Many homeowners who lose their home to foreclosure eventually become renters, as they do not qualify for a mortgage for at least two years after the foreclosure. So why not keep them in the foreclosed homes as renters?
That's what many investors have been doing, says Shaun White, a vice president for the RE/MAX real estate network.
About half of the investors who buy foreclosed homes are renting them out, rather than fixing up the properties and selling them, White says. Those include individual investors and investment groups. Often, their tenants are families who have lost their homes to foreclosure.
"Investors can buy with low interest rates (and) low prices, and rent that property out," he says. "The dollars work out. In a few years when prices appreciate, they can consider selling the properties. In the meantime they are providing affordable living to people."
The strategy is expected to continue to gain popularity in coming months and could become some form of nationwide program. The Obama administration is considering proposals to make rentals out of Fannie Mae- and Freddie Mac-owned properties. The Federal Housing Finance Agency recently put out a request for ideas on rental programs for foreclosed properties. One potential strategy would be to rent foreclosed properties to previous homeowners or to current tenants through a lease-to-own program.
"Because of the environment in the marketplace, with the tight lending standards and all volume of foreclosures, a rental program makes a lot of sense," White says.