Central Valley

Builders now landlords as homes linger unsold

Modesto home builder Harinder Singh Toor hadn't planned on being a landlord, but he's become one because he hasn't been able to sell what he's built.

Now he rents out eight custom homes, some as large as 5,400 square feet.

"I built this house to sell, but I haven't gotten a single bite on it in a year," Toor said about the empty five-bedroom, four-bath house on North Canyon Drive.

He had hoped to sell it for $1.2 million, but he'll settle for $3,000 a month in rent, even though that will cover only about half of his carrying costs.

Toor plans to rent out his properties until the housing market recovers enough to sell them.

He's not the only one.

There's a flood of rental homes in need of tenants in the Northern San Joaquin Valley. One day last week, The Bee listed about 50 Modesto houses for rent, with rates ranging from $600 to $3,000 per month.

"There certainly are a lot of good deals out there to rent a house," said Ben Sweet, who manages about 300 Modesto rental properties. He said many homeowners have started renting out property because they can't sell. "We call them landlords by accident."

Becoming a landlord, however, can be perilous because California has many laws that protect tenant rights and regulate what property owners can and can't do, Sweet warned.

Sweet is on the board of directors for the California Apartment Association's Central Valley Division. That association is composed primarily of rental home owners, all of whom must agree to abide by a code of ethics and state laws.

"Our members know the laws and are landlords because they're doing it as a business," Sweet said. "They take a long-term view of property management, which makes them better landlords."

Not all landlords are so conscientious.

Barbara Billington wishes more landlords were responsible. She owns 14 rental homes, and manages them herself. Her properties suffer when nearby rental homes are not managed properly.

"I see Bay Area people who own property (in Modesto), and all they want is to put someone in the home," Billington said. Too often, she said, bad tenants aren't screened out, which causes problems throughout the neighborhood. "If the property owners lived close by and would drive by to check (on their rentals), it would greatly improve the neighborhood."

One of Billington's recent rental openings was for a one-bedroom home on Kimble Street, for which she was asking $600 per month including yard service. Not only does she screen her tenants, she wants only nonsmoking residents with no pets.

Toor also screens tenants. His rentals require a significant financial investment, too, because he makes tenants pay the first and last month's rent, plus a deposit.

"You can find good renters," Toor said. "It's hard, but there are people out there who will be responsible with your property."

As a general rule of thumb, Sweet said, most landlords won't rent to tenants unless their monthly income is at least three-times as much as the rent. He said that's why most "decent houses" in Modesto rent for about $1,100 to $1,200 per month.

"No matter how glamorous your house is," Sweet said, "if it's priced above $1,500 per month, you're not going to get much rental activity."