Photo of a home for rent sign.
Investors who used to flip homes are now turning into landlords. CC by Editor B/Flickr

The depressed U.S. housing market is serving up a feast for vulture investors. Swarms of vulture investors sniffing for distressed properties are being attracted by collapsing prices, record-low mortgage rates and rental demand fueled by foreclosed borrowers. However, typical vulture investing strategies are changing with the bad economy.Vulture investors flipped homes for a quick payout in good times. Current circumstances compel them to hold on to properties and reap rich rental profits.

Vulture investors circle a struggling housing market

Swooping down to buy distressed properties cheap is how vulture investors got their name. CNN reports that they focus on places like Las Vegas, Phoenix and Miami, where foreclosures and short sales have dropped prices up to 70 percent. Home prices often were driven unrealistically high by their frequent flipping. These days, potential rental profits are looked at as the more stable long-term strategy. Neighborhoods may actually become more stabilized by vulture investors today.

Strategy changes for vulture investing

Vulture investors have switched from flipping to renting due to several factors in today’s housing market. Home prices rising in perpetuity, the main lure for house flippers, are a thing of the past, said mortgage resource HSH.com. Buying cheap just to sell cheap doesn’t make sense. Also, millions of foreclosed borrowers become tenants for vulture investors who got into the properties for a song because they have to wait years before they can get another mortgage.

Cash flow: the vulture investment payoff

Vulture investors can start making money the first month they rent their properties when they pay in cash. Las Vegas, where prices have fallen nearly 70 percent and rents have only dropped about 20 percent, is held as an example in the CNN article. Glenn Plantone, a vulture investor in Las Vegas, told CNN his net return on investment via cash flow is 12 to 14 percent. The beauty of cash flow is that if real estate values continue to fall, the return for the vulture investor holds steady.

Sources:

CNN: money.cnn.com

HSH: blog.hsh.com

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