The Top 5 Risks of Single-Family Rentals

foreclosureMarch 1st, 2012

The Federal REO-to-Rental Initiative kicked off in February, casting new shadows over the shadow market.

The shadow market now has its first government program.

The Federal Housing Finance Agency (FHFA) rolled out the pilot phase of its Real Estate Owned (REO) Initiative in February. The program allows investors to buy foreclosed single-family properties in the nation’s hardest-hit metros, with a catch—those properties must remain rentals for a certain number of years.

Fannie Mae is supplying the first round of foreclosures, offering pools of various types of assets, including homes already being rented, vacant properties, and nonperforming loans. But it’s just a guinea pig to test investor interest, operational strategies, and financing structures to prove the idea out.

In all, Fannie put 2,490 properties on the block at the end of February, with the highest concentration, about 23 percent, in Atlanta, followed by Los Angeles–Riverside (19.4 percent) and southeast Florida (16.8 percent). Freddie Mac and the Federal Housing Administration (FHA) will also offer pools to investors, in subsequent phases of the program.

The program has the potential to help the still-struggling for-sale market, but it also holds the potential to make life difficult for some apartment owners. Since we’re in the early innings, many questions remain unanswered. Here are five of the biggest unknowns:

1. Will It Impact the Multifamily Market?

The shadow market has always been an elusive X-factor in the apartment world, a notoriously difficult market to quantify. But with about 250,000 for-sale homes languishing on the agencies’ books, apartment owners are growing a little apprehensive.

“If all of a sudden, the inventory of for-rent single-family homes goes way up, that’s going to be competitive pressure for apartments in a number of markets,” says Hessam Nadji, managing director of research at Encino, Calif.–based Marcus & Millichap. “But I don’t think it’s a… Read more…

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