From Accidental Landlord to Real Estate Investor

Maybe your house lingered on the market for four months. You might have had to suddenly relocate for work or a family emergency. Perhaps you just inherited a property unexpectedly. The point is, you never planned to be a landlord, but here you are fielding maintenance calls and collecting rent checks. Welcome to life as an accidental landlord!

In large metro areas like Houston where large institutional investors own a sizable portion of homes, 7% of listings that are unable to sell in a timely manner have been converted into rental properties.

That represents a 41% increase in the number of home-sellers-turned-accidental landlords in the Houston market compared to last year.

If you're an accidental landlord, managing your rental property might feel like a lot to handle. If this sounds familiar, this guide could help you shift from feeling overwhelmed to approaching real estate management with a more strategic mindset.

What is an accidental landlord?

An accidental landlord is someone that's thrust into managing a rental property due to an unexpected life situation, rather than a deliberate real estate investment strategy.

You might become a landlord unintentionally for various reasons, such as a job relocation where selling isn’t practical or inheriting property after a family member passes away. In slower markets, some homeowners could find themselves renting out their new property to avoid selling at a loss. Other situations, like divorce or family emergencies, could also lead to this scenario.

So, why is the number of accidental landlords increasing?

Charles Goodwin, Head of Bridge and DSCR Lending at Kiavi, points to the "lock-in effect." He explains that many homeowners with low fixed-rate mortgages are hesitant to sell in slow markets. So they pivot to renting.

“You want to keep borrowing money at an unbelievably low interest rate,” Goodwin says. “Rather than selling a house for less than you would like to sell it for, you turn it into a rental.” This allows you to hold on to your property as you wait for market conditions to improve.

Key characteristics

Accidental landlords often own just one rental property—frequently a previous home —along with their current residence. Due to limited experience, many of these landlords, around 71%, may choose to hire property managers to handle day-to-day operations.

Unlike seasoned real estate investors, they are less involved in industry education and networking. Their primary goal is to cover ownership costs with rental income until they can sell the property, usually within a 2-3 year timeframe, once market conditions improve. They view themselves as temporary landlords rather than aspiring real estate investors and aren't focused on long-term portfolio growth.

Geographic hotspots

A recent report from the New York Times suggests that sun belt markets may be seeing an increase in stale listings being converted into rentals. This trend could mean a rise in "accidental landlords," with Houston leading the way—7% of its stale listings have been turned into rentals, a 41% year-over-year increase. Dallas follows closely with a 32% increase, while Phoenix and Tampa have seen gains of 11% and 13%, respectively.  

California also stands out in the report. Homeowners with significant equity and low interest rates appear to be holding off on selling to avoid accepting lower prices in a slower market.  

The common thread across these markets is slower resale velocity and growing inventory. According to Goodwin, the housing market may still be three to four years away from a more typical sales pace, which might reduce the number of accidental landlords. Until then, markets with higher days on market could continue to see this trend grow.

Accidental landlord vs. real estate investor: Key differences

1. Mindset and approach: Accidental landlords tend to manage properties reactively, addressing issues as they arise. Their main focus is often on covering the mortgage payment, viewing property management as a responsibility they didn’t intentionally choose.
   
   On the other hand, real estate investors typically take a proactive approach. They view their property as a business and aim to generate cash flow, which could potentially support long-term financial goals. 
2. Financial perspective: Accidental landlords might not always analyze the financials in detail or plan for unexpected expenses. In contrast, real estate investors often evaluate potential cash flow, estimate expenses, and set aside reserves to prepare for emergencies or other costs.
3. Strategic planning: Accidental landlords often address issues as they arise, usually without a defined system in place. More strategic real estate investors (REIs) might implement processes for key property management tasks, such as tenant screening or rent collection, and sometimes set measurable performance goals for their properties.
4. Portfolio vision: REIs are more likely to own multiple properties and may have plans to expand their portfolios in the next couple of years. In contrast, accidental landlords typically own a single property and are often focused on selling when market conditions improve.

Your biggest challenges right now (and how to overcome them)

Here are the major challenges you might face as a new accidental landlord, and some ideas to help you work through them.

