Private equity firms to buy foreclosed single family homes for rent

Fannie Mae, the government-controlled mortgage agency invited private joint ventures to buy foreclosed homes and manage them as rentals in February 2012. At the time Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) had over 210,000 foreclosed single family homes.

Some distressed markets such as Las Vegas the announcement was welcome news. However, investors are leery of investing in single family homes for rent. It contains too much risk for markets such as Las Vegas that depend on a single industry. On the other hand, investors will have a hard time finding tenants as well as efficiently maintaining properties.

However, historic low prices and continued demand for rentals may offset the skepticism. The homeownership in the U.S. peaked in 2004 at 69.2 percent and dropped to 66 percent at the end 2011. The share of home ownership continues to fall further in the U.S. That means more people are looking for rentals especially single family homes to rent.

A Morgan Stanley report indicates that there will be 7.5 million foreclosed single family homes worth over $1 trillion will be available by 2016. Over 20 million single family homes are used as rentals at the moment.