Central Valley

Rentals may ease Valley mortgage problems

Laura Berg hoped to sell her house near Central High School, west of Highway 99, before she moved to Santa Monica last year. But plunging home values left her owing more than the house was worth.

Rather than suffer a loss, she reluctantly decided to rent out her home instead.

She is among an increasing number of homeowners who find themselves reluctant landlords, confronting the headaches and complications of renting out property because they have no choice -- and often doing so at a loss.

Fresno's home values have dropped nearly 50% since 2006, according to DataQuick, a San Diego-based real estate research firm.

Many homeowners -- including those who must move for family or business reasons -- are waiting until the market strengthens to sell.

The number of homeowners who rent their homes is hard to come by, but the latest Census Bureau figures in 2008 show 126,504 renter-occupied homes in Fresno County, up nearly 15% from 2000.

"I didn't even put my house up on the market at all, because I talked to a real estate agent and she said I was too upside down," said Berg, 35, a four-time U.S. Olympian and All-America outfielder who helped the Fresno State Bulldogs win the 1998 national title.

She moved to Santa Monica to attend the Los Angeles Police Department's police academy because she wants to be a police officer.

"It wouldn't be in my best interest to sell, so my only option was to rent it out," she said.

New landlords

The first problem homeowners face in becoming landlords is detaching themselves from their houses.

"The house now becomes a business," said Terry Fox of Fox Property Management in Fresno. "It's no longer their home, and some people have trouble getting past that."

Next is recognizing that they may not be able to cover their monthly mortgage payments with rental income. New landlords have to understand that the two are not related, Fox said.

"In some cases, they have to pay the difference between the amount they get for rent to what their mortgage payment is," Fox said.

Rental homes in Fresno start at $1,100 a month and go to $1,600 for a higher-end home -- often less than mortgage payments.

Yet another key decision is whether to handle the rental themselves or turn it over to an agency.

A management company likely will charge homeowners between $80 and $100 a month or a percentage of the rent, cutting into an already narrow -- or nonexistent -- profit margin.

The Better Business Bureau gets some complaints about management companies. It encourages homeowners to check a company's license with the California State Department of Real Estate and get references.

"They should check everything and find the right fit," said Manuel Garcia, assistant director.

But competent managers can save a world of headaches and expensive mistakes, too.

For example, property managers say they know how to prepare and price a home to rent quickly. For some new landlords, the process can take months -- in part because they may be reluctant to do the necessary repairs or cleaning, property managers said.

Those who do it themselves also must draw up their own rental agreements and interview tenants. That is when they can get into trouble.

New landlords also may fail to use legally sound rental agreements or thoroughly check the backgrounds of tenants before allowing them to move in, said Marc Wilson, president of San Mar Properties in Fresno.

They get tenants who became a nuisance to the neighbors or do not care for the property as agreed in the lease, he said. Matters get far worse if the homeowner must evict the tenant, Wilson said.

Property managers handle the daily interaction with tenants. They answer the midnight calls about plumbing problems, get smashed windows repaired and even mediate roommate problems for landlords.

The challenges

Those are some of the reasons Berg decided to hire Fox to manage her home. It took three months for Fox to find tenants.

"I had a lot of doubt about the market ever being back to where it was and a lot of anxiety about it," Berg said.

"I was going to end up with this house that I'm not living in, and it's super expensive."

Berg bought her three-bedroom, two-bathroom home for about $300,000 in 2006 when she was assistant softball coach at Fresno State. It is now valued at about $195,000.

The $1,300 monthly rent she collects from the tenants covers 70% of the first mortgage she has on the house. She has to dip into her savings for $800 more a month to cover the rest of it and the second mortgage she took out.

It's stressful, Berg admits, and she's not happy about touching her savings, but renting at least offsets some of her costs.

Pete Millier, director of landscape services at the University of Missouri, didn't think he would have any trouble selling his four-bedroom, three-bathroom Cambridge house in Clovis with in-ground pool in 2006, when he moved to accept his current job.

A few offers were made, but they were contingent on the buyer's home selling, which didn't happen. The house sat empty for one year.

"We got to the point where I couldn't continue to make two house payments," said Millier, who refinanced his Clovis home to buy a new house in Columbia.

He is lucky to have the $1,500 monthly rent he collects from his tenants to cover the mortgage payment, property tax and insurance for the Clovis home.

"It's working fine now because [the house is] occupied and doesn't cost me anything," Millier said. "But it has not allowed us to go on with the next chapter of our life.