Packaging Rent Payments for Sale as Securities

July 21, 2012 at 12:02 pm Leave a comment

According to this article in the Wall Street Journal the newest game in real estate investing might be rent backed securities:

In recent months, firms such as Colony American Homes and Waypoint Homes have snapped up houses in foreclosure and rented them. Backed by investment banks and credit-rating firms, these firms think they have spotted a new opportunity: Packaging thousands of those rental payments into securities and selling them to other investors, a process known as securitization.

Potential issuers, like Colony and Waypoint, are seeking to create and sell these securities to tap outside investors for capital they in turn can use to expand their businesses.

They aim to entice investors with returns that could look even more alluring should interest rates remain at or near historic lows…

Just as the securitization of home mortgages before 2008 fed demand to originate more mortgages to pool into bonds, some bankers and potential issuers say creating bonds backed by rental payments could also stoke interest for more properties. Selling the bonds to investors would generate more capital for issuers to buy more foreclosed homes.

Such demand could reduce the oversupply of foreclosed homes in the market, helping to stabilize home prices, they say. There is also the possibility the market would not take off as issuers and bankers hope, making the impact of securitization negligible.

If these rental-backed securities do take off it will be interesting to see what effect they will have on the overall rental housing market, and what kind of opportunities open up for property management firms.



Entry filed under: Financing, Housing Trends. Tags: , .

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