It’s a landlord's market and financial firms are taking advantage.
One private equity firm, Waypoint Real Estate, is buying about five foreclosed homes per day and turning them into rentals in an aim to find a new way to make a buck off of foreclosed homes, the Washington Post reports. Other private investment firms are joining Waypoint, shifting from a years-old strategy that focused on flipping foreclosed homes instead of renting them.
It's certainly a good time to get in the rental game, with rental rates rising and the housing market still struggling along. Indeed, in almost every city in the country it is cheaper to buy a home than to rent one, according to data released last month by real estate website Trulia.
And if the value of the homes ever does appreciate, the investors could be raking in big bucks by selling, Colin Wiel, the co-founder of Waypoint told WashPo.
"I never thought I'd be rolling up single-family homes," Wiel said. "But the yields are awesome."
By renting the homes in the meantime, the firms are also preventing them from increasing the supply of homes, subsequently pushing home values even lower.
Private equity firms aren't the only ones looking to transform foreclosures into rentals either. Bank of America is piloting a program that offers some of those borrowers facing foreclosure the chance to transfer the title to the bank and rent instead.
The aim of the program isn't only to help borrowers stave off foreclosure, it's also a way for the bank to test whether converting foreclosed homes into rental properties is a viable business strategy.
"This pilot will help determine whether conversion from homeownership to rental is something our customers, the community and investors will support," Ron Sturzenegger, legacy asset servicing executive of Bank of America, said in a statement announcing the program last month, according to the Associated Press.
The program will likely help the bank's bottom line, according to some experts. By renting homes in danger of foreclosure out to their owners, BofA could avoid spending money on the upkeep of the properties and take the time to find investors willing to buy the foreclosed homes at higher prices, according to MSNBC.
Other Wall Street institutions have also expressed interest in buying foreclosed homes and offering them up for rent. Some firms said want the chance to buy some of Fannie Mae's foreclosed properties and then rent them out, according to a Wall Street Journal reported from last month. Fannie is only putting up 2,500 of its foreclosed properties -- or just 2 percent of the foreclosed homes it owns -- up for sale. Still, if the pilot program works, the mortgage giant may offer up more.