Sunday, September 27, 2020

The Coming Tidal Wave of Real Estate Opportunity

There is a tidal wave of opportunity coming toward savvy RE investors all over the USA.

Two of the political reactions to the pandemic is the government imposed moratoriums on evicting tenants for non-payment of rents and the moratorium on mortgage foreclosures.

While many tenants have considered this a god-send what they don't realize is that it is likely to result in evictions and collections issues that may haunt them for years to come.  The rent is still accumulating as a liability for them.  

When the moratorium is lifted, they will be evicted and the landlord will likely get a judgement award from the court for the bank rent.  Some landlords will report the eviction and the debt to credit bureaus which will make it difficult and more costly to rent their next place.

What many haven't considered is the impact of these moratoriums on landlords.

Ordinarily, a landlord pays the mortgage from the rental income on the property.  When tenants quit paying rent, the landlord moves covers the mortgage payments from reserves and moves quickly to evict the non-paying tenant and bring in a new, paying, tenant.

The moratorium on evictions dramatically increases the financial drain on the landlord by making them wholly responsible for paying the mortgage without any income from the property.  Many landlords have very small reserves.  In fact, mom-and-pop landlords often have no reserves and have to use income from their day-job to cover extraordinary costs incurred when a tenant stops paying rent.

The brutal reality is that, absent rental income, many landlords can no longer carry the mortgage and will stop paying.  However, the bank still accrues interest and other fees which make it very difficult for the landlord to bring the mortgage current(1) when they finally get a paying tenant.

When the moratorium is lifted, a lot of landlords are going lose their rental properties in foreclosure actions by the bank.  Those foreclosed rental properties are going to be a big opportunity for those who have the cash, or credit, to buy them up.  The savvy RE investor can capitalize on that opportunity.

In fact, you can capitalize on that before those rental properties are fully foreclosed.  By seeking out the landlords who are hurting, you can rescue them from the impacts of foreclosure by buying their properties subject to the existing loans.  With cash in hand, you can cure the mortgage, evict the tenants and rent out the properties and dramatically expand your real estate empire.

Of course, you need to beware.  If you leave all that debt in place, the same disaster that you saved the prior landlord from experiencing could become your disaster during the next eviction moratorium.

1. Bringing a mortgage current by paying the back payments and legal fees is called "curing" the mortgage.

Originally called "The Home Finders", this blog was created by ADB Properties and The Gold Seal Homes Group to provide a resource for people to find peace of mind through quality, affordable homes.( All affiliates of The Gold Seal Homes Group agree to abide by high ethical standards and certain operating procedures that make it easy for people to do business with all affiliates.

Unless otherwise noted, all blog entries are written by Thomas Sheppard.
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