Zillow tells us that one third of all Millennial homebuyers prioritize homes that offer income potential. Whether this motivation for income generating residential properties comes from the sharing economy, collaborative consumption or parental pressure to invest in wisely, Millennial homebuyers are willing to sacrifice their own personal space in order to build wealth.
In an article in the Los Angeles Times, several agents shared their wisdom about what Millennial homebuyers might anticipate when buying a residential property with income potential.
First and foremost, Tatiana Tensen with Sotheby’s International Realty said that being a full-time landlord is NOT for everyone. Tensen underlined the fact that being a landlord is work…work that is required at any time of the day or night since flooding toilets and ceiling leaks don’t care what time it is. Either the landlord has to learn to be handy or has to find someone they can trust who is handy when something breaks in the middle of the night.
Tensen went on to say that full-time landlords need to know their rights as landlords as well as their tenant’s rights. And if the landlords are seasonal, as with Airbnb, they need to know Airbnb rules and that those rules are tightening.
Several real estate agents talked about the need to research rules and regulations, lending practices and ADUs (Auxiliary Dwelling Units.
Chris Jones, an agent with Keller Williams in Beverly, said that some cities as well as some specific buildings may have rules and restrictions against renting out residential properties. For example, some cities/buildings may require the owner of the unit to live in that unit for a minimum of one full calendar year before renting it out. Some cities may/may not limit the number of condominium units a homebuyer can own.
Megan Wilson with the Brad Holmes Group under the Compass umbrella indicated that three of the five closed escrows she has had this year have been for homes that have rental space within those respective properties. Wilson cautions buyers to make sure that the properties they are considering are ADU eligible as not all properties are. Wilson also cautions buyers to research lenders about being better able to afford income producing properties than single-family properties. Additionally, private lenders and banks offer differ rates and may have tighter contingency deadlines.
Debbie Weiss with Keller Williams Santa Monica indicated a growing trend for ADUs or guesthouses for parents as well as potential income generation. Weiss recommends separate entrances and, if possible separate backyard areas for both the renter and the owner. Weiss also recommends that buyers who may be interested in an ADUs in the future get those plans and permits now while ADUs are legal. Who knows how long they will be legal and it’s better to get that work done now.