Press Release

How Marin homeowners are cashing in on their homes without selling

July 2, 2018
By Blanca Torres – Reporter, San Francisco Business Times

In the Bay Area’s ultra-competitive housing market, Darcy and Christopher Barrow discovered an underserved niche: high-end rental homes in Marin County.

The married couple runs Foundation Homes International, a property management company that specializes in single-family homes valued at upwards of $1 million that rent between $5,000 and $15,000 per month.

“A lot of clients are what we describe as accidental landlords,” Christopher Barrow said. “They did not buy their homes with the intention of renting them out.”

Darcy Barrow (left) and Christopher Barrow (right) started Foundation Homes International.

With rental prices soaring in the last few years, many homeowners realized they could downsize without having to sell their home. Instead, they rent it out and move elsewhere.

Foundation manages 115 single-family homes peppered throughout Marin County, where the median home sale price is $1.13 million and the average rent is about $4,500 per month, according to real estate information company Zillow (NASDAQ: Z).

Darcy Barrow said demand for rental properties has surged thanks to the Bay Area’s hot job market. Some of the firm’s renters are newcomers to the area, San Francisco transplants “trying out” the suburbs when they have kids or workers who don’t know how long they will be in the area.

“Here’s the deal: Yes you could buy a home if you’re paying those rental rates,” Darcy Barrow said. “But someone’s personal circumstances might not allow that. People want the lifestyle option of a nice home versus an apartment.”
The common factor is that desire to live in a million or multi-million dollar home without having to buy it.

“With the volatility in the housing market, people want to hedge their bets — you don’t know what the market will do,” Christopher Barrow said. “It costs money to buy a $1 million-plus home. To buy it, you need $600,000 for a downpayment. Some people don’t want to put that money down.”

The trend of homeowners becoming landlords is increasing across the state, said Selma Hepp, chief economist with residential brokerage firm Pacific Union International.

Two key factors come into play. One is Prop. 13, California’s property tax law that caps annual growth of property taxes. That law gives owners a bigger tax advantage the longer they own their property, which is why many longtime Bay Area homeowners with lots of equity in their properties don't sell. The second is that some would-be sellers don’t want to pay capital gains taxes, which kick in on a profit of more than $500,000 for a married couple.  

Also, if an owner bought their home say two decades ago, it’s likely that rental revenue would be “well in excess of their mortgage payments,” Hepp said.

“Why would you sell your home when you could rent it out?” she asked. Renting “just makes sense.”

One result is that the number of single-family homes occupied by renters rose from 13.2 percent in 2005 to 16.8 percent in 2015 nationwide, according to a report from Terner Center for Housing Innovation at the University of California, Berkeley.

“Between 2006 and 2016, more than 3.8 million additional households became renters of single-family homes. By 2015, nearly one in five single-family homes was occupied by a renter and today, single-family rentals comprise the fastest-growing segment of the housing market.”

Another consequence: less inventory in an already tight housing market, which leads to an increase in prices because buyers have fewer options.

“It all goes back to the lack of homes for sale,” Hepp said. “Anytime you have the inventory being held up and you’re not building more, it’s putting pressure on prices.”