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Single-Family Rentals

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Posted On: 01/01/2014

Question:

We live in a community of single-family homes. Now, a home next to us has been sold. The owners have rented the property. How will that impact the value of our property?

Answer:

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According to RealEstateEconomyWatch.com, 27 percent of all income properties are now single-family rentals or SFRs. Whether the home next door is owner-occupied or rented, it should make no difference in the valuation of your property.

What you want from a neighboring property is a home that is well-maintained and consistent with the neighborhood. If it’s part of a homeowners association, you want to be certain that the HOA fee is being paid.

None of this has anything to do with whether the property is owner-occupied or not.

We're seeing more SFRs for several reasons.

First, single-family rentals have always attracted long-term investors because, to a large degree, they are self-managed by tenants. Since home prices began to decline around 2006 and 2007, small investors had more opportunities to acquire single-family homes. These price declines happened to take place at the very same time that rents increased.

Second, to offset the need to quickly re-sell foreclosed properties, some lenders have allowed former borrowers to stay on as tenants, thus converting properties from owner-occupied to rental status.

Third, Wall Street firms have purchased roughly 80,000 existing homes for use as rental properties. It's not a big number in the context of the national housing stock, but such purchases are important because they reduce the inventory of distressed homes in local markets. Fewer distressed homes mean less pressure to lower home values.

Making matters more complex, many properties today are difficult to classify. RealtyTrac says there are "zombie" homes (properties in foreclosure which have been vacated by the owners) and "vampire" properties (homes that have been foreclosed and yet the owner remains in place.)

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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