Forbes Magazine reports that Wall Street is purchasing foreclosed homes at a hearty clip. Billionaires, Private Equity Firms, Hedge Funds all have been flocking to Americas hardest hit cities and purchasing distressed properties and instead of flipping the homes which would tend to keep housing prices low they are intending to rent them. The newest wrinkle is the formation of REIT’s by bundling the Real Estate and letting smaller investors get in on the action. It’s logical given that the properties can be purchased cheaply with borrowed money, should appreciate significantly and in the mean time the rent should provide a nice yield. A strong yield with a strong capital gain at the end it’s no wonder Wall Street loves this.
In Wall Streets’ view they are providing capital where people need it and eventually will provide inventory when they need it as well. They see it as a win, win, win. Helping the neighborhood, the renter and America to say nothing of what they stand to make. Since 2011 big players have invested 10 Billion in Single Family Real Estate.
Aside from a few contrarians that worry about a new housing bubble forming as a result of all this institutional purchasing. Most economists see this as a good thing and from an altitude of 30,000 ft it probably does look good. But the reality is we are talking about tens of thousands of rented homes in single family neighborhoods with Absentee Landlords. This is not the home being rented out by the couple down the street. Nor is it the Big Rich Landlord across town mentioned in many 60 era folk tunes. This is wall street, There is a Pro Forma, a calculated return, and a real estate management company that has very clear guidelines as to what they can spend money on for maintenance and repairs. As a tenant or neighbor you are not going to go to the local city council meeting and shame the landlord into doing what’s right if something unanticipated fails. From an HOA perspective, how will a tenant that violates the rules and regulations be brought into conformance? Do you think you can just place a call to the Wall Street Firm that owns the home (one of Thousands) and have them listen to your concern over the tenant parking in front of your mailbox so you don’t get your mail? or the Tenant that ignores your community leash laws or other regulations on pets?
What’s being ignored here is COMMUNITY. It is the neighborhood made up of homeowners with a common interest. That’s what makes up good neighborhoods. People care for their homes and each other. They have a long view of the area and what is good for the area. Sure an abandoned home is bad for any community and a rental is preferable to an abandoned home. But an absentee landlord is only a small improvement from an abandoned home given the damage their tenants can do to a neighborhood. If you are on the board of an HOA in a neighborhood with a large number of foreclosures, it’s a good time to look into your regulations and enforcement provisions. Your job is not going to get easier by these new moves by Wall Street.