Buying cheap foreclosed properties and turning them into rentals has opened a unique window of opportunity for investors. Small-scale landlords have long owned the majority of single-homes for rent, but there’s a change occurring in the housing market. The housing collapse, inability for most to own a home, abundance of cheap foreclosed properties for sale and the rise in rental prices has investors seizing the opportunity.
Chief investment officer of Carrington Capital Management, Jack Macdowell, plans to spend almost half a billion dollars buying foreclosed properties and turning them into rental houses. It’s a new industry with a lot of opportunity, but according to Scott Simon, managing director at PIMCO, there’s a limit to how many properties make the investment worth it. “It works really well if you do them in your own neighborhood and you buy five homes and you manage them yourself. It gets a little dicier as you get to 100,” he says, referring to maintenance costs and delinquent tenants. On the other hand, there’s an incredible amount of money in the private equity space that could see a million or more homes turned into rentals, according to Simon.
Andrew Jakabovics, policy director with Enterprise Community Partners, has his concerns. According to Jakabovics, investors in the past that bought homes in bulk would do the bare minimum to keep the rentals in running order, sometimes worsening an area already hit hard by foreclosures. He wants the government and investors to implement some process that would help keep investors accountable.