Almost 95 percent of distressed homes in some markets need rehabilitation in order to be fit for rental, according to some analysts, and refurbishment is a necessary part of any strategy converting real estate-owned homes into rentals.

Many of these properties are a decade old or more and in need of repairs. Under the circumstances, analysts with Morgan Stanley note, most such properties should not be regarded as a short-term investment. In the event of a housing price recovery, properties may still need significant work before being sold.

"The importance of getting construction – or specifically, re-construction or rehabilitation – right cannot be overstated," according to a report from Oliver Chang and colleagues at the firm. "The quality and cost of rehabilitation can continue to benefit or haunt the asset far past the initial completion of work. For example, shoddy plumbing or other infrastructure work can result in significantly higher maintenance costs over time, and can also affect eventual exit pricing."

Multifamily owners and rental property management firms may find that there are some limits on single-family rental housing as a result, despite investor interest in purchasing and leasing such properties.