For the last several years, I have been saying that the foreclosure epidemic would be a good thing for real estate investors. Real estate investors have such a great opportunity when foreclosure rates go up.
What opportunity exists?
Real estate investors can buy foreclosures, of course, and they can also benefit from the displaced owners of the foreclosures. They now have “tenants” for their new purchases and their existing properties.
For the most part, from 2000 until early 2007, if you could fog a mirror you could qualify for a mortgage. This easy qualification process lead to two things:
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The tenant base decreased causing higher vacancy rates and lower rental rates
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It put so many people in a situation they couldn’t afford
Many people had no savings and barely squeezed into a home with minimal down. They couldn’t afford any blip in their lives or with their new home. Unfortunately, things happen in life.
Many people got put into the interest only adjustable rate mortgages. They qualified when it was interest only or a negative amortization loan, but when it adjusted, they found themselves way over their heads financially.
In May 2008, The Wall Street Journal published an article that talked about how rental homes are now going for a premium in many markets around the country. Many home owners that have gone through recent foreclosure are having a difficult time finding a rental home. There is now so much competition of renters added to the market.
It also said that many renters are looking for a new place when the home they are living in is suddenly being pulled out from under them because the owner is in foreclosure. Many of them have little or no time to move. Some have only a few days notice, since they did not know the owner was even in foreclosure.
I have waited for this time with bated breath. Personally, I am excited that lending requirements have tightened. It keeps out many investors who can’t qualify for a loan, AND it keeps many of my tenants renting from me.
For investors who can’t qualify for a loan, my lease option and subject to strategies will be key. Over time, when the rental rates stabilize, it will drive up property values for landlords/investors. What does this mean for you? Buy now! What are you waiting for?
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