It May Be A Great Time to be a Landlord

Recently I noted a pilot project by Bank of America which allows homeowners at risk of foreclosure to simply convert to being renters, with BofA taking title to the home.  I noted that the idea seemed so good that it was surprising that BofA wasn’t being more enthusiastic in implementing it.

Data from Deutsche Bank and REIS cited in the Wall Street Journal supports how good a deal this is for the bank.  Nationally, rents are now 15 percent higher than the cost of owning a home.  That is a substantial reversal of the traditional situation of owning being about 10 percent more costly. In some stronger markets it is still cheaper to rent.  But in some places that have seen major drops in home values, the difference between ownership costs and rents presents the possibility of an attractive return on investment(*).


Courtesy the Wall Street Journal

Normally this inverted situation between rents and ownership costs would be quickly reversed by renters becoming buyers. And they no doubt would if they could.  The WSJ article noted that real estate agents reported an upturn of people wanting to become first time buyers.  But high lending standards and flat or unsteady wages put many households in a situation where they must rent even though it would save them money to buy.

*Of course, any investment opportunity requires careful consideration and may not be a good choice for everybody. It is one thing to look at a national trend, another to look at a regional market, and yet another to look at the potential of an actual property. In addition, being a landlord is not an easy role to play.  Anyone interested in pursuing such a course of action should do substantial research and seek out investment-specific advice.

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