When we see a vulture near the roadway, it’s usually feeding on a dead carcass, not the prettiest site. When the term “vulture investor” was coined, it referred to an investor who swooped in and purchased distressed properties, whether foreclosures or short sales. In the boom days of the real estate market preceeding 2007, the primary activity for vulture investors was to purchase distressed properties, rehab them, and flip them for a profit. While this is still possible, the new crop of vulture investors is taking another approach.
In some areas, condos and homes are selling at a third the prices of previous years, with double-digit discounts available almost everywhere. But, it’s not the flipping market it once was, with no fast appreciation to help to kick up prices in the short term. Today’s vulture investors are buying, rehabbing, and holding homes as rental properties. One investor stated: “I’m buying condos for less than the cost of a Corolla.”
Why is the rental market an opportunity for real estate investors now? First, there will be a lot more renters for the next ten years, as they’ve either lost a home to foreclosure, or know someone who has. Also, many who would be today’s first time home buyers are not seeing owning a home the same way they used to. They don’t see it as an appreciating asset that can help fund their retirement at some point. Then, there’s also the tough lending climate, keeping as many as one-third of possible homeowners out of the market because they can’t get a mortgage with their current credit scores.
Today’s vulture investor recognizes this opportunity, and the cash flows that rental property brings. They also are finding that these new renters will pay sustainable market rents to live in the communities they find desirable. And, many more previously tight rental neighborhoods are yielding distressed properties to buy, rehab and place into the rental market. With historically low interest rates, deep discounted properties, and a growing demand for quality rentals, it’s a bull market for the vulture investor right now.
The term “vulture investor” is also enjoying more respect these days, with the government and lenders encouraging real estate investors to scoop up properties, sometimes whole neighborhoods packaged into a single deal. Vulture investors are helping to reduce foreclosure inventories and stabilize falling prices in many areas.