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Giant Mortgage Settlement Used to Demolish Homes, Not Help Families

Published on Thursday - May 17, 2012

The multi-billion dollar mortgage settlement means fewer foreclosures & more homeowners and their families helped right?

Maybe not!

Since the giant $26 billion mortgage settlement was approved there have been reports of triple digit increases in foreclosure filings and bank possessions.

But the money is going to be used to help people right? Well, the state of Ohio has decided to spend around a third of their payout, $75 million to demolish homes. Apparently there are 100,000 homes around Ohio which are abandoned and which are earmarked to be torn down. Obviously this money won’t even make a big dent in that number but even if it could, would this be the best and most appropriate use of this cash?

The desire to protect home values by eliminating inventory is an argument easily understood in theory but is this really the best they can come up with? Detroit has also torn down thousands of homes recently and many may really need to be demolished but what about all the homeless? We aren’t just talking about bums who have chosen that lifestyle either. We are talking about millions of hard working families and their kids who have lost their homes through no fault of their own.

What does this all mean for real estate investing pros?

On the bright side from a simply mathematical point of view, less inventory means rising home prices and more profits on flipping houses.

For real estate investing companies with their own construction crews it can also mean a nice sideline stream of revenues from getting paid to help tear these homes down.

Though other questions investors ought to be asking should be how cheap can these lots be picked up for once already cleared and can state and local governments be approached for funds to rehab these homes versus tearing them down? Certainly the ultimate impact of renovating and flipping or renting these homes, the jobs it will provide, the tax revenues it will bring, the improvement of neighborhoods and lessening of demand on public service payouts has to at least be equally if not more advantageous than just razing them, no?

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