Surge of 'accidental' landlords in Colorado Springs, nationwide

Robert and Lisa Tobin purchased a home during August 2006 because their family was growing. The plan was to move into their new house, then refurbish and sell their old residence.

"We thought it would be better to move first, rather than living in the house while remodeling and trying to show it," Robert Tobin said. "It took two months for contractors to replace the carpet, paint the entire house and patch nail holes. During that time -- the (real estate) crash happened."

Interest in their old house was tepid, Tobin said. After more than a year, he and his wife told their real estate agent to try and find a renter.

The Tobins never wanted to be landlords, but they are part of a growing number of homeowners who find themselves saddled with multiple residences, multiple mortgages and a dwindling list of options.

The challenges facing these first-time "accidental" landlords are many.

Rent it -- now

"The first question out of their mouths is 'How fast can you rent it?'" said Marlenna Davidson, owner of Davidson Properties Inc., a real estate services company that provides property management services. "But the big challenge is getting first-time landlords to ask for a reasonable rent."

An adequate cash reserve also often presents a challenge.

"They don't necessarily have the money to be landlords, and repairs can become safety issues if they don't have the wherewithal to handle them," Davidson said. "Many homeowners have to learn the hard way."

However, the upside of the housing crisis is that more tenants are in the market.

"People are renting more now, because they're not buying," Davidson said. "And we are renting to people who have foreclosed and lost their homes -- so the rental market is not bad right now."

One way to make the "accidental" landlord transition easier is to hire a qualified property manager, especially for those landlords who are also absentee.

"We hear horror stories of landlords paying for repairs that did not get done," Davidson said. "A good property management company will send out monthly statements and updates to keep homeowners informed. Remember, this is probably your single biggest investment - - treat it as such. If you had $200,000 invested anywhere else, you would continue to check on it," Davidson said.

But finding a tenant and a property manager aren't the only challenges facing first-time landlords. Changes in occupancy also call for changes in insurance.

Right policy?

"First-time landlords tend to assume their homeowner's policy covers everything, and they go on their merry way," said Cally J. O'Donnell, who owns an Allstate Insurance Co. agency. "But the insurance industry is heavily regulated. They don't realize if something happens, they've put themselves at risk by not switching to a landlord's policy -- some insurance companies will deny the claim."

Owner-occupied insurance carries personal liability, O'Donnell said. A landlord's policy has business liability, which would protect the homeowner if, for example, the tenant's dog bites someone.

And, typically, a landlord's policy is less expensive because contents coverage is about 5 percent vs. 70 percent.

Landlord policies also can cover vandalism or "loss of rents" or "loss of income" while the residence is unoccupied and being repaired for a "covered loss."

"On the other hand, tenants need to have renter's insurance, and homeowners should insist on it," Davidson said. "Tenants may think their belongings are covered by the homeowner's policy, but, of course, they are not."

And while finding a tenant, hiring a property management firm, maintaining adequate cash reserves and ensuring that the proper insurance policies are in place, "accidental" landlords shouldn't forget about their homeowners' associations, whose general mission is to maintain property values and ensure a tranquil, live-able neighborhood.

Oh, yeah, the HOA

"All HOAs are different -- no two are even similar," said Chuck Fowler, owner of cFowler Inc., a homeowners' association administration and financial services provider. "Some associations and their boards take the enforcement of governing documents seriously, and some don't. For those who do, it's a nightmare situation when a homeowner has to move and rent the property."

Generally, an HOA will require landlords to attach the association's lease rider to the tenant's lease, he said. Tenants must read and agree to abide by the governing documents or they can be evicted by the board.

"But I've yet to meet a tenant who has the emotional buy-in to HOA rules and regulations and the money for upkeep of the property," Fowler said.

Tough market

And it doesn't appear that the housing crisis is going to end anytime soon.

According to ERA Shields' February Stat Pack, single family homes in the Pikes Peak Region -- on the market between Oct. 1, 2007 and Jan. 31 -- were listed for seven to 15 months before they sold.

With the market south of where it was when he and his wife originally tried to sell their home, Tobin figures they have lost between $30,000 and $40,000. He said he would have sold the house before moving or would have rented it sooner and skipped paying $10,000 for upgrades -- if only he had known the housing bubble was about to burst.