For rent: Foreclosed owners welcome
Investors buy vacant properties and rent them to families who are used to backyards and detached homes.
Investors are buying foreclosed single-family homes and renting them out — often to families who have lost their home to foreclosure.
"Families that have gotten used to single-family-property living typically prefer renting a home as opposed to an apartment," says Evan Gentry, president and CEO of G8 Capital, a Ladera Ranch, Calif., private equity fund that has bought 3,000 homes, leasing many to renters.
Investors — individuals and large-scale funds — are buying with the aim of offering the houses for rent because selling at a quick profit isn't possible.
Families who have been through foreclosure are not alone in preferring a backyard to an apartment courtyard, says Claire Williams, president of the Michigan Association of Realtors. "Transferees are looking to rent the home they've left and rent another where they're relocating. They don't want to sell because of the decline in values," Williams says.
Neighborhoods that have been hit hard by foreclosure or big price drops are especially likely to have single-family homes for rent, says Mike Bowman, owner of Century 21 Mike Bowman, in Dallas.
Moreover, there could be an increase in single-family houses for rent. In August, the Obama administration called for studying how homes owned by Fannie Mae and Freddie Mac could be rented.
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One idea being studied, says Josh Fuhrman, senior vice president of the nonprofit Homeownership Preservation Foundation, is for banks to acquire a property and quickly sell to an investor who could then rent it out — possibly to the family who never left the house, even after foreclosure proceedings began.
Many of the current homes for rent are managed and listed by real-estate firms, Bowman says. Additionally, the same channels that list apartments, such as Craigslist.com, are likely to advertise homes for rent, says Aaron Murray, vice president of G8 Capital.
Meeting landlords' requirements
Investors buying vacant properties often know families recovering from foreclosure are a significant force in the market, and many have adjusted their requirements for eligible tenants. "A careful review of someone's credit history can often help landlords determine the difference between someone caught upside down on a home or who had a temporary job loss versus someone who has a long history of late or nonpayments," Murray says.
Bowman says he advises renters to prepare a letter explaining the circumstances that led to foreclosure and how they have recovered financially.
Some landlords "still insist on a credit score of 720," Williams says. But in some areas, she says, landlords realize the market demands more flexible standards.
Setting rent rates
With today's low mortgage interest rates, foreclosed families could pay more in rent than someone with good credit and cash for a down payment would pay for a monthly mortgage payment, says Christopher Thornberg, founding principal of Beacon Economics, a Los Angeles real-estate and economic consulting firm.
Many families, not just those who have been through foreclosure, Williams says, find that renting is the only financially viable option for them — because they can't sell a former home, have poor credit or fear further home price declines.
Planning to purchase?
When house prices stabilize, Gentry says, his firm and others might offer plans for renters to buy the houses they occupy.
One such method, called "lease option to buy," involves charging a renter a premium on top of the regular rent rate. The premium, which may be $100 or more monthly, guarantees the renter can buy the home at a certain price at a certain date — for example, two years after the contract is signed.
Another method is the "contract purchase" whereby the renter pays the investor holding the house a mortgage payment for a few years, with the agreement that in a certain number of years, the renter will get a mortgage from a regular lender and be able to assume ownership from the investor. The mortgage payments paid during the contract period are used to reduce the purchase price when the renter gets regular financing.
"It depends on individual circumstances whether these plans will work for the family," says Barry Zigas, housing analyst for the Consumer Federation of America.
For one thing, "people often misjudge that they'll be in a house for a certain amount of time. In this volatile job market, you could find you need to move," Zigas says. He says individuals are in a poor position to predict what house prices will be.
Moreover, he says he likes to see part of the premium on a lease option contract to be put in escrow, allowing the money to be used toward the down payment on the purchase.
Individuals should call a housing counselor, Fuhrman says, to analyze whether these purchase plans are viable for them.
JohnQcitizen - sorry, but I have to ask. How is it that you have access to the internet? To be clear, I'm am genuinely curious, not knocking priorities or anything like that. I'm sure it wouldn't take much for many of us to wind up in your same situation. Also, I know money is either tight or non-existant, but have you considered trying to get out to someplace like Williston, North Dakota? Those guys are bringing in 150k working on the rigs. And rigs are much safer than they used to be. There is a chance, if you found a company willing to hire you, that they would even pay to fly you out there. Just genuinely curious.
Humanity 101 - I have to agree with you. It seems to me it would be alot cheaper for the banks to just work it out with the homeowner. We thought we were going to lose our house last year due to a string of unforseen circumsatances, and like many of the stories that ended up having a much more heartwrenching end than ours, we were not able to get any type of loan modification.
It just does not make sense that the same banks that refuse to work thing out with the home owner , goes and short sell the home to a corporation at a huge discount , then turn around and sues the former homeowner for the balance,..then the Corporation lease/rent the home back to the family that is living there for about 10% less than what the family used to pay for on their mortgage.
Question is Why doesn't the Bank just work thing out with the family? We all pay for shelter , even if we own our homes we still pay property taxes. we still pay no matter what.