Challenge 1: Unpreparedness

Becoming a landlord can feel overwhelming, especially if you’re new to the process. Starting with these two essentials might help you establish a solid foundation: 

1. Use a written lease agreement. This document may help set expectations, outline responsibilities, and provide protection for both you and your tenant in case of disputes. 
2. Contact your insurance agent to update your homeowner's insurance to a landlord policy. This could offer protection for situations like tenant-related property damage, liability claims, or loss of rental income. If you have a loan, your lender may already require landlord insurance. 

These two steps help create your legal and financial foundation as a new landlord.

Challenge 2: Finding and managing reliable tenants

One of the biggest fears of landlords is having to deal with difficult tenants. As Charles Goodwin notes, "On top of finding a tenant in general, it's finding the right tenant that matters most”. 

With proper screening, you could significantly reduce the risk of dealing with problem tenants. 

Here's a step-by-step guide to screening tenants:

• Application: You could require every adult applicant to provide sufficient information—personal details, current employment, and previous addresses.
• Credit and background checks: Consider using services like Zillow Rental Manager or Avail to run credit and background check reports. The cost of these reports can be a small price to pay compared to the potential costs of dealing with a problem tenant down the line.

When running background checks, you’re legally obligated to follow these FCRA rules. Essentially, you have to get permission from the tenant before running a background check, and also notify them if you take an adverse action, e.g. decline their application for any reason or require them to have a co-signer.

• Income verification: Confirm their income is up to 3X the monthly rent through pay stubs, tax returns or employer verification.
• Reference checks: You might want to call previous landlords and ask questions like: "did they pay on time?" and "would you rent to them again?"

Challenge 3: Unexpected costs and repairs

Many accidental landlords may not realize how financially demanding property management can be. A single major repair could quickly consume rental income and even make it harder to keep up with loan payments, especially if the property was acquired during a market high. 

This is why it might be helpful to have an emergency fund equal to 1-2 months' rent. If you expect significant replacements like a roof, HVAC system, or plumbing, you may want to save more, as these repairs can cost thousands on short notice.  

It’s also worth considering a shift from reactive to proactive maintenance. Scheduling annual inspections and addressing small issues early could help avoid costly emergencies down the line.

Challenge 4: Managing accidental landlord taxes

Rental income is subject to taxation, and the rules are different from homeownership. But the good news is that you may be able to deduct things like mortgage interest, property taxes, and other expenses (repair and maintenance costs, insurance, marketing, etc.). You could even deduct yearly depreciation—around $10,000 annually for a rental property that has a market value of $275k (excluding the value of the land). 

You might have to track every expense carefully as you'll report these on Schedule E when filing your taxes. 

Note that while depreciation may reduce your accidental landlord taxes now, you could face depreciation recapture when you sell, potentially leading to higher taxes upon selling. But if you're planning to sell soon, you might qualify for the personal residence capital gains exclusion if you lived there for two out of the last five years.

Kiavi Tip: We advise consulting a tax professional who works with rental properties. They could help you maximize tax deductions and avoid costly errors.

Challenge 5: Managing from a distance

If you've recently relocated and are now a long-distance landlord, managing tenants and maintenance can be a significant challenge. The most direct solution is to hire a property management company.

A good property management company handles everything, from finding tenants and collecting rent to coordinating repairs, typically for 8-12% of the monthly rent. This expense is often tax-deductible, and more importantly, it might buy you peace of mind.

How to transition from accidental landlord to real estate investor

These five steps could help you make the transition from accidental landlord to real estate investor.

Step 1: Shift your mindset—think like a business owner

The first step is a mindset shift. You're not just covering the mortgage or DSCR loan payments—you’re managing a business.

An accidental landlord might hope the rent will cover expenses, but a seasoned real estate investor analyzes cash flow, ROI, and potential equity gains.

Consider setting clear financial goals and approaching your property as an income-generating asset rather than a liability.

Step 2: Get your finances in order

Next, calculate your property's true profitability step by step:

1. Determine your net operating income (NOI). This means subtracting expenses—like property taxes, insurance, repairs, management fees, marketing, and vacancy—from your annual rent. The average annual residential vacancy rate in the U.S. is about 7%, so consider this when running your numbers. 
2. Subtract your mortgage payments from your NOI to calculate your cash flow.

You should also consider opening a separate bank account for rental income and expenses. This could help simplify tax tracking. Tools like Stessa or QuickBooks can help categorize transactions and streamline Schedule E filing during tax season. 

