It is no secret that foreclosures have hit record numbers since this economic crisis began – going on 3 years ago now. According to Realty Trac, bank repossessions hit a record high in April 2010 at 92,432.
Because such a huge percentage of bank owned properties are worth less than what was owed, banks and lenders have become major landlords in an effort to ride out the housing slump. While this seemed like a good idea to some – vacant homes are not sitting out there inviting vandalism, and dropping neighborhood values, this strategy has in fact, back fired. And, the truth is that renting out these homes has been very self-serving for the banks.
- They do not have to maintain these homes – renters are responsible for maintenance and utilities
- They are collecting rents (more income for these troubled banks)
- They are not forced to sell at less than what was owed, saving them from being forced to report write downs
The upshot of this strategy is that in many areas of the country there is now a glut of rental homes. The owners of multi-family dwellings, including duplexes, triplexes, and most especially apartment buildings, are feeling the pinch with increased numbers of vacancies, and landlords are being forced to lower rents. The end result is that these landlords are losing money, so we are now seeing an increase in “strategic” foreclosures as these business people do what big businesses do – they are walking away from these investments. Oops – now these same lenders are becoming owners of these troubled multi-unit dwellings, in addition to the single family dwellings.
Unlike the government intervention in trying to buoy up the housing market with tax incentives, investors have seen little to no government assistance.
Of course, another problem this is creating is the decision by many to rent beautiful homes at substantially less cost than mortgages, which could once again see strategic defaults rise.
An S & P report forecasts that it will take at least 34 months for all the inventory of bank owned homes to be sold. Of course, assuming that the economy turns the corner in the next couple years, this cycle will play itself out. But savvy investors are picking up some great bargains on investment properties right now – both single family homes and multi-unit dwellings. Many are leasing these dwellings for now – watching the markets, but profiting on rentals in units they do not own. As long as investors are financially able to hold these properties for several years, it is probable that when the markets turn, they will be able to sell at a nice profit.
This would be a great time to be sitting on a pile of cash to invest, wouldn’t it?