The Foreclosed Houses that are Bought are Being Converted Into Rentals
Photo by Editor B
In some of the regions foreclosures are snapped up fast but in others these are languishing. The houses that are bought are being converted into rentals because the demand for rentals is high following the foreclosure crisis. While value of houses is falling the rental rate is rising. Investing in rentals seems to be the more attractive option.
The Federal Government has asked for ideas regarding converting the foreclosed houses it is sitting on, into rentals. The administration itself has not come forward with any concrete proposal. The ideas coming forth can in general be divided into two categories.
In one group the investors or non-profit bodes will buy pools of thousands of units in bulk promising to rent them out for a certain time period. This frees the government from taking on the role of a landlord. It is being given preference by HUD – the agency that is burdened by foreclosures as loans with the backing of FHA default.
In the second group investors would be permitted to contract joint operations with Fannie Mae and Freddie Mac for investing in bulk purchases of foreclosed houses. A property management firm at the national level would handle the daily tasks of the landlord.
The investors together with the government agency would divide between themselves the expenses pertaining to repairs, taxes etc. The target would be to ultimately sell these. Fannie Mae has already taken steps along this line with a much smaller cluster of its apartment (multifamily) assets.
A moot question is why are not the investors being allowed to purchase these units and lease them out as rentals? Is it to the better interests of the taxpayers to allow Fannie and Freddie to repossess these homes, repair and sell them in the manner things have been going on during the past two years? Or will the government agencies limit their losses by involving private agencies?
If investors demand discounts then bulk selling would involve hefty losses. A joint venture on the other hand would expect the firms to enter a new zone of property management zone about which they do not have much experience. Moreover if the landlords fail to property maintain the houses the government would then be blamed. This had happened in the 90’s in the Inland Empire.
However the idea of converting foreclosures into rentals is gaining popularity with both the parties, private investors and economists.
