 a night renting rooms to stewardesses from a local airport near your home half half the days of the year from just one room in the house while you are still living there, you can net $7300 per year or $606 per month per room. You can get more. If you make a deal with a group of stewardesses for the whole house by the night you can save them big bucks not having to stay in the airport hotels which cost more and pay off your mortgage that way. That is just one creative rental possibility. There are people who will rent rooms in homes for one day a month that they will actually be there and just keep their stuff there. People work overseas and need a place to stash their stuff but come back often and they also want a home mailing address for a variety of reasons in the states. I know a professional landlord who rented out a fine home in a fine neighborhood as a day care center near a major hospital it is working out well for everyone. The day care operator lives on the premises.
You cannot figure out what your home will rent for before you start trying to rent it. Go to craigslist or the newspaper classified ads to see what homes in your area are renting for first. Remember when you rent out your home or parts of it to get first and last months rent. Study up on local land lord tenant laws so you don’t make big mistakes to begin with because becoming a land lord can net you as much trouble or more than just being a home owner. To start make sure you rent it out month to month with a contract that gives the renter 30 days notice to vacate so as not to lock in any thing longer. Your mortgage might not allow you to rent it out but that might not stop you if you are desperate and get most of your payments from doing so. You can also temporarily move your family into the basement or the attic and rent out the rest. If you have a bathroom in the basement and refrigerator and microwave oven you are set to live pretty nicely .
Your carpets are new and you worry about renters with pets. Well you can exclude pets or realize that the carpets get replaced in rentals every ten years or less and wait for them to be destroyed. It can pay to add a $40 a month rental surcharge per pet. plus the first and last month rent deal can come with a non refundable deposit or a deposit refundable only if the place is left perfectly clean as an incentive to keep it clean. Being a landlord is hell. You have responsibilities to keep the toilets running even if the renters jam them constantly. In desperate times you might consider going to hell a bit to save yourself.
People lived as best they could during the great depression and during very stressful times like world war 2. If they could survive that you can survive in our time which is still no where near as bad as those times were. Times are bad now but as it happens a house is worth what a house is worth according to quality and location. You may have paid too much in 2009 money but at the same time you may have paid nothing by 2025 when the home you paid $400,000 for is worth one million dollars even with renters living in it. If inflation is that bad, or appreciation is that good, you should be able to rent out the house your payments are $3000 a month for today for easily $6000-$8000 in the funny money coming in 2025! Investments take time to mature.
There are people advertising their services to save you from foreclosure who might tell you something similar to this but they may want to cut themselves into the action of making the money you should be able to make for yourself thinking positively about transforming your owner occupied fantasy home into an investment. Things can still go badly wrong renting out your home. It may not be legal in your city. That does not mean that it is not happening in the home next door to yours. It may be against your mortgage agreement and that does not stop it from happening either right next door. Investment has its risks and you have to calculate potential risks and rewards before making new plans. In the emergency of possible foreclosure it might really pay to avoid foreclosure and if necessary to do so to break a few rules. One can make a business out of consulting people on how to do this. I would do it if I were still in real estate. If that were the case you just saved my regular $400 consulting fee reading this.