Ushering In A New Wave of Renters
This week, Core Logic, First American’s Statistical Analysis Department published a study stating that 1 out of every 5 homeowners in Orange County owes more money on their home than their home is worth. As a whole, California has over 1.9 million homeowners who are currently upside down in their mortgages. And as a home is often the greatest asset/investment one has, this speaks volumes on the current state of our economy.
Lack of equity prevents many homeowners from re-financing their homes and as such, an increasing number of these individuals are facing foreclosure. As a landlord, it is important to realize the opportunity within this unfortunate situation. While a credit score and report is one of the most significant tools a landlord can utilize in the process of screening prospective residents, understanding and interpreting the effects of a fore-closure and short-sale on a resident’s credit report can lead to an effective method of approving the victims of the sub-prime meltdown and keeping your property full.
Over the past 5 years, buyers took advantage of the teaser rate mortgages and financing geared towards people who had no business buying homes. They realized the American dream of homeownership, if not for a short period of time. Now, these people are beginning to rebuild their credit and financial stability as renters. As a landlord, the victim of foreclosure is a new class of renter and a great opportunity at that. At our properties, we saw a number of our residents leave after purchasing homes. Surely, we can expect some of these residents to return.
Having recently moved, the likelihood of the resident moving again in the near future is slim. The likelihood of them skipping a payment or not paying rent is slim-to-none as they are trying to restore their credit and do not want the additional damper of an eviction on their record. Develop your own guidelines for accepting prospects with foreclosures or short-sales on their records and stay one step ahead of the competition. Establishing a higher deposit (though not to exceed legal requirements) or offering a lease with variable terms are just two ways you can accommodate these new residents. In addition, it is beneficial to advertise that you work with prospective residents who have recent foreclosures on their record to encourage their interest your property.
In a changing market, it is important to adapt your policies and maintain a thorough understanding of the rental market. Keep your finger on the pulse of the local economy to develop strategies to help you and your investments hold strong.