2 Ways Washington Can Use Real Estate Investors To End The Housing Crisis

by | BiggerPockets.com

Like many people in my generation, I spent a few extra years in college, 5 ½ to be exact, and yet I have no diploma to hang on my wall.  I enjoyed my years at the University of Memphis playing a varsity sport, hanging with my fraternity brothers and in general trying to avoid studying.  Don’t get me wrong though, I learned a lot in my time there and it has absolutely served me well since leaving college.  I was a Political Science major with minors in Journalism Law and English and wound up leaving one semester of classes short to go to work full time.

Fact is, I don’t regret my decision to leave and I look back on what I learned during those 5 years as a Political Science student and often think my real-life lessons far outweigh a piece of paper on the wall.  I believe with the lessons I learned, Congress could learn from me on how to resolve the housing crisis! Some of the lessons I learned included people skills development, risk assessment, team development, consensus building and the real-life give and take of negotiations.  It seems to me, that a simple application of a few of those skills in these two areas could actually lead to a housing turn around…

Here are 2 sure-fire ways our elected politicians could help end the housing crisis right now by utilizing real estate investors

1.  Recognize the economic impact of real estate investors

When a real estate investor purchases an investment property, in almost every case, there is work to be done.  In today’s investing environment, many of the properties being purchased are in some form of dilapidated condition and some are certainly worse than others.  Those properties have to be renovated and those renovations have an amazing impact on local economies.

According to the recent BiggerPockets.com/MemphisInvest.com study, real estate investors are spending $9.2 Billion per year on property renovations.  The average dollars spent on each property; according to the data collected by ORC (the inter-national CARAVAN polling company) is $7,500.  Now, 23% of the self identified real estate investors taking part in the study said that they spend between $20,000 and $50,000 per property renovation so recognizing that number could be much, much larger in some parts of the country is important.

Experienced investors will tell you that if they spend $1 on a renovation then .50 cents went to material and .50 went to labor.  On higher cost renovations those numbers will skew a little heavier toward material, but the costs are still split somehow between labor and material.  Now let’s consider this real quick.

$9.2 billion is the calculated number spent on renovations by real estate investors.  If that number is split evenly between labor and material, then roughly $4.6 billion is spent on each.  I give most real estate investors the benefit of the doubt here and assume that they are buying locally and hiring locally.  What is the point of watching costs if you are trucking in labor and shipping in your materials.  I guess in some cases, really thrifty investors may buy on-line, but I would venture to say a vast majority are spending those dollars locally.   

They are spending money buying materials from local stores like Home Depot, Lowes and other national chains, but they are also buying from local mom and pop companies — local lumber companies, local plumbing suppliers, local HVAC suppliers and electrical suppliers as well as small town hardware stores.  Those dollars are driving local economies and keeping those big box stores and local suppliers in business.  Their share of the $4.6 billion helps keep rents paid and lights on as well as hiring additional help when needed and stocking up on inventories ahead of seasonal orders.  The simple routine purchases of real estate investors add up to significant dollars.

But that is only half of the story.  The other half of the story is the $4.6 billion spent on labor.  That money goes directly into the hands of local companies and labor forces, and acts as a direct stimulus on the local economy.  Those dollars are spent to pay bills, purchase food and gas, buy clothing and spend on thrift items such as movies and other entertainment.   Those dollars have a much great impact locally and can be a major reason that local small business serving the investing industry thrive instead of disappear.

The effects of an active investment environment are far more reaching than simply the looks of a neighborhood REO that has been revitalized.  Creating an environment where more purchases and renovations are able to take place should be priority #1 to stimulate spending and drive hiring in the housing sector.

2.  Move Properties in Greater Numbers To Real Estate Investors

There is a debate in Washington at the Federal level, that giving real estate investors greater access to purchase excess inventory would be a bad thing – especially for elected officials.  I look back over the last 15 years and really wonder how anyone who was in Washington over that period thinks previous decisions were good.  Allowing unqualified homeowners to purchase properties was a bad decision.  Allowing investors to purchase unlimited properties with 100% financing qualifies as a bad decision.  I think this list could go on and on…

But the great thing about today’s real estate investor, they are not looking to speculate on the housing market.  They want to fix it.  And the quickest way to fixing the market is to sell the remaining inventory as fast as possible.  Home ownership rates sit at 65.9% according to CNN/Money and that is 4% points lower than the peak in 2009.  However that is roughly equal to level of home ownership in 1998 before the housing bubble started with the loosening of credit standards at Fannie Mae mandated by Congress.

