The Implications Of Investor-Owned Foreclosures

• February 11, 2013

by Shilpi Paul

In recent years, thousands of foreclosed homes across the country saw new life as rentals owned by investors. The Urban Institute has started taking a closer look at these properties, and just published the first report in what will be a multi-part series examining a few case studies.

The first report concentrated on Atlanta, a city that was hit particularly hard by the housing crisis. The researchers interviewed investors, real estate agents and non-profit employees in the city’s Fulton County in an attempt to better understand the practices of investors who seek out single-family homes to rent and to track the flow of these properties in that area.

Here are a few of the main findings from the report:

• Like investors in other cities, those buying foreclosures in Atlanta with the plan to rent them out used cash. In Atlanta, there was a general trend away from short-term buying and “flipping” in 2008-2009 towards buying with the intent to rent in 2010.

• The rate of return for cash purchases of REO properties ranged from 8 to 15 percent. Investors typically put in between $19,000 and $70,000, which included the purchase price and cost of renovations.

• Investors in distressed neighborhoods often prefer tenants with Section 8 housing vouchers. (UrbanTurf has found that this can also be the case in DC.) The report stated that, in addition to the stable rental stream, the voucher creates an incentive to pay bills on time and tenants may be less disruptive.

• Demand from owner-occupants has lessened due to tighter credit standards. The reduced proportion of owners can make a neighborhood less desirable, the researchers stated.

Check out the full report here.

This article originally published at http://dc.urbanturf.com/articles/blog/the_implications_of_investor-owned_foreclosures/6640