Government Foreclosures into Rentals? It’s More Likely than You Think — And You Could Do the Same

by Simon Lindsay on Foreclosures

Foreclosures are everywhere. Approximately 40% of existing home sales are distressed properties, with roughly 28% coming as foreclosures. As of December of last year, 2.2 million homes were in foreclosure. More are coming, too; an estimated one million foreclosures are set to enter the market over the next year.

Those are numbers that make homeowners cringe and homebuyers and investors salivate, for good reason. They represent buying opportunities for people who have the cash or financing to purchase discounted properties and sell them for profit when the market recovers.

They also represent opportunities for the government – in the form of future rental properties.

Believe it or not, the federal government is actively considering a proposal to convert scores of government foreclosures to rental properties. Either the government will serve as a landlord – more than likely through HUD – or will require investors who purchase them to rent them at a certain period of time.

Either solution would theoretically make use of homes that otherwise are sitting empty, costing taxpayers millions per year while demand is artificially constrained by tighter lending standards.

It’s not a bad idea for the government – and especially for investors, since the rental market in most areas is absolutely thriving.

Rental vacancy rates are down, which means more people are turning to rental units – either homes or multi-family dwellings – for lodging. Rental rates, therefore, are up, especially in hard-hit residential markets like California. Plus, each foreclosure creates an opportunity for renting, since a family has to have another place to live and frequently has no other choice but to rent.

In essence, areas with high foreclosure rates are prime opportunities for turning foreclosures into rentals because there is a wealth of supply (distressed properties) and demand (people looking for rentals because of the loss of their home or job).

You can take advantage of this situation by looking to foreclosures to provide discounted properties that you can then rent – thereby getting a piece of sky-high demand for these units. If the government can do it, so can you.