If you're considering portfolio expansion, understand these rental property financing options: conventional loans, DSCR loans (where you qualify based on property income versus personal income), and bridge loans (for fast acquisitions).

Lastly, research comparable rentals in your area to ensure you're priced competitively.

Step 3: Educate yourself on real estate investing

To manage your property effectively, consider becoming a student of real estate investing. Start by exploring well-regarded real estate investing books and podcasts. Joining organizations like BiggerPockets—the largest real estate investor community—could provide access to valuable resources like forums, podcasts, and property analysis tools. Additionally, connecting with a local REIA (Real Estate Investment Association) might help you learn from and network with experienced investors in your area.

It's also important to familiarize yourself with landlord-tenant laws to avoid making a common mistake. Take time to understand state-specific eviction laws, notice requirements, and fair housing rules. For example, you cannot deny a tenant or limit unit availability based on protected characteristics like race, religion, familial status, or disability.

With that said, experience is the best teacher. As Goodwin notes: "You don't know what you don't know until you truly experience it...there's no replacement for doing it yourself." Education accelerates learning, but experience teaches what books can't.

Step 4: Professionalize your operations

Landlords who implement systems may be able to cut payment delinquencies by 23% and reduce administrative time by up to 75%.

You can standardize everything, including rent collection, tenant screening, and maintenance management, using free property management tools like TurboTenant and Avail. Also, be sure to always use written lease agreements and document important tenant communications.

It could be beneficial to build a reliable network of contractors before you ever need it. This should include a handyman, an electrician, and a plumber. When you have trusted people you can call during emergencies, you might lower response times and get better repair quality.

At some point, you could consider bringing in a property manager for 8-12% of the monthly rent. This might alleviate the stresses of property management, but you should run the numbers to see if this makes financial sense for you.

Step 5: Decide your long-term strategy

You have four potential paths forward:

A - Keep and scale. You could use rental income and equity from your first property to acquire another, and scale gradually. Over time, you may build a portfolio that generates enough cash flow to replace your primary income.

B - Sell strategically through a 1031 exchange. This allows you to defer capital gains taxes by using sales proceeds to acquire a different property within 180 days of selling the first.

C - Hold as a single long-term rental for retirement income. 

D - Sell after two or three years and move on.

So, which path should you choose? "Weigh the trade-offs and ask yourself, 'what do I really want to do with this investment?'" says Goodwin. "You have to separate the financial equation from the lifestyle equation."

Goodwin mentions he has personally walked away from rental properties, despite their financial upside, because they interfered with his lifestyle.

Consider the financial trade-offs against your personal preferences to find the strategy that's right for you.

Conclusion

Becoming an accidental landlord doesn’t have to feel overwhelming. With the right strategy, that inherited property or slow-moving listing could become the foundation of a rental portfolio. 

If you have significant equity in your property, a DSCR loan might be a smart option to consider. These loans allow you to access capital based on your property’s income rather than your personal income, making it easier to qualify. Depending on your credit score and loan-to-value (LTV) ratio, you could secure competitive rates while keeping your tenants in place. 

Many first-time investors aren’t aware of this option—take a closer look to see if it’s the right fit for your needs. 

Frequently Asked Questions (FAQs)

What are the best tools for landlords to automate rent collection?

Services like Avail, RentRedi, and TurboTenant allow tenants to pay rent online. These platforms also offer features like automatic reminders and late fee notifications, which could help streamline the process. 

Which online platforms help accidental landlords screen tenants?

TurboTenant offers free property management tools, with optional tenant screening services currently priced at $45-55 per applicant. Avail and Zillow Rental Manager also provide similar screening options, typically priced at $55 and $35 per applicant, respectively. These prices may vary over time, so be sure to check for the most up-to-date rates. These services generally include credit, criminal, and eviction checks, with results available in 24-48 hours.

How can I find affordable landlord insurance online?

Landlords might consider providers such as Obie Insurance, Steadily, Allstate, Liberty Mutual, or Travelers, which offer online quotes and customizable policies. Bundling landlord insurance with existing homeowners or auto insurance may also help save around 10-25%. Comparing quotes from at least three independent agents or carrier websites could help secure better rates.