Sunday, August 29, 2010

Slumlord Millionaire

As most of my fellow Americans are painfully aware, statistics in regards to the housing market are down across the board. As NPR reports, "New home sales in July were at the weakest levels since the government began keeping records 47 years ago. Existing home sales weren't much better." The median sales price for houses on the market is 20 - 40% lower than it was a few years ago. More and more people are facing foreclosure and/or simply walking away from their homes.

While economists keep telling us that things are bound to turn around -- though reality seems to keep undercutting their rosy forecasts -- it does cause one to question who, if anyone, can rescue so many unoccupied buildings.

Banks aren't lending. One in five Americans is unemployed or under-employed. Most people don't have a few hundred thousands dollars sitting around gathering dust. So, who can afford to jump start housing sales?

In thinking about this issue, the answer I came up with is slumlord millionaires. This is what Wikipedia has say about the word, slumlord:
Traditionally, real estate is seen as a long term investment to most buyers. Especially in the developed world, most landlords will properly maintain their properties even when doing so proves costly in the short term, in order to attract higher rents and more desirable tenants in the long run. A well-maintained property is worth more to potential buyers.

In contrast, slumlords do very little maintenance on their property (ordinarily, just enough to meet minimum local requirements for habitability), and in turn offer low rent rates to lure tenants who will not (or cannot) pay high rent (and/or who might not pass background checks should these be required to live in the higher rent areas). Slumlords of this kind typically prosecute many evictions.

It is not uncommon for slumlords to buy property with little or no down payment, and also to receive rent in cash to avoid disclosing it for tax purposes, providing lucrative short term income. (Thus, in the U.S., slumlords would normally not participate in government-subsidized programs such as Section 8, due to the requirements to report income and keep properties well-maintained.) A slumlord may also hope that his property will eventually be purchased by government for more than it is worth as a part of urban renewal, or by investors as the neighborhood becomes gentrified.

Some slumlords are more interested in profit acquired through property flipping, a form of speculation, rather than rental income. Slumlords with this "business model" may not maintain their properties at all or pay municipal property taxes and fines they tend to accrue in great quantities. Knowing it will take years for a municipality to condemn and seize or possibly raze a property, the slumlord may count on selling it before this happens. Such slumlords may not even keep up with their mortgage payments if they become equity-rich but cash-poor or if they feel they can sell the property before it goes into foreclosure and is taken by their lender, typically a 6-8 month process at the quickest...
Think about this for a moment. With banks not lending to the vast majority, it makes it next too impossible for a working or middle class family to purchase a home in these times. With so many houses on the market, this has led to a decrease in sales prices. So, those few with the money can swoop in to buy lots of property with cash-on-hand or a pool of funds from likewise fat cat investors. And, since the wealthy elite certainly don't want to mix with our kind, it is far more likely that they will be absentee owners.

Who knows? Maybe we will return to a bygone era in which most people live in something akin to a company town. We will live in houses owned by the few who also, by the way, own the local grocery store, newspaper, television station, hospital and the area's elected leaders.

1 comment:

  1. Unfortunately i think you are correct in this assessment :-(

    ReplyDelete

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