Investors buying to rent give the market a boost

March 25, 2013

An article in today’s Wall Street Journal shed light on investors who are buying foreclosed homes, fixing them up, and renting them out. Flippers and speculators were blamed for inflating the housing bubble of the past 10 years; now they’re getting prospective buyers, who are afraid of missing out on cheap homes, off the fence. How times have changed.

Investors buy foreclosures and spruce them up with paint, new carpeting, appliances, and fixtures. Weeds are pulled and lawns are mowed. Then the homes go back on the market as rentals for families who can’t qualify for mortgages. Here are some interesting statistics from the WSJ article: about 12 percent of American households rented a single-family home in 2011, up from 9 percent in 2004 (according to the most recent U.S. Census figures). Three-fifths of the people who lost their homes to foreclosure in the last five years ended up renting a house, says real-estate market analyst Ivy Zelman.

According to WSJ, investors are focusing on markets with cheap housing where job growth is heating up — places like Phoenix, Atlanta and Tampa, Fla. Mom-and-pop outfits have traditionally dominated the house-rental market, but now large private-equity firms such as Blackstone Group and Colony Capital are spending billions of dollars on such activity.

This is both good news and bad news for for-sale housing. In Orange County, Calif., as monthly inventories of homes plunge, sales activity is picking up. Investors are accounting for a growing share of homes sold by banks at foreclosure auctions, which in turn has driven up prices by 10 percent — the largest increase in more than six years, according to the article. But some experts are concerned that investors won’t stick around to maintain the rental properties, leading once more to an erosion of property values. And some buyers are frustrated about losing out on desirable homes to investors offering cash. 

Senior Editor

Susan Bady has been writing about the housing industry for 30 years. She is senior editor of Professional Builder and Custom Builder magazines, and produces the Design Innovation e-newsletter.  Bady has also written for such consumer magazines as Cabin Life and Better Homes and Gardens’ Home Plan Ideas