April 5th, 2012
Econintersect: Investors have always been bottom fishers in beaten down real estate markets, buying up bargains to use for rental properties until selling after the market recovers to also book a capital gain. This activity has traditionally been individual investors or small firms buying one or a few properties each. In the current real estate cycle with property values in the hardest hit markets driven to lows not seen for decades, larger players are entering the game. With demand for rentals increasing as the economic recovery slowly advances, and with millions of people with damaged credit locking them out of the mortgage market, some large investment firms see a big opportunity.
Follow up:An article in The New York Times describes one large investor, GI Partners, who has signed a deal with Oakland based Waypoint Real Estate Group to buy up 10,000 to 15,000 foreclosed homes to convert to rentals.
Banks are also looking at taking advantage of the increasing demand for rentals and considering actions that would have them taking on an investor role as well. Bank of America has announced a pilot program that would have mortgagors be forgiven their debt upon transfer of title to the bank and renting back the property for three years at a rent lower than the previous mortgage payment. After this period BofA would sell the property to an investor. According to an article by Nelson Schwartz in DealBook, the pilot will be run with about 1,000 homes but the number could become much larger if the program is successful.
Fannie Mae and Freddie Mac have also started a program to deal with larger investors as well.
- Investors Purchase Homes by the Thousands (Daily Real Estate News, Realtor Mag, 4 April 2012)
- Investors are Looking to Buy Homes by the Thousands (Motoko Rich, The New York Times, 2 April 2012)
- Bank of America Tests Rental Program as Alternative to Foreclosure (Nelson D. Schwarz, DealBook, 22 March 2012)
- FHFA Announces Pilot REO Property Sales in Hardest-Hit Areas (Federal Housing Finance Agency, Press Release, 27 February 2012)