Federal Government to Sell Foreclosed Homes as Rental Properties

September 13, 2012

Federal Government to Sell Foreclosed Homes as Rental Properties

The federal government recently announced its plan to auction off thousands of foreclosed homes it owns through Fannie Mae and Freddie Mac in April 2012. What makes this trial project unique is that the homes will be sold at a discount as prospective rental properties, with both large and small investors seeing the potential for substantial return on investment.

To start, the Federal Housing Finance Agency, or FHFA, will create pools of single-family homes that Fannie Mae owns and auction them off -- 2,500 in total -- in eight metropolitan areas including Atlanta, Chicago, Los Angeles and Phoenix. With hundreds of thousands of people pushed out of home ownership by foreclosures in the last few years, the rental market is very hot, leading residential real estate investors to adopt a gold rush mentality, according to Reuters.

Criticism of the Foreclosed-Home Sales Plan

Some critics worry that affiliates or subsidiaries of the large banks, which many Americans blame at least in part for starting the global economic crisis, will profit from the sale of large pools of foreclosed homes, according to Reuters. In addition, some investors see the role of landlord as a potential public relations issue and therefore are staying out of the market.

Rental income, however, is projected to provide investors a solid return on investment that could range from around 8 to 15 percent to as much as 25 percent. Converting homes to rentals could ease the shortage of rental housing caused by the housing crisis while also improving neighborhoods -- and banks' bottom lines -- by reducing the number of foreclosure-related vacancies.

Unprecedented Market

Investors are already raising money and purchasing thousands of privately-owned foreclosures for rental purposes. According to the New York Times, nobody has ever purchased foreclosed homes and filled them with tenants on such a large scale. Critics think investors could have difficulty managing portfolios of rental properties in such a new market, according to MSN Money.

Real estate transactions can be very complex for investors, buyers, purchasers and agents. Those involved in residential home transactions should work closely with a real estate attorney to protect their legal rights and financial interests.

Article provided by Lonergan Law Firm, PLLC
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