This is the second in a series of posts focusing on the Recession in America and the impacts it is having on things other than your 401k and personal finances. Check out the first post in this series titled – Recession in America – What about our pets?
The Recession in America is starting to take its toll on many people in this country and the rest of the world. Last week, I talked about how the current recession is altering the daily lives of our pets. Today, I would like to discuss the drastic rise in home foreclosures and the side effects it is having on our nation – some not even bad (in my opinion). Foreclosed homes is a topic that I follow on a daily basis, as I am hoping to purchase one this year to turn into a rental property. If you have the available capital and can get the proper financing – there may be no better time to purchase foreclosed homes. Purchasing a foreclosed home and turning it into a rental property could be an excellent form of passive income. It’s only passive of course if you hire a property manager to manage it for you. That way you offload the ongoing maintenance and upkeep of the property – focusing your time on creating new streams of passive income. While a foreclosed home can be viewed as an investment to some people – others are relying on these properties for their survival and well being.
I heard an inspiring story on the radio the other evening on the way home from work. A nonprofit organization in Florida is helping homeless families move into vacant homes. Nothing special here – except that the families don’t own the home, don’t pay rent, nor does the nonprofit. The activity is actually illegal and most involved parties don’t really mind. These homes that the homeless families are moving into are foreclosed homes owned by a bank. Without getting into the details of how it works – the nonprofit places families who are living in homeless shelters or on the street into foreclosed homes that have been abandoned for weeks and months. The banks are notified by the nonprofit that they plan to move a family into one of the banks foreclosed properties (not sure how they get the keys?). The banks don’t really mind because many of these homes have been looted for copper and other materials since nobody is living there. Since the banks can’t move the properties, they feel it is better to have someone watching over the property at least – until the bank can eventually sell it. Surrounding neighbors of these foreclosed homes are not even objecting because the new tenants are responsible for the upkeep of the home. Finally, the new tenants are able to move their family temporarily into a home where they can try and get back on their feet.
Obviously there could be associated problems with moving homeless families into these homes, but the people moving into these homes are told upfront that they could be kicked out at any time. Most of these people are just trying to get back on their own feet. They have either lost their own home to foreclosure or have lost their job and are no longer able to pay for an apartment. The nonprofit views these move-ins as temporary as well. They feel that if they can help a few people get back on their feet while preventing looting of unoccupied homes along the way – it is making the best of a really bad situation.
Another story I recently heard was in several parts of the Midwest, where government officials are telling people not to move out of their foreclosed homes unless the police show up. I was shocked when I heard this story. In some areas, the rate of foreclosures is so drastic that the market is completed saturated with unoccupied homes. The banks who take over the properties have nobody to sell them to. So when the family who gets a foreclosure notice moves out – the property just sits their waiting to be vandalized. The police departments in some areas can’t keep up with responding to break ins at these homes from looters. The local governments feel that while it is not a perfect situation, asking former homeowners to stay in their homes when they get foreclosed on will help to cut down on crime and keep these homes from becoming further depreciated.
Both stories I noted above are similar where it may be better to have people living in homes they don’t own instead of letting the property sit. While I acknowledge that this is not a perfect solution, I also think it is making the best of a really bad situation. As long as the people living in these foreclosed homes understand (which probably isn’t always the case) that they don’t own the property, I think it is a temporary solution to hold the value of some of these homes. Most of the areas where these homes are found are in over saturated housing markets where nothing is selling. Why not keep people living in the homes until our economy turns back around?
Have you heard of similar stories? What are your thoughts on people living in foreclosed homes that they don’t own? Do you think it is a time bomb waiting to go off?
Related posts:
- Researching Foreclosure Information as a New Income Stream
- What does eHow and the Recession Have in Common?
- Problems with our Home Owners Association
- 8 Benfits of Eating at Home – Other than Saving Money
- Control Your Home Heating Costs
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While I think this may be a viable option in the short run it may actually end up causing problems later on. When someone owns something, they tend to take better care of it. What happens when the bank wants to show the property to potential buyers and the house is trashed? It would be increasingly hard to show the property to real buyers (not just speculators). I am not saying that all people would stop taking care of the houses, but some will.
This recession is going to continue to negatively affect millions of people. I just pray that somehow people can survive until the economy rebounds a bit.
Dusty’s last blog post..Analyzing Dave Ramsey’s Baby Steps – Where Are We Now?
I’m extremely interested in purchasing real estate as rental properties. Obviously, foreclosed properties can be great ways to get real estate on the cheap. How much are you planning to put down to make it passive income?
Steve’s last blog post..Comment on Book Review: The Millionaire Next Door by Steve
@Dusty – I can’t say I disagree with you. Unfortunately it isn’t a perfect situation and will only get worse.
@Steve – You bring up a good question about a down payment on a rental property. I also like to put down 20%, but it will depend on the opportunity that I find. How about you?
passivefamilyincome’s last blog post..Recession in America – Home Foreclosures
@pfincome – 20% is almost the bare minimum for securing a mortgage these days. It’s a good value to shoot for when looking for a rental property because you won’t be making PMI payments. I suppose it all comes down to what the monthly payments will be compared to what you can get for rent. I suppose it all depends on the region you’re buying the property in.
Steve’s last blog post..Comment on End of January 2009 Financial Status by pfincome
@Steve – Yes, I agree. Avoiding PMI payments is important. Good luck to you in any future investment property purchases!
At what point do squatters’ rights come into play? It’s interesting to consider. I know it is years in most states, but perhaps there will be stories coming out down the road of people becoming owners of a home through squatting. However, if you have permission, it’s not considered squatting.
We were unable to sell our 1st home and have it rented out for what the mortgage costs. SO while it’s not cash-flow-positive, it is paying for itself and paying down the principal.
Not technically passive, but the only thing we have done with this set of renters in the home is accept the rent each month when he comes by to drop it off. He’s a handyman and tackles any projects that have come up, himself. We’re lucky thus far in that regard.
Maria — WAHM’s last blog post..Recession Survival through Income Diversification
@ Maria – The last time I heard, squatters rights come into play after year 7.
Dusty’s last blog post..Analyzing Dave Ramsey’s Baby Steps – Where Are We Now?
@Maria – Even though you are not cash-flow positive, I think you could say you are earning passive income through the monthly mortgage payments.
passivefamilyincome’s last blog post..PFI Weekly Updates – February 3 (2009)