The foreclosure epidemic plaguing this country since the sub-crime crisis has been the subject of much news coverage. While the countless stories of shattered neighborhoods sets the tone of the foreclosure conversation, there is a flip-side. To some, these foreclosed homes represent an ideal investment opportunity. But exactly what sort of investor has entered the market, and what does this mean for the properties and the neighborhoods riddled with boarded-up homes? According to a new study in the Journal of Planning Education and Research, “A large majority of the low-value homeswere purchased by small investors, and purchases of foreclosed homes in low-income neighborhoods were dominated by investor-buyers.”
The report, entitled Distressed and Dumped: Market Dynamics of Low-Value, Foreclosed Properties during the Advent of the Federal Neighborhood Stabilization Program, goes on to explain the implications of this finding:
While responsible investor activity in the market will aid in reutilizing these properties and should provide increased supplies of affordable, decent-quality rental housing, such activity may not be the predominant type in heavily affected communities. Some investor properties may remain unoccupied and boarded up or dilapidated, especially if investors are betting on near-term increases in values and hoping to merely resell the property in a fairly short order. Other investors may seek to rent out properties without rehabilitating what are likely to be very physically distressed homes; these properties may continue to have significant, negative spillover impacts on neighborhoods.
In short, small time investors, with scarce resources to improve properties, hoping for a short-term return, take poor care of their newly purchased investments. While healthy investor activity can and should play an important roll in the housing recovery, purchasing homes as speculative, short-term, investments often has negative implications for the physical state of the foreclosed home and the neighborhood containing it.
Fore more coverage on the story, read The Atlantic Cities piece: Who’s Buying Foreclosed Homes and Why It’s a Problem