We’ve all heard about the recent problems with mortgages referred to as subprime loans. The current and more importantly future defaults on these loans could push many homeowners into the rental market. In a nutshell, subprime loans are issued to borrowers with a low credit rating. A typical loan starts out at low interest rate and then adjusts in 2-5 years to a significantly higher rate. On a $300,000 loan the payment could increase by $1000 when the interest rate adjusts. The already cash-strapped borrower simply can’t come up with the extra funds.

The Center for Responsible Lending reports 2.2 million borrowers may lose their homes. Sadly, many of these folks will give up their dreams of homeownership and will seek rental housing.

Another factor investment property owners should closely consider is softening prices in the real estate market. There are some great deals out there. I’ve come across many stories of huge price drops. Last month, Hovnanian Enterprises Inc., one of the largest homebuilding companies in the U.S. kicked off a 72-hour promotion, in which it slashed prices by as much as $100,000. If you are not seeing good deals close to home, look further, there are many great property managers that can help the absentee owner with their property management needs.

If you are an investment property owner this could be a great time to expand your holdings. You should benefit from the stronger rental market and lower housing prices. Of course, it takes someone with the financial resources and, perhaps more importantly, the courage to ride out these turbulent times!

This entry was posted on Thursday, October 18th, 2007 at 5:30 pm and is filed under Rental Market. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.