Distressed Homes Get Second Chance as Rentals

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NEW YORK (MainStreet) — A major U.S. homebuilder, Beazer Homes (Stock Quote: BZH), is taking the bull by the horns in today's distressed housing market.
The company is buying up distressed homes in the Phoenix area and renting them out. Right now, there’s not much money in it for Beazer, but it could help stabilize one of the hardest-hit housing markets in the country.

The homes that Beazer is buying and renting out include some that the homebuilder, one of the top 10 in the U.S., built itself. The company bought its first home in March, and plans to either buy or rent about 100 more by the end of 2011.

But why would a major home construction company want to become a landlord? In short, it's good business.

By buying, restoring and renting other properties, Beazer is making the homes it builds in the Phoenix area look better by comparison. Real estate professionals have long noted that neighborhoods with empty homes (usually either foreclosed or abandoned) drag down the prices of other homes in the neighborhood.

Phoenix is ground zero for some of the nation’s worst performing neighborhoods, real estate-wise. According to a study by Arizona State University professor Karl Guntermann, Phoenix home prices dropped to a median $114,000 in December 2010, even lower than the state’s previous worst month, April 2009 ($117,500).

Beazer is just being realistic. With consumers down on home purchases – at least through the four-year-long economic downturn – homebuilders need to stay financially viable until the market picks back up again. Buying and renting out new homes at lower prices to consumers is an odd but realistic way of riding out the housing disaster. Consumers may not want to buy a house today, but they might change their minds two or three years from now. When they do, Beazer will have some ready-made buyers already in its homes in the Phoenix area.

There is definitely some room for Beazer to profit as a landlord too, especially in Phoenix. The vacancy rate in the city is 9.7%, well above the national average of 6.6%, and as more residents sell their homes (or are forced out) they’ll still need a place to live. Renting versus owning should be a palatable alternative.

Getting creative with local real estate is becoming a fact of life for companies like Beazer and other major U.S. homebuilders.

"Making money building homes in 2011, and even 2012, is going to be very challenging for the builders, so I expect more of them to consider creative ways to compete," says John Burns, head of John Burns Real Estate Consulting, in Dow Jones Newswire.

Beazer is getting a head start.

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