Tenants vs. Homeowners. Who wins when it comes to investing?
I want to address a topic that is EXTREMELY important in the mortgage loan investing business, and one of the biggest reasons I prefer notes over traditional real estate investments.
In my experience over 13 years as a landlord, most tenants in the sub-$150,000 rental market were not emotionally vested in their rentals. Tenants viewed a rental contract as a business decision. There were always comparable rentals available, and tenants were willing to move on short notice if it meant a better deal or a newly remodeled house.
Homeowners, in my experience, are a totally different breed. They are emotionally connected to their homes, especially if they have lived there for many years. The recession of 2008 proved that homeowners will choose to stay in a home after a housing market correction, even if they are underwater. Why?
1. Homeowners have friends, kids in school, and memories in their homes. No one wants to have to move. No one likes change or the unknown.
2. For many homeowners, their decision to stay IS financial. They have been paying their mortgage for years, even if there is no equity in the property. They also have down payments in their properties.
3. Most homeowners have made significant additional investments/upgrades to their individual desires/expectations, increasing emotional attachment.
4. If a borrower has not been paying their mortgage, their credit will be damaged. If they decided, for some reason, to just pack up and leave their home, it would be much harder to purchase a similar home or obtain a rental with the uncertainty of a landlord who may change his mind at any time. The higher the value of the property, the lower the likelihood of finding a comparable rental.
One last statistic: As a landlord, evictions were part of the business. As a mortgage loan investor, out of all of the loans I have purchased, I have never completed a foreclosure and evicted a borrower. Ever.