What if, instead of re-selling a foreclosed property, the bank decided a renovate it and become a landlord? This could become the norm, as more and more investment banks have begun bidding on large pools of foreclosed properties and converting them in to rental housing.

Traditionally, banks that foreclose on a property will re-sell the property as soon as they can. This means that in some areas with high foreclosure rates houses remain empty for years while the bank searches for a new buyer. The other method, called bulk sales, allows a bank to hold on to a property and lease it out. The rental market is strong nationwide, and this would likely fill many empty homes and improve the condition of previously abandoned foreclosures. It would provide for longer term investment and higher overall profits from the eventual sale.

Foreclosures and empty housing have been a problem in Michigan and all over the country. But some are questioning the wisdom of allowing Wall Street to become your landlord. How will the bank maintain the property? How will they properly screen and manage tenants?

Some banks are responding to these questions by partnering with local property companies. Choosing an appropriate partner is difficult, however, when banks are also concerned about the overall financial picture of the investment. “You want to get the highest bid, but you definitely want somebody who’s taking care of the tenant,” said a property consultant who works with bulk sales.

Up to this point, government-backed Fannie Mae and Freddie Mac have been hesitant to get involved in the new form of investing, saying that the profit margin is not worthwhile compared to individual sales.

Still, prominent financial expert Warren Buffet has endorsed the practice, telling reporters recently that if bulk sales were widely available, he would be likely to buy a few hundred thousand single family homes and capitalize on high yields on the rentals.

What do you think – would bulk investments by Wall Street benefit the housing market?

Source: Wall Street Journal, “Wall Street Keys on Landlord Business,” Nick Timiroas, March 20, 2012.