Foreclosures Into Rentals

In an article from CNNMoney, it discussed the possibility of the Federal officials proposing to sell foreclosed homes in bulk to investors who would then turn those homes into rental properties. This program was cited by Federal Reserve Chairman Ben Bernanke last week. He addressed the current housing crisis and the new idea of turning foreclosed homes into rental properties.

Is this a good idea, or not?

Well, the Federal Reserve has the belief that by turning these foreclosed homes into rental properties will then stabilize the neighborhoods, and hopefully the values. Currently, Fannie Mae and Freddie Mac own approximately 250,000 foreclosed homes.

Whether these homes are purchased by consumers or investors, they are still being sold for far less than what homes could be worth. So the issue is to either wait for the homes to be purchased by individual homebuyers, or clean up the inventory by selling to investors who in turn will create rental properties and eliminate the properties from the government’s books.

Another reason why the Federal officials think rental properties would be a great idea is due to the increased demand in rental properties. Since rentals are in high demand, the government is thinking of providing more rentals to help meet that demand.

Keep in mind, no specific details have been released about the rental program. Only talks about the program has been surfacing and causing people to start discussing the possibilities ahead. In the meantime, the rental program is still being developed and possibly released in the upcoming year of 2012.

What is keeping the government from selling the foreclosed homes to investors?

Well, investors are demanding a much bigger discount than a typical consumer would for a foreclosed home. Therefore, they would actually be losing more money in that sense, because a foreclosed home will sell for more to an individual (although still far less than market value) when compared to an investor – but it is a longer process. However, if they were to take a bigger price cut, the homes could be sold in bulk to help stabilize the housing market by putting the homes back into use.

We will have to wait and see how this program develops and plays out in 2012.