Real estate-owned properties may be in disrepair

Distressed homes in some of the country’s markets are in poor condition, with as many as 95 percent in need of rehabilitation and repairs before they are suitable for rental.

Investors planning to purchase and convert single-family homes should be prepared with a refurbishment strategy, analysts with Morgan Stanley recently indicated. Some homes may be more than a decade old and may have spent a significant amount of time vacant.

These repair needs mean that any practical investment strategy in such homes must be long-term, according to experts. Similarly, the same work will be necessary before selling to owner-occupants if and when house prices recover.

The cost and quality of rehabilitation efforts may have an effect felt by owners long after the work is complete, analysts note. Problems with the plumbing or other infrastructure can result in higher maintenance costs and negatively impact exit pricing should a sale be made eventually.

Rental managers and owners may find that the need to plan long-term is greater in light of these factors. Purchases should likely be based on trends of appropriate length, and differences in condition should be accounted for along with location and other factors when considering a purchase.