The Effect of Foreclosures on the Rental Market in Southwest Florida

As properties continue to be added to the list of foreclosed properties, what is the overall effect on the rental market?

Some would think that the effect is neutral, or even negative in regard to rental rates, but they would be wrong. As an investment property owner receives his notice of foreclosure, the tenant of that property is also advised that the ownership of his home is in the process of changing from his old landlord to a new owner, that being “The Bank”!

These tenants would logically have between 3 to 6 months before their old landlord is no longer the owner of the house. A considered reaction could be to stop paying rent altogether. The landlord is in no position to spend money to evict them. He has already stopped making his mortgage payments, and “The Bank” has not yet taken ownership. They could “Live for Free” in that house if they so chose. The actual result is that the tenant quickly re-enters the rental pool in search of a new house. The foreclosed property will eventually be added to the list of homes for sale, but until that house is sold to an end user, either owner occupied, or investor it has effectively been removed from the houses available for rent. Banks are not in the Landlord business, and are not known to seek tenants for the houses that they own through foreclosure.

We can see that as more houses are added to the list of foreclosed properties the supply of available rental properties is decreased. With the demand for housing increasing due to continued growth of the Lee County area (approximately 2,500 per month) and the influx of displaced tenants, the rental rates in the area are likely to continue to rise from their historical lows.

I am convinced that opportunities are presenting themselves in not only the owner occupied sector of the Southwest Florida housing market, but in the rental arena as well.