Million-dollar homes are going for $10,000 a month.
Nadim Salfiti has landed a new job in a new city, but when he tried to sell his five-bedroom home a block from Lake Calhoun, he didn't get any offers. So he's hired a property-management firm to find a trustworthy tenant who can afford the rent: $5,500 a month.
Handing over the keys to his completely remodeled home, which listed at $985,000, to a renter was "a hard decision," he said, "but I'm comfortable with it. It's such a tough market. It made more sense to rent it out."
Rental houses used to be limited to modest starter homes or rundown digs for college students. But if you prefer the finer things -- and can shell out as much as $10,000 a month in rent -- you can now choose from a variety of million-dollar-plus houses: Historic mansions in Kenwood, executive homes in gated communities, sprawling estates on Lake Minnetonka.
Thanks to the sluggish real estate market, luxury rentals, once an oxymoron, have become a way to generate cash for their owners. Transferred executives and builders with excess inventory are renting their unsold homes while they wait for the upper-bracket market to recover.
"It's the new American way," said agent Paul Larson of Coldwell Banker Burnet. "If you can't sell 'em, rent 'em."
Service, not sales
Expensive houses have always taken longer to sell than others. But now that finding a deep-pocketed buyer can take many months or years, even wealthy homeowners are looking for relief.
"Owners can come close to covering their costs" by renting, said Steve Rajavuori, broker/owner, REI Real Estate & Property Management, the firm handling Salfiti's house.
And if the owner has moved out, it's good to have somebody in the house rather than let it sit vacant, said agent Stephanie Chandler of Edina Realty.
No one tracks the number of high-end rentals, and it's a rarefied niche. "At $5,000-a-month rent, you're looking at a very minute group of people who can afford it," said agent David Abele of Lakes Sotheby's International Realty.
Still, there are a lot more luxury rentals than there used to be. Just a few years ago, Chandler struggled to find a home for a client moving from New York. "They were willing to spend up to $10,000 a month, but nothing was available," she recalled. "I had to call every upper-bracket listing and ask, 'Would you consider renting?' It was a little like the Wild West."
In 2010, the Multiple Listing Service, which formerly listed only properties for sale, started listing rentals.
"We're definitely seeing more $10,000 rentals; it's not as shocking," Chandler said.
Why would someone who can afford to pay $50,000 to $100,000 a year for housing choose to rent?
Some luxury renters are professional athletes and coaches with short-term contracts. "When the Timberwolves decided they were actually going to play basketball this year [when the NBA lockout ended], we got calls from a ton of people," Abele said.
Corporate transfers and contract workers also are renting rather than buying because they're skittish about the economy.
"A lot of people come into town who would have purchased in the past, but now they want to get to know the area, the schools and make sure the job works out," said Mark Brattvet, co-owner of Home Rental Systems.
Even some with stable long-term jobs who could be qualified buyers are choosing to rent because they don't want to commit to home ownership. "It shows how afraid of the housing market people are," Chandler said.
And companies willing to buy transferred employees' homes, as an incentive to relocate, are no longer the norm. "Corporate buyouts are rare," said Coldwell Banker Burnet agent Bruce Birkeland. "Even CEOs don't get that. That stopped way before this debacle."
Good income, bad credit
There's also a new category of high-end renters -- former owners who lost their homes and can't qualify for a mortgage but still have the cash flow to pay high rent.
"They've just gone through a foreclosure or short sale or have some other credit blemish," Brattvet said. "People want to maintain the same lifestyle they had."
People "used to have the idea that 'rental' had a negative stigma, but owners and tenants are more open to it," he added.
Still, many owners remain sensitive to others' perceptions, he said. "I want to put a professional-looking sign out front, and I get resistance," Brattvet said. "They don't want a 'For Rent' sign in their yard. They don't want their neighbors to know."
"Upper-bracket owners are very protective," Abele said.
Owners may fear what the neighbors think, but they have little to fear from high-end renters, agents say.
"You're dealing with very professional people when dealing with this market," Chandler said. "It's not like renting to college students."
While renting can be a good short-term solution for owners of luxury homes, many agents aren't thrilled about stepping into a new role that comes with added responsibilities and lower commissions, such as one month's rent for a 12-month lease, often split with another agent.
Birkeland looks forward to the day when it's no longer necessary. "I sell upper-bracket homes. I don't want to rent upper-bracket homes," he said. "It's forced upon us because of these conditions.''
Kim Palmer • 612-673-4784