The banks were heavily criticized for loose lending practices before the housing crisis. They are now paying the price for those easy lending guidelines. As people walked away from unaffordable homes, banks found themselves trying to move properties no one wanted. Selling the properties at huge discounts hurt the banks and the neighborhoods around those homes. However, some banks have found a solution by turning foreclosures into rentals.
Foreclosures Equal Work
Buying a foreclosed house presents a chance to save a great deal of money, but it also represents a huge challenge. Many foreclosed homes come along with problems like missing fixtures and other damage inflicted by upset homeowners as they were forced out. Potential buyers want homes that are move-in ready, not riddled with problems and damage. In the past, banks have been forced to either sit on the houses for a long time or sell at a lower price.
No Winners
Selling at a reduced price is problematic for banks, borrowers, and other homeowners in the area. The banks want to know that the person buying has a plan for making repairs, so it can be harder to find buyers. The borrowers often have to take out loans to make the necessary repairs, offsetting their savings by buying a distressed property. Meanwhile, the selling price on that property drags down real estate values for miles around. If the property sits vacant, it can become a blight on the community. In the end, there are no winners when foreclosed properties have to be sold at heavy discounts.
Landlord Banks
When the situation is right, however, banks are discovering that it’s in their best interest to fix the property and rent it for a while. They won’t renovate every home; those with heavy damage may still be sold at a heavy discount. However, there are many properties that can be renovated and then rented out at a favorable rate. It presents an interesting solution to a problem that has plagued the country for years.
Winners Circle
With this plan, there are plenty of winners to go around. The bank is able to start seeing income from the property rather than having to write off a complete loss. As the market recovers and home sales pick up, the homes can be sold at a profit for the bank. Neighborhoods win because vacant properties are no longer left to fall into disrepair and become an eyesore. When they do sell, they are selling as attractive properties at full market value, so other people won’t see their home’s value drop. The people who rent the homes benefit by having an affordable place to live, and buyers eventually reap the benefits by getting a home that is move-in ready.
There may be more paperwork involved in repairing and renting foreclosed homes, but it’s an attractive solution to offering “as-is” properties that are drastically discounted. It is better for the banks and it us much better for the neighborhoods surrounding the distressed property. While it’s understandable that every property won’t qualify for this treatment, there are still many people who will benefit from banks taking these steps with qualifying homes.
Author Bio: Gene Mitchell is a freelance journalist, who writes about innovative financial management programs. If you, too, are interested in these strategies, he recommends learning more about how a strategic leadership program might benefit you.
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