Flipping out

When the hot housing market cooled, people who planned to buy a house simply to flip it for a quick profit instead became landlords.

"They attempt to mitigate the damages of carrying a mortgage," says Morgan Alexandra, who will teach a class in real estate management to some of those new landlords at Truckee Meadows Community College this fall.

But some of those newly minted landlords discover it's not a quick-n-easy fix.

"Land-lording is a full-time business with huge liability," says Alexandra. "You need an excellent rental contract and good lawyer."

Attorney Michael Cirac, with a practice in landlord tenant law, says, "I get a lot of calls every day from people who can't sell, refinance or make payments. I'm sorry they became landlords when they didn't anticipate that."

His clients include both individuals and property management companies, who get help with preparing rental documents, pet permits, and dealing with security and non-payment issues.

Better to avoid problems up front, says Cirac, by having a formal application and screening process that verifies source of income, personal history and references.

The heydays of flipping lasted from fall of 2003 to summer of 2005, says Alexandra.

But after 2004, the smart money moved on, says Rich Welsh, real estate agent at Dickson Realty."Some investors who bought in '05 did get bit."

But investors aren't alone in the predicament. Welsh says most of the new landlords are people who must move out of the area but can't sell their homes.

"If sellers are not willing to price realistically, their options are limited," he says. "Their option is to rent and wait for the market to turn."

And while they're waiting, Welsh refers them to a professional property manager.

Scott Brenneke, broker and owner of Advanced Asset Management, saw a 25 percent increase in clients since the downturn.

"They've had their property on the market, haven't been able to sell, want money to pay the mortgages," he says. "The majority have one house, probably bought for speculation."

Reluctant landlords hire a property manager after failing to rent it themselves.

The most frequent issue, says Brenneke, is asking too much from tenants. "They must drop the rent to a point that's marketable."

Property management firms provide services that span marketing, showing, preparation of the lease, contract review, background and credit checks.

Adding to the landlord's headaches are changing demographics. As baby boomers retire, some seek rent payments to subsidize their retirement income, says Alexandra.

Some are forced to rent a room in their home, she adds, while others actively plan ahead by building an in-law unit to rent out.

And while zoning for such units typically specifies occupancy by an immediate family member, cities can be lax in enforcement.

However, cautions Alexandra, even taking a renter into one's home creates a landlord-tenant relationship, with all its associated tax, insurance and legal issues.

Converging trends are adding to the headaches of the reluctant landlords.

Condo conversions have gone belly up, dumping further rental inventory on market.

Meanwhile, Alexandra says 40 percent of all homes for sale in the Reno area stand vacant.

"Those trends are flooding the market with rentals now," says Alexandra. A landlord herself, she says a three-bedroom house that once rented for $1,450 now brings $1,050. "Even tenants with a contract are renegotiating their lease," she notes.