Return to the office (RTO) … one of President Trump’s initial Executive Orders forces many homeowners who purchased their home during pandemic-era relocations to exit that property to comply with a reversal of remote working permissions. That means we may see a whole new pool of rental properties pop up in Central Virginia and the Tidewater regions prompted by those federal workers faced with a return move closer to their offices.
As reported in our last Newsletter, the RTO mandate impacts 145,000 federal employees in Virginia … many of whom moved to our areas seeking lower costs of living, enhanced quality of life and the ability to make a first-time home purchase or upgrade from their current residence. Since most of those moves were during the height of the Covid crisis, transplanted homebuying workers enjoyed mortgage interest rates at 3% … less than half of today’s rates pegged at about 7%.
The dilemma is clear … the steep rise in borrowing costs has priced many potential buyers out of the market and hamstrung the resale of homes. So, what’s an RTO homeowner to do … sell at a loss or rent?
Obviously, taking a bath on the sale of the house is unattractive if not unacceptable. Renting is an option with increasing appeal. Retaining a 3% mortgage and being able to attract quality tenants who will pay rent to cover the existing mortgage, plus property management expenses and yield a net profit for the landlord is a reasonable and potentially lucrative alternative to explore. Additionally, appreciation in the value of the rental property over time is an added plus.
We’re seeing an uptick in these inquiries from homeowners faced with becoming accidental landlords … not landlords based on previous intent. While all signs point to a rise in the number of accidental landlords in Central Virginia and Tidewater, there's no definitive count of their ranks. However there may be a hint in a 2024 survey by the National Association of Realtors reporting that 20% of repeat buyers kept their prior residence as an investment, rental, or vacation property.
I continue to maintain a wait-and-see stance on what this turn of events my result in for residential rental investors. On the surface it looks like a potential, maybe significant, upswing in homeowners seeking assistance in becoming successful accidental landlords. That said, take a look at our last Newsletter regarding potential exemptions for some remote workers which will impact the final outcome.
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