1.5 Million New Tenants

By Michael Douville - Real Estate

After 5 long years, the quality tenants are returning, with their tails between their legs, but returning just the same.

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The failed experiment in financing new homes for qualified and unqualified buyers alike removed rental demand from the supply-demand equation, and in its place, left the worst population of tenants in recent history to lease a growing number of residential rentals. This resulted in declining rents, greater vacancy factors, and, due to the poor quality of the remaining tenant pool, much higher maintenance and repair expenses.

Traditionally, household creation required planning and budgeting while the down payment was being accumulated to finance the first-time home purchase. Credit had to be established, as well as employment history. This was accomplished by leasing a home until you were fully qualified to own. Owning a home was a goal to be striven for, and once attained, to be cherished. Home ownership is a privilege, not a right.

The incredibly easy financing made available from aggressive lenders short-circuited this time-proven process. No down payment, no verification of employment, and even low credit scores made everyone a home owner; the rest is history - 1.5 million foreclosures.

A historical opportunity is unfolding. Properties are availing in great growth markets, discounted to sell, and at the same time, an equally abundant amount of tenants are arriving to fill the units. The growth demographics require at least 1.1 million new units to balance demand; builders are producing well below that in the 650-700,000 unit area. Thus, the excess units in the system are being absorbed.

Balance is being restored to the markets. The tenant population, though flawed, is improving. Rents should increase, thus restoring the traditional 3-5% revenue growth rate, and I believe an easy 20-30% capital gain could be garnered over the next 36-48 months as well. Opportunity is hidden from view by all of the news copy-writes who speedily arrange their gloomy scripts for commentators on major news networks.

However, we will recover! Foreclosure sales are delivering opportunity to the market by allowing an investor to purchase properties at a huge discount, AND, at the same time, the borrower who has lost the home will need to lease until his credit is restored, which typically takes about 3 years. Those who are astute enough to plan 3-5 years into the future should be richly rewarded, or just plain rich.

Please see our disclosure at the Wall Street Greek website, and Michael's on his bio page.