Obama wants to convert HUD/VA homes to rentals

Commercial Real Estate Lender / Syndicator · Dallas, TX · Member since 2011 · 888 posts · 309 votes

Obama administration's proposal to sell tens of thousands of foreclosed properties owned by government-backed entities and then convert them to rentals gets mixed reviews.

http://online.wsj.com/article/SB10001424053111904823804576500642356065356.html

How do you think this could affect most investors on this board?

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Jake Kucheck

Residential Real Estate Agent · Costa Mesa, CA · Member since 2008 · 1k+ posts · 380 votes

15y

The article headline (and subsequent post title) is very confusing when paired with the content.

If they are selling the properties, how is it that they have any say in what is done with them (rental, flipped, demolished, whatever). If they are "converting them to rentals"... well how are they doing that exactly?

I'm with Mike... more info is needed in order to render any sort of opinion.

That said, I could not think of a worse situation for tenants than the Federal Government being their landlord. If you thought your property manager was bad, I can't imagine how bad the layers of bureaucracy would be at fixing toilets.

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Shanequa J.
Realtor · Houston, TX · Member since 2011 · 916 posts · 296 votes
15y
2 thumbs down.
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Mike Welch
San Francisco, CA · Member since 2011 · 69 posts · 18 votes
15y
The government clearly needs to get these properties off of their books. The U.S. government is not equipped, similar to banks, to own and manage properties. So, it is a natural conclusion that they should find the most expedient way to get these assets off of their hands in the most effective way possible.

Does anyone have a link to more information on what, exactly, is being proposed? Impossible to offer any sort of opinion without understanding the details of the proposal.

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Brian LevredgePro Member
Investor · Chattanooga, TN · Member since 2009 · 1k+ posts · 903 votes
15y
I had read that instead of selling the properties that are govt guaranteed (FHA, VA) they would instead rent those same properties out until the market turned around in the hopes of turning a profit later on. Since that process would undoubtedly be politicized I have no doubt it would become an unmitigated disaster. We are not that far removed from public housing and all those failed experiments.

At the current pace they are selling properties it's going to take years to clear out all the malinvestment. If they increased sales volume, it would have a negative short term effect on prices but I think we would start to recover faster. Of course there's still that pesky 9% unemployment rate to deal with as well.
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Jake Kucheck
Residential Real Estate Agent · Costa Mesa, CA · Member since 2008 · 1k+ posts · 380 votes
15y
The article headline (and subsequent post title) is very confusing when paired with the content.

If they are selling the properties, how is it that they have any say in what is done with them (rental, flipped, demolished, whatever). If they are "converting them to rentals"... well how are they doing that exactly?

I'm with Mike... more info is needed in order to render any sort of opinion.

That said, I could not think of a worse situation for tenants than the Federal Government being their landlord. If you thought your property manager was bad, I can't imagine how bad the layers of bureaucracy would be at fixing toilets.
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
15y
Horrible idea. More bloated government we don't need and will just extend problems for the future.

Gave the new guy in a chance and Obama hasn't made any headway if anything we are worse off than before.

The fundamental issue is if you believe less government or more government will fix our problems as a country.
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Mike Welch
San Francisco, CA · Member since 2011 · 69 posts · 18 votes
15y
What's the idea?

Currently, the government owns a ton of HUD properties that have reverted to them. They currently favor sale to individual owners as opposed to investors. This is not working as the stock of housing they own is generally in bad condition and requires repair beyond the ability of the individual owner to fund.

The Obama administration is stating two things:

1) The government should not own individual properties that have been repossessed through foreclosure.
2) They want to enact a program that encourages investors (as opposed to owner occupants HUD currently favors) to acquire these properties who can afford to rehabilitate them and then rent them or sell them.

As an investor interested in acquiring a portfolio of rental properties, I'm curious to double-click into the details of the program and understand what exactly is being proposed.
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Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
15y
The politicians who propose such ideas should take a step into some of these foreclosed properties to see just how "rent ready" they really are ... NOT!

So there will need to be some fix-up first, and you can imagine how much that would end up costing the taxpayers ...
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Mike Welch
San Francisco, CA · Member since 2011 · 69 posts · 18 votes
15y
I've found the program in question outlined at the following URL:

http://www.fhfa.gov/webfiles/22366/RFIFinal081011.pdf

In short, the government is seeking to get properties off of its books and into the hands of private companies. They're requesting information from real estate investors on how this can be best accomplished with the following goals in mind:

* reduce the REO portfolios of the Enterprises and FHA in a cost-effective manner;
* reduce average loan loss severities to the Enterprises and FHA relative to individual distressed property sales;
* address property repair and rehabilitation needs;
* respond to economic and real estate conditions in specific geographies;
* assist in neighborhood and home price stabilization efforts; and
* suggest analytic approaches to determine the appropriate disposition strategy for individual properties, whether sale, rental, or, in certain instances, demolition. FHFA, Treasury and HUD anticipate respondents may best address these objectives through REO to rental structures, but respondents are encouraged to propose strategies they believe best accomplish the RFI's objectives. Proposed strategies, transactions, and venture structures may also include:
* programs for previous homeowners to rent properties or for current renters to become owners (“lease-to-own”);
* strategies through which REO assets could be used to support markets with a strong demand for rental units and a substantial volume of REO;
* a mechanism for private owners of REO inventory to eventually participate in the transactions; and
* support for affordable housing.

So, the government wants these properties off of their hands and wants input from the real estate investment community on how to best accomplish this while keeping the goals above in mind.

With this additional level of details, what are your thoughts? Will this end up benefiting only large, connected players? Will there be a place for smaller investors to benefit?

Also, how (and should) the government structure loans to investors that would include repair costs?
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Carlos Flores
OP
Commercial Real Estate Lender / Syndicator · Dallas, TX · Member since 2011 · 888 posts · 309 votes
15y
Originally posted by Mike Welch:
I've found the program in question outlined at the following URL:
http://www.fhfa.gov/webfiles/22366/RFIFinal081011.pdf

Thanks for posting that Mike. I should have done a better job at the onset. :oops:

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