Turning Foreclosed Homes Into Rentals Could Be $100 Billion Industry This Year

The business of turning foreclosed homes into rentals is set to boom.

The practice could be a $100 billion industry this year, according to a report from real estate tracker CoreLogic. That's equivalent to $125 for every Facebook user, the cost of halving global poverty for two years and 250,000 times the salary of the President of the United States, according to The Guardian.

Why is the market for foreclosed properties-turned-rentals poised for a boom? In the aftermath of the housing bust, demand for owning homes has fallen, pushing rents up and home prices down. In response, everyone from big banks to smaller firms are increasingly taking advantage of the disparity by turning foreclosure properties into rental homes.

Bank of America is currently running its own pilot program to rent homes to families that have been foreclosed on, called Mortgage to Lease. In addition, private equity firms and hedge funds are now spending hundreds of millions of investment dollars and racing to buy up foreclosed properties.

In turn, Bank of America and government mortgage giants Fannie Mae and Freddie Mac are responding to the demand, selling off their holdings of foreclosed homes by the hundreds. Just this week, Bank of America announced a bulk offering of 500 foreclosed homes in six different states, following up on an offering of 200 properties late last year.

Meanwhile, Fannie Mae and Freddie Mac have sparked a bidding war when it put up 2,500 of the 200,000 foreclosed homes it currently owns for sale. That's because Wall Street firms say they're interested in buying up the properties and renting them out.

The practice of turning foreclosed homes into rentals is becoming so popular that the Federal Reserve issued guidelines earlier this month for banks to use when they're flipping foreclosures into rentals. But the practice also faces criticism: Namely, some are concerned that the very banks and agencies responsible for the housing crisis in the first place will now benefit from their own questionable practices.

Comments

[Yaseen Abbas]

02:59 AM on 03/05/2013

I wanna see that video but it's not supported???
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[sylkol]

05:12 AM on 05/13/2012

Nobody is talking about renters getting a five day notice and within two weeks in tenant court and out the door, if they do not have a lawyer for $1000. Homeowners get months to be late and years to move out.

[LoyalDem4646]

03:41 AM on 05/06/2012

This is a bad idea. Renters don't appreciate the property or the neighborhood as much as homeowners which means the property value of homes will decline even further. The whole point of owning is to be surrounded by permanent residents that have a stake in keeping property value up. Once again, it's all about how much you can make in the short run without thinking long term.

[Puneet Kumar]

03:06 AM on 04/30/2012

Once you have found a property you feel is a good deal, and found suitable lending (if applicable) you can start the buying process.Many foreclosures are sold through auction. These can be quite unpredictable, with some people getting caught in a costly bidding war, and end up paying too much.Don't be afraid to walk away if the price gets too high.
Click here for more tips on how to buy foreclosures http://www.foreclosuredeals.com/how-to-buy-foreclosure-homes.php

[Hanz Lepik]

12:14 PM on 04/25/2012

a house below replacement value, the opportunity to build equity, a great opportunity to collect a return on investment through rentals...the numbers at least show that there has never been a better time to purchase foreclosure property.

Alternatives do exist... in fact, very good ones.

"There are ways to participate in this market which actually offer even better returns", says Randy Berg of www.casitasforsale.com . Berg's firm constructs smaller homes of typically two bedrooms, one bath, with large living areas, kitchen, bathroom and large terraces complete with amenities such as pools, security, gazebos and tropical landscaping for even less money than most foreclosures.
"The difference," says Berg, " is that the rentals are of much better quality because they represent the vacation market which is always extremely strong in Costa Rica... and our projects are in high demand locations. The pricing is also significantly less than current competitive markets, thus giving cost below replacement. We are finding that more and more people are buying not only for investment but with an eye on retirement... and they know that many investment advisors are saying to get a large percentage of investment dollars out of the country. So our casitas are a perfect investment."

Worth checking out.

[alvin alcibiades]

01:26 PM on 04/17/2012

At this stage of the game, there's only one thing that will work: Nationalize the banks. Fat chance of that ever happening.

Speaking for myself, I've faced reality and said farewell to the America I knew as a youth. I feel sorry for those under age thirty; unless the Occupy Movement somehow--amazingly--triumphs, this country is as dead and gone as the Roman Empire.

[Henk]

09:10 AM on 04/16/2012

I've been trying to buy one of these duplexes in Minneapolis for the last six months. I keep getting out maneuvered by the big boys. Now that prices have come down to a reasonable level you can actually make it work, its a realistic way for a little guy to supplement his/her income, but just like the stock market, the big players have the advantage.

[bluefl]

11:32 AM on 04/15/2012

Surpise! Surpise! and you can't blame this wholly on Obama. Wall Street always wins!
The Fed issues guide lineon the rentals, be still my heart with them protecting us!

[Peter007]

07:38 AM on 04/15/2012

Another example of Crony Capitalism being practiced by the Obama administration.

Only certain firms or organizations are allowed to take part in this business of buying homes at a discount and renting them out.

Individual or small business people are excluded from this process.

I guess their campaign checks weren't large enough.

[MichaelMcKLA]

02:20 AM on 04/15/2012

Evidently, Wall Street never really loses.

[dukeitout]

07:47 PM on 04/14/2012

Suggestion to Wall Street owners of foreclosed homes: To increase the rental frequency on these homes, the owners should offer rental with an option to buy at a very reasonable price. The renters will take better care of the property and the owners will sell the property faster.

[Domingaux1969]

07:26 PM on 04/14/2012

This is total BS. What they are not telling you are that many of these "so-called" foreclosure squatters were folks who got laid off jobs a couple of years ago; and who since then have gone back to work. Have been able to pay the full mortages in full. Yet the banks, have delayed, postponed, and been allowed to do nothing to let these folks resume payment. Wells Fargo in particular has a policy on not accepting your payment even if you were temporarily behind throwing you further behind. Now they all wish to rent out these homes? It will work as long as you have Parties from the GOP and Dems whos stand by allow it to happen. Newsflash : Neither side is pulling your best interest.

[Kenz300]

05:04 PM on 04/14/2012

The top 1% wait till the 99% go broke and then snap up the spoils at pennies on the dollar.

[lunalunera]

10:56 AM on 04/14/2012

I give it a couple of years for this not-so-smart idea to go bust and around four for the banks to recognize that it was a failure.
Anyone that has ever been a landlord knows that rental properties are not as easy as they sound. I bet none of this experts are factoring in the cost of evictions, un-paid rent, vacancies, repairs, missing appliances, dirty carpets, trashed properties, etc. The tenants can call you to change a light bulb, switch on the AC, a plug toilet and multiple other things that most home owners take are of themselves, and managing multiple properties that are located all over the map is a lot more expensive than managing an appartment complex.
As i said, I give a couple of years for the fad to fade.

[lunalunera]

11:35 AM on 04/14/2012

I forgot to say that most foreclosed homes need quite a little bit of money to be ready to rent. The things home owners "put-up" in their houses, are not things that tenants have to tolerate and most likely will not

[Jen Celli]

09:49 AM on 04/14/2012

Why can't I use my available cash to pick up a foreclosure for pennies on the dollar? Why am I not getting the same deal the banks are?

[TaxpayingVoter]

02:54 PM on 04/14/2012

Because real people don't count in this country. Only the corporations and government entities.