For months now, the U.S. Government has been kicking around the idea of making bulk sales of foreclosed properties owned by Fannie Mae and Freddie Mac. The idea is to sell large pools of homes to qualified investors who will be required to put them back into service as rental properties. Beginning this month, The Federal Housing Finance Agency has announced that the pre-qualifying process for interested investors has begun.
If you'd like to review the qualifying guidelines, and get a feel for what it will take to qualify to purchase up to 1,000 homes for your rental portfolio, you can do that here. Once you qualify, you'll be eligible to receive notice of when and where such bulk sales will take place and presumably, instructions on how to bid for a pool.
Cities such as Atlanta, GA are expected to be among the first to be targeted for these bulk sales, because of the high number of available GSE owned properties there. Pools of properties may number 500 to 1000 initially, and could be all in one local market, or spread out over a larger geographical area. Having such a large number of rental properties added to a local housing market, even in a city as large as Atlanta, could have significant repercussions on rental rates, by driving them down.
It is highly likely that the investors who would be interested in bidding on such a large pool of properties will be companies such as investment trusts, perhaps a builder, a bank, or a corporation with ample infrastructure to support such a purchase. Even individuals may apply for the program, as long as they can show a net worth of $1,000,000 or more. But getting 500 to 1,000 properties ready to rent and putting them back into service is no simple task. And the requirement to rent instead of sell means that realizing a profit on such a large purchase could take quite some time.
It is also possible that this program could see few takers, since the scale is so large, and such a project will be a challenge for virtually any entity to undertake. However, it is likely that these properties will be sold for something like 20 cents on the dollar as compared to their original value, so I am sure there will be a lot of interest in the investing community.
This calls to mind the Resolution Trust Corporation sales of foreclosed properties in the early 1990's, to help liquidate a large inventory of foreclosures that took place during the real estate crash of the late 1980's. But this time, it's on steriods. This type of large scale sell off of bulk pools of homes is unprecedented in U.S. history. It's impact on the overall market is somewhat unpredictable. But the GSE's are getting desperate to unload some properties, as the foreclosure pipeline is unrelenting, and the Fed sees the possibility of 3.6 million more new foreclosures over the next two years.
Small real estate investors in those areas where these sales will take place, should keep abreast of these sales as they develop, as this type of program could force existing landlords to lower their rental rates as well. For some existing landlords, having to lower rental rates to compete for tenants, could wipe out or reduce their positive cash flow.
On the other hand, depending on how the rules of this game play out, what we could see is a new wave of investor home sales, where these large purchasers of the bulk pools turn around and resell most or all of these properties to smaller investors for around 40 to 50 cents on the dollar. I do not know if this will be allowed, but if it is, it could be "game on" for the smaller investors, who would love to pick up properties at 40 cents on the dollar, and it would allow the bulk purchasers to realize a profit more quickly, thereby making the program more likely to have more takers.
It will take a while to see how this all comes down, but if you are involved in real estate investing, property management or property renovation, you could be seeing some interesting opportunities coming in the near future.
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 [email protected] or call her office at 888-915-9968 to inquire about coaching or consulting, or to request a free copy of her latest book.