Instead of creating more legislation to encourage home ownership, now would be a great time to take another tact and encourage cleaning up the inventory using individual investors.  According to the BiggerPockets.com/MemphisInvest.com study, individual investors are not looking for handouts and an easy road in the process.  In fact, 44% of real estate investors plan to finance their next purchase by putting between 25% and 50% into the deal as a down payment.  32% of real estate investors say they would be willing to put as much as 50% down on a deal if they could obtain unlimited financing from lenders such as FNMA.

This seems like an obvious no-brainer, which some would argue is the problem in Washington.  Allowing for greater investment by individuals and actually raising the standards to qualify for those purchases would actually spur more transactions not fewer.  Those additional transactions would mean additional money spent renovating homes, creating jobs and stimulating local economies while simultaneously reducing inventory and clearing the drag on local home prices.  The great thing about this plan is that it would not lower the percentage of home owners.  These properties are often sitting vacant and in need of repair.  They are already calculated into the percentage of home non-owner occupied.  Create an environment for individual investors to take over and watch the housing crisis end quickly and a return of slow, steady, historical home ownership growth.

Photo: Johan Ohrling

About Author

Chris Clothier

In 2005, Chris Clothier (G+) began working with passive real estate investors and has since helped more than 1,100 investors purchase over 3,400 investment properties in Memphis, Dallas and Houston through the Memphis Invest family of companies.


  1. Someone is trying to get the attention of those who have the power to act to fix the economy – hope it works and they get off of their duffs and get things moving again. I like the reference of Washington not having any brains in play by the use of the words – no brainer! Keep knocking to get attention until someone take action!


    • Chris Clothier

      Dale –

      Thanks for reading and posting. I think its pretty clear, and if a politician has his facts straight, the program makes sense and anyone complaining would complain either way. There is a great opportunity right now and data shows that investors are willing to take action if they can get some cooperation.

      All the best – Chris

  2. Unfortunately, Washington is less concerned about fixing the housing market than they are with social engineering. This is not an opinion, it is a fact. Why else would there be a lock-out period for investors trying to purchase HUD and FNMA properties? Fair and open competition for EVERYONE is a key ingredient to an efficient market. Properties would move faster, sell higher, and likely have less failed contracts if the Gov’t would quit imposing their idea of ‘fairness’ upon the market.

  3. Chris Clothier

    Steve –

    Thanks for reading the article and taking time to leave a comment. I’m not sure about social engineering, but I think you are spot-on on the crazy rules put in place. Another odd rule is the 90-day deed restriction.

    IF you have taking the proper steps to shore up your qualification process, why do you need a 90-day deed restriction? IF the investor is the highest offer, has all of the proper employment verification, has the verified funds, has the proper credit score and has surpassed any bar set to purchase the property…what is the need for the 90-day deed restriction? Simply because an investor, who understands a local market and has business acumen to make money on a property quickly, is not a valid reason to force him to incur more holding costs. It seems like it is nothing more than a subtle way of saying “I know you’re going to make money, but I am not going to make it easy”.

    Great comment –

    All the best – Chris

  4. Chris, I agree with you 100%. One should also take note that Wall Street controls how the loans are made by lenders. When an investor has experiance and a proven track record they should not have to fight or claw their way for a loan. The government brags about revitalizing a neighborhood or Habitat for Humanity, we investors do the same thing at NO cost to the tax payers. Every property I’ve bought is in better condition and live in not setting vacant. Because I make sure their is allways positive cash flow, never loss a home yet treated like a first time buyer. Investors made our country, get the government out and let us rebuild and bring back the jobs and stimulate the economy!

    • Chris Clothier

      JIm –

      Thanks for your passion about the topic!

      Investors are an important part of the housing industry and have become even more important over the last year or two. Investors like you who take pride in their investments give all of us a good name.

      Thanks for reading and commenting!

      All the best – Chris

  5. I’m going to back up to the 20,000 ft level for my comment.

    As an observer of Washington from both inside and out, I learned that professionals from almost any field can “fix” the problems in Washington [“Give me enough (choose one: beer, ice cream, coffee, _______ and I can solve all the world’s problems]. But these professionals (myself included) neglect the fact that decisions in Washington on any subject are made in a POLITICAL ARENA. As such, many diverse and opposing groups will have a say in the outcome.

    Chris, in your chosen topic I can think of many others who would see the same problem and come up with a different solution and each would have some merit. Low-income housing advocates would want to take some of the inventory and place some of their clientele in those homes. Homebuilders would want to raze vacant homes claiming that they are unsafe and are holding a hammer over the heads of current homeowners who can’s sell their homes and move up to the next home – often a new home. Realtors would want to sell the homes (frequently). Banks and mortgage lenders … well they always complain. I’m sure there are others.

