THE ACCIDENTAL LANDLORD

Your 3% mortgage might turn you into a landlord

The era of lower-than-ever seen mortgage rates is long gone, and it’s been replaced with rates hovering around 7%.

But homeowners who locked in lower rates before or during the Pandemic Housing Boom aren’t selling. In fact, some of them are becoming “accidental landlords,” simply because they don’t want to lose their low rates of the past. 

That being said, the so-called lock-in effect (mortgage handcuffs) is putting pressure on both sides of the market. There aren’t as many buyers looking for new houses and not as many sellers looking to move up or downsize, if they’ll get stuck with a mortgage rate more than twice as high as their old one.

Michael Zuber, author of One Rental at a Time and former tech worker turned real estate investor, recently said “that a 30-year fixed mortgage at a rate of 3% is without question one of the best assets most homeowners will ever have.”

“They shouldn’t sell, they should rent it out,” Zuber said, adding that several people on Twitter have told him they’re making around $1,000 a month after expenses from doing exactly that, sarcastically adding that the prospect of that “doesn’t suck.” 

Redfin’s chief economist Daryl Fairweather told Fortune that high rates are constricting activity. “They’re looking at their monthly payment, which is quite low if they locked in a 3% mortgage rate compared to what their monthly payment would be if they sold and bought again, which would be quite high given how high mortgage rates are,” Fairweather said. “And it just makes a lot of sense for them to hold on to that low interest rate.”

The Takeaway:  Being a landlord isn’t for everyone, but it can be quite easy to do especially if you hand off the management and maintenance of the property.  Owning income-producing real estate can also have other tax and financial benefits.  

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Riley Schmidt