In a previous post, I discussed the potential benefits of renting over buying. It turns out that in a large number of markets, it’s possible to rent a home for thousands less than it costs to buy it. But what happens when you rent a home from a landlord who recently purchased the property? In new developments, don’t be surprised if your landlord is paying more per month toward his mortgage than you are paying in rent. So if a home that rents for $1500 a month carries a $2500 mortgage, who pays the difference? And just how long do you think your landlord can afford to carry a $1000 deficit every month?

With the recent downturn in the housing market, an alarmingly high number of homeowners are upside down on their mortgage, and can’t afford to hold on to the property. Selling isn’t an option, since the value of the home is less than their mortgage, and they don’t have enough cash in the bank to cover the difference. So if they can’t sell, what other option is there? Renting.

If you’re neighborhood is suffering from the housing crash, take a look around and count the number of homes that replaced their For Sale signs with For Rent. Odds are that you’re looking at a homeowner that couldn’t sell their house at a price they could afford, and are becoming reluctant landlords. So if you chose to rent a home where the home owner’s finances are stretched, what guarantees do you have that the homeowner won’t foreclose on the home while you’re living in it?

Don’t laugh at the idea. It’s happening across America. A growing number of homeowners are pocketing their rent checks and are ignoring their mortgage payments every month. In fact, it recently happened to a friend of mine. He was paying $1400 a month to rent a nice three bedroom, two bathroom home in suburbia. He didn’t know his landlord’s house was foreclosed by the bank until he was served with an eviction notice by the town sheriff.

Protect yourself
So what guarantees do you have if you decide to rent a home from a private landlord? Consider the following tips:

• Ask to perform a credit check on your potential landlord. While they might get upset with the idea, explain to them that you are simply trying to protect yourself.
• Check the town’s records for the home. How much did the home sell for? If the selling price for the home exceeds the market value, you might have an issue on your hands.
• Ask your potential neighbors. Has the homeowner recently been trying to sell the house, or does the house have a long history as a rental?
• Find a lawyer that deals with tenant laws. If, or when, it comes time to sue your landlord, you want to make sure you are properly protected. I’m not saying that you need to contact a lawyer before you even consider renting a place, I’m simply asking that you do some research before you commit yourself to a lease on a privately owned home. Finding a name and phone number is free.

While none of these solutions are perfect, they help to safeguard you against financial problems that aren’t your own doing. When renting from a private landlord, you need to make sure that the home you are renting will still be yours to rent throughout the duration of your lease.