Saturday, August 20, 2011

Apartment Living Is Losing Steam to Single Family Home Rentals

There is an absolute flood of former homeowners choosing to rent single family homes over apartments in today's high foreclosure climate. For those of you that follow my blog, this is nothing new, but the media is finally catching on to tenant migration from apartment living to renting homes in residential communities throughout the nation. This presents a "Win, Win" opportunity for both Investors/Landlords and tenants.

Foreclosures are primarily centered around single family residences (SFRs) and not apartment buildings. Real estate investors like myself, have almost no inventory of apartment buildings to choose from, which leaves SFRs as the primary investment category in today's market. This isn't a bad thing, however, since more and more victims of the housing correction are turning to like-kind housing. In other words, wanting to live in a home comparable to the size, neighborhood, school district, and city they once lived in before losing their home to foreclosure.

Our government is planning on getting into the landlord business along side investors. There are plans to convert the huge inventory of Fannie Mae and Freddie Mac foreclosures into rentals. I don't believe our government can run a business better than the private sector, but there will be the added benefit of reducing the current inventory of homes for sale thus allowing property values to rise if they do indeed move forward with these plans. Reduced inventory equates to increased demand which is a good thing for the housing market.

To take it one step further, I've been offering a highly customized Rent To Own contract on all my rentals. Rent To Own contracts offer a beneficial arrangement for both Landlord and Tenant. The tenant gets the opportunity to buy down the principal month to month like a traditional mortgage without having to have a large down payment, if one at all, or the high FICO score that banks are looking for these days. With Rent To Own, the owner remains on title until he is bought out, which prevents the owner from having to file a foreclosure against the tenant if they don't make their payments on time. A simple eviction is all that's needed to regain control over the property. These types of contracts come with a fixed sales price, interest rate (for purposes of figuring out amortization principal), and a set term (usually 30 years). The sale price and interest rates provide a great return on the investment for the owner, and the tenant can buy down the house and eventually take title without all the red tape that banks and their underwriting staff put them through. This arrangement has been quite successful for me and the tenants I've contracted with.

Investors need to be creative these days to separate themselves from the norm. When tenants see value in your offerings, vacancy periods are minimized if not eliminated. Former homeowners are looking for a whole lot more than apartment living for their families. Renting SFRs is where the trend is these days. Rent To Own contracts, in my opinion, are the future.