Investing in Real Estate
The federal Real Estate Owned Rental Initiative took its first step on February 1st of this year when the Federal Housing Finance Agency announced that investors could begin pre-qualifying for the upcoming bulk sales of real estate–owned (REO) properties belonging to Fannie Mae.
Then, a few weeks later, Freddie Mac declared that it is in the early stages of developing its first ever multifamily loan product, which could help clear single-family inventory by increasing the number of investors who qualify to purchase the bulk REO properties held by Freddie Mac and Fannie Mae.
Although this information is great news for investors looking to buy some distressed property, Freddie and Fannie have remained tight-lipped about the potential financing for transactions under the REO initiative, leaving room for speculation about the types of deals available for investors.
“Investors will be able to offer higher up-front prices for the homes if attractive financing is available, which in turn will act as a stabilizer for the market as a whole,” said Thomas Shapiro, president of GTIS Partners, in an interview with Businessweek.
A big consideration for determining where and what type of properties to buy is geographic concentration. Areas with growing economies and attractive percentage yields are great for buying single-family property while other areas, such as Phoenix, Atlanta, Las Vegas, Chicago, and southern Florida are better suited for multi-family investment purchases.
Concerns do exist that investing in single-family property pools that are too geographically spread out will create management problems. Mismanaging these rentals could make an even bigger mess out of our already struggling housing sector.
Plus, a Federal Reserve white paper released on January 4th stipulates that “not all of these REO properties are good candidates for rental properties, even in geographic markets with sufficient scale. Some properties are badly damaged, in low-demand locations, or otherwise low value.”
Although it hasn’t been officially announced, it’s rumored that Freddie Mac’s program won’t be as restrictive as Fannie’s bulk-only sale. It’s believed Freddie will allow investors to use a variety of methods to purchase specific REO single-family homes within an asset pool. And the consensus seems to be that injecting some health back into the single-family sector will only strengthen the metro housing market in general.
The bottom line, investing in real estate right now is a great investment. Now it is just a matter of what type of property you are looking to invest in and where you are looking to invest.
Multi-Family Executive contributed to this story.