    Of course, a solution that works in one area with a glut of vacant homes and a declining population may not work in another area that has remained strong. There are also VAST differences in home prices in different regions. That fact makes finding a uniform, fair solution excessively difficult.

    • Kevin, Finding a uniform, fair solution is excessively EASY. The issue is Washington trying to solve problems that should not be within their span of control, period. Politics is a big factor in all they do, so when the Gov’t departs from their Constitutional Mandate and enters the world of business, we no longer have fair and open competition. The way to fix the housing market which would be fair to everyone is for the Gov’t to get out of it. Free market capitalism can fix housing… if this novel concept is tried.

    • Chris Clothier

      Kevin –

      I couldn’t agree with you more and I’m sure you recognize “conversation starting articles” like this one as just that…a place to start the conversation. In talking with representatives from FNMA, they all express the same frustration. They know some of the fixes they need to implement and they understand how the fixes would actually shore up their investment accounts and put them on solid footing. Investment loans today make up a far smaller percentage than they did even 5 years ago and the default rate at FNMA is down significantly.

      But even those improvements do not give them the wiggle room to make changes because they answer to elected officials in Congress. Those elected officials feel that assisting investors, in any way, would not be politically wise.

      So even framed around my two solutions, which are only a small pat of a much bigger fix to the problem, without the gumption to sell this for what it is, a solution, it will never happen. But, it is fun to talk about the what ifs.

      Thanks for taking time to read and comment.


  6. Great article, Chris.
    My husband and I have gone to Washington, D.C. and spoken there with legislators about what we do and our value to the economy.

    We went specifically when legislation was introduced to OUTLAW owner financing! We explained the hardship this would place on mom-and-pops and many other far reaching effects of the bill. We learned, in response, the often used D.C. term of “unintended consequences.”

    At any rate, that bill was eventually turned over to the states to decide. Here in NC, you can owner finance 5 properties per year and your name must be on both the deed and the mortgage (if there is one) in order to offer owner financing.

    We also make the trek annually to our state legislature in Raleigh to squawk about our importance. We have postponed some legislation and helped amend some. Legislatures do not look favorably on investors.

    Another item of importance – they are presented with approximately 2200 new pieces of legislation per session. Unless there is a voice of protest, most are passed without anyone even looking at them. This is why we make such a necessary noise when bills are presented that will hurt us.

    Know the laws. Know your legislators. Be involved in the policy making. We are, quite literally, fighting for survival.

    • Chris Clothier

      Hi Karen –

      Thank you so much for taking time to read the article and then post your comments. Also let me thank you for taking your time to go and have your voice heard in Washington as well as your state legislature. Hopefully, armed with our study and the numbers we will be providing on a regular basis through the surveys, you will have one more little weapon to fight with.

      Please keep us posted on the next time you are going to Washington. That sounds like something I think a lot of us would be interested in joining in on.

      All the best – Chris

  7. If banks were allowed to exercise real underwriting, the options would open up. For example, if you little record to show for being an investor, then the FNMA 10-loan, 20%/25%/30% limits would apply to you. But if you can show 5-10-15 year track records of solid performance, why can’t those limits be lifted? Lift the 10-loan limit; ease back your next down payment to purchase to 10%. If you have top notch credit and proof of solid execution of investment property, your risk to the bank would be much smaller.

    I agree that all of this would lead to more investor-owned property instead of owner occupancy, and probably flies in the face of a politician being able to speak to the cameras about giving every American a home to live along with a chicken in every pot. I love it when those writing the laws and regulations probably have no experience actually IN the business they seek to regulate.

    • Chris Clothier

      Hey Greg –

      Thanks for the comments on the post.

      I will tel you that we are already at the historical levels of home-ownership in the U.S. at roughly 65% of all U.S. households. That is where that number has been since the early 60’s and given the rise and fall of housing markets, the stock market and foreign markets, it does not appear that pushing that number any higher benefits anyone. I am not sure of the economic impact, but I can tell you that since 1998, when the push was on to raise the number of owner occupied households and FNMA and FHA were the primary vehicles to provide financing, home ownership shot up to its highest level in history at 67+% (that is it, that is the highest it has ever been) and we see the debacle that ensued from having so many unprepared homeowners stuck with bad mortgages and unaffordable payments.

      The truth is, owner occupied housing is at a very good level in the U.S. and normal, free market forces should dictate if that number ever rises again.


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