The Appeal of Renting Out Houses Amid Rising Rents and Mortgage Rates

The current real estate landscape has seen a significant uptick in homeowners opting to become landlords rather than selling their properties, driven by the rapid increase in both rents and mortgage rates. This trend has given rise to a new wave of what we call “accidental landlords.”

D.A. Taylor, a tech worker based in Lompoc, Calif., found herself unexpectedly stepping into the role of a landlord after inheriting her mother’s home in 2022. The decision was influenced by the low 2.9% mortgage rate she secured in 2016, at a time when average rates were on the rise, nearing 6%. In her own words, Taylor described owning a sub-3% fixed-rate mortgage as a golden opportunity she couldn’t pass up.

A Rise in ‘Accidental Landlords’

Taylor’s story is not unique. Experts like Selma Hepp, chief economist at CoreLogic, have observed a growing trend of homeowners renting out their properties due to changes in mortgage rates and home prices. Greg Schwartz, founder of Tomo, notes that in the Dallas market alone, 15% to 20% of homeowners who purchase a new property choose to retain their old one.

One of the primary drivers behind this shift is the fluctuation in mortgage rates. Historically low rates prior to the pandemic, coupled with further cuts by the Federal Reserve in response to economic challenges, led to a record low average mortgage rate of 2.65% in early 2021. However, as inflation started to rise, mortgage rates climbed, reaching nearly 8% by October 2023. This surge made selling less attractive for many homeowners, especially those with existing low-rate mortgages.

Other Considerations Before Becoming a Landlord

While the allure of renting out a property may seem appealing, there are important factors to consider before taking on the role of a landlord. Potential expenses such as property maintenance, homeowners’ insurance, property taxes, and management fees can quickly add up and impact the financial viability of the investment.

For Taylor, the reality of being a landlord has come with its challenges, including unexpected repair costs and ongoing property management fees. As she candidly admits, the financial outcomes can be unpredictable.

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