Ericka Newsome-Hill was in a quandary in 2008. Her wedding was right around the corner, and she wasn’t sure what to do with her Atlanta townhouse, as her fiancÃ©, Joseph Hill, owned a similar property.
Selling wasn’t an option. “My property lost too much value during the market downturn,” the 40-year-old says. “If I were to sell, I would have had to come to the closing table with $30,000 or $40,000 out of my own pocket. That wasn’t going to happen.”
Like Newsome-Hill, more than a quarter of U.S. homeowners owe more on their mortgage than their house is worth. It’s a position that leaves owners with few options. But Newsome-Hill had a plan. She decided to become a landlord. She first investigated property management firms. These operations handle the marketing and maintenance on rental properties, typically in exchange for 10% of the collected monthly rent, plus a month’s rent for filling vacancies. She did the math and decided that route was too expensive.
Instead Newsome-Hill hired a local real estate agent for a fee equal to one month’s rent. The agent helped her set a rent based on the average rental rate in the area, advertised the listing in the Atlanta Journal-Constitution and on Craigslist, and stuck a “For Rent” sign in the front yard. The latter proved to be the most effective marketing tool.
The agent also vetted potential tenants using a third-party background check firm. “The onus was off of me to screen everyone who called, and pore over applications,” says Newsome-Hill, who only spoke with the applicants who passed muster with the agent. She also called their previous landlords to discuss payment history and the tenants’ treatment of the property.
Once her first tenant was selected, Newsome-Hill worked with her agent to draw up a one-year lease (the typical length, although month-to-month and multiyear are also used). The agent also gave her a “walk-through” sheet that she gave to the tenant to fill out before moving in. (Samples of both documents can be found online.)
To handle maintenance and repair issues with the rental property, Newsome-Hill pays $400 a year for a home warranty contract that covers the townhouse’s heating and cooling equipment, appliances, and other major systems. “When something goes wrong, I make a phone call and they send someone out to handle it,” says Newsome-Hill, who is content with her choice to rent, rather than sell.