Bulk Sales Of REO Properties From The Investors Perspective, (part 2)



Editors Note: This is a continuation of Donna Robinson’s interview with real estate broker and professional investor, Buddy Corbin. If you have not already read part 1 of this article, here is the link. 

property management

Bulk REO homes for sale © AZP Worldwide - Fotolia.com

Question: So basically, under the current plan to sell large blocks of REO’s to private investors who would be required to hold those properties for rental, you are making several key points: 1. Fannie and Freddie may have to sell them at 10 cents on the dollar. 2. There are not that many professional investors who could qualify for this program that actually want to do single family rentals. 3. These investors would ignore the bad properties they are forced to buy in the pool, to get the good ones they would want, and in so doing, allow those areas already in bad shape to get even worse…so with all of those points in mind, what are some ideas that could be implemented to get these properties off the books, save taxpayer money, and still improve neighborhood conditions in hard-hit areas, and generally result in the best possible outcome for what is obviously a difficult problem? 

Answer: Frankly, in my opinion, you could argue that it would be more cost effective for the GSE’s to literally GIVE the homes away in some of the hardest-hit areas, to owner-occupants who can pay the insurance and taxes on them. Provide these “qualified” owner occupants with access to low cost rehab loans to allow them to fix up the property and live in it themselves for a minimum of 3 to 5 years.

That would create truly affordable housing in the areas where it is most needed, provide opportunities for pride of ownership in neighborhoods that desperately need it, and help improve those neighborhoods overall, while helping bolster the local tax base.

Investors at the pay-grade we are talking about for the current program, simply are not going to worry about improving neighborhoods.” It is common knowledge that neighborhoods with a majority of owner-occupants maintain more value, and are better kept than neighborhoods with high rental populations, especially when concentrated in a relatively small geographic area. Ownership would help stabilize local home values in those areas as well. And maybe some of those homes should be offered to people who were damaged by fraudulent foreclosure practices. And I think I’d also include a deed restriction that the property cannot be refinanced for more than 50% of the appraised value, to protect these owners from another foreclosure.

Question: “I like that idea myself. It’s an opportunity to begin to restore our national tradition of home ownership. But what about the investors? I think you and I agree that the current program as outlined is going to end up being accessible to just a few big players at the top, when the vast majority of single family rental property owners are the smaller mom and pop variety, along with smaller investment companies that do a great job with property management, but can’t begin to qualify to handle 500 to 1000 properties in one big package. How do we get these properties into the hands of those investors who really do want them and will keep them in good condition?” 

Answer: “It would make more sense if the larger investors who can buy these pools were allowed to dispose of them any way they want to. They could afford to pay more for the pool, because these investors know better how to maximize their profits in the market place.

The larger investors could reduce their risk and distribute these properties more efficiently in the local market, with less negative impact, through their choice of selling properties to owner occupants for a mark up that could be specified by Fannie and Freddie, or selling them for a quick profit to the tens of thousands of smaller investors who do want some of these properties.  That is the vast majority of investors.

Only a small segment of the professional investor population that can buy these bulk pools of properties would even want them for rental. If you maintain this mandate to rent, the government is simply eliminating a lot of players who could help dispose of more properties faster. If the government wants to maximize the return for the taxpayers, they should not impose unnecessary restrictions on the free market place. Frankly I don’t think the program will work very well in it’s present form, because it is going to restrict the number of potential buyers so much if you keep the rental mandate and lock out the little investors who make up the vast majority of the single family rental owners.

There are thousands of Real Estate Investor Associations around the country, with members that number in the hundreds of thousands. These folks are the foundation of the rental property industry in America, along with tens of thousands of older folks who own and mange a handful of single family rental properties, to help bolster their retirement income.

It seems to me that getting these properties out into the hands of the little guys is the key to solving this problem while at the same time providing the necessary support at the local level.”

No one is going to care about these properties or manage them as effectively as the local investors will. So I say let’s create a distribution system that is similar to the wholesale markets in other industries, and allow these properties to get into the hands of those that can really benefit from them, and in so doing, we’ll benefit our communities and restore some stability to the local market place.
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Donna Robinson is a 16 year veteran of the real estate industry and a staff writer for RealtyBizNews.com. She is an active real estate investor who also provides coaching and consulting services. Contact her at donnaconsults@reihelp.com or call her office at 888-915-9968 to inquire about coaching or consulting.

Comments

  1. Your idea of GIVING the houses away will go over real big in California where the average defaulted loan amount was $400,000. Who is supposed to pick up that tab?

    • The article was not necessarily endorsing that all homes in all markets be given away. The broker who made those comments for the article is in the Atlanta, GA market, where there are a high number of foreclosed properties in areas where few investors would want them. In the context of the article, the intent is directed more towards homes in those areas where investor demand would be minimal. And prices in Atlanta are much lower relative to the California market. However, in response to your question, the taxpayers picked up the tab when the taxpayers bailed out Fannnie and Freddie. Now that these REO’s are taxpayer owned, it’s a matter of finding a way to get them back into service so that taxpayers can realize some return, even if only via local property tax payments. No question that it’s not the ideal scenario, but it’s better than allowing homes in the least desirable areas to sit vacant, then be vandalized and stripped of infrastructure. I would also add that any “government insured” loan such as FHA or VA are taxpayer backed loans, and it’s the taxpayers who pick up the tab anytime one of those loans defaults.