How the REO to Rental Program Will Impact the Economy | The ...

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At RentJuice, we see the economic contribution of small businesses ? property managers, local property owners, and real estate brokers ? who make money by facilitating rentals every day. In fact, the vast majority of homes and apartments on our platform belong to owners who only have a few properties, and the lion?s share of offices who are building businesses on the RentJuice platform have only a handful of leasing agents.

Since its launch in 2009, our team has witnessed the intense nationwide struggle to be successful in selling homes. Many real estate pros have turned to rentals as a source of income during these challenging times. With millions of homes in or facing foreclosure, a greater concentration of homes now belong to mortgage loan servicers as ?real estate owned? (REO) properties. The Wall Street Journal reported that Fannie and Freddie owned about 180,000 homes at the end of September, and FHA owns another 35,000. Those homes, if released in mass for purchase, would continue to depress home prices across the country and further damage local businesses built on investing in real estate.

With that perspective, I?d like to share our views on the program being initiated by the government to stimulate housing rentals and defer the flood of foreclosed homes, often called the ?REO to Rent? program. REO properties will be released to investors who can purchase homes if they commit to hold the properties and rent them for a specified period. It is our belief that this program is both necessary for stabilization and improvement of the housing market, and a massive economic opportunity for the entire real estate ecosystem.

First, we think this program positively addresses known economic trends in the rental and for sale markets. Economic research like S&P/Case-Shiller to Zillow?s Home Value Index all displayed continued declines in home prices in 2011. While total foreclosures declined last year, many attribute the slowdown in foreclosure to a temporary delay in processing alone. At the same time, rents increased about 2% to $1,064 in the US, according to research firm Reis, with steady rents being sustained mainly in areas simultaneously hit hard by unemployment. Property management software company RealPage, in its quarterly earnings call just yesterday, noted an imbalance in supply and demand, and forecasted increased lease prices for their 7.2 million rental units in the coming year. Adding new rental supply and damming the foreclosure flood seem irrefutably necessary. This action keeps rentals affordable, loosens very tight vacancy rates, and raises the floor on potential home prices.

Second, this program enables an entire housing ecosystem to be more active. According to the Commerce Department, new home construction rose just 1.5% in January, and when you exclude multifamily development, single-family home construction was down 1%. That not only affects builders, but also the team of? people who convert a lot of land into an occupied home ? from carpenters and electricians to real estate brokers and web designers. The investors who purchase REO properties will have to partner with companies or individuals who can help lease and maintain the properties. No hedge fund or private equity firm has an in-house property management arm that can fix leaky faucets or broken air conditioners. Homes that have been vacant for months or years need to be improved, cleaned, and inspected. No one can execute on this strategy alone, and we think the pool of income generated by rolling out this program will have far-reaching effects across a number of service industries.

Indeed, rentals can literally reshape a small and slow real estate business amidst difficult real estate sales. Take Jorge Guerra of Real Estate Sales Force, a user of RentJuice in the hard hit South Florida real estate market where I grew up. During a visit to his office in December, he shared with me that since using RentJuice, he has gone from a small handful of agents in Coral Gables to nearly 200 across all of South Florida, and a recent market share report in the Miami market placed him within the top 10 companies in the area. His agents are building relationships among tenants and property owners, and often find the ability to sell a home during the rental marketing process. By being active in rentals, he is now available to decision-make for all types of real estate transactions.

Third, this program will inevitably bolster local real estate businesses. Housing rentals seem simple: a vacant home is occupied by someone who agrees to pay a monthly fee. But the real work is far more complex and dependent on local variables. With so few rental homes on a traditional MLS, seeking comparables for pricing is a bear. Marketing outlets vary in their local effectiveness, with traditional Internet Listing Services (ILS) or real estate search sites providing inconsistent inventory coverage or traffic from market to market. Security deposits, disclosures, and eviction policies vary from one city to another. Local real estate brokerages and property management companies therefore become essential partners.

An entire supply chain must mobilize to make this policy effective. Addressing this national economic need will require investors, bank partners, local firms, and technology platforms to work together. We are thrilled to be a contributor to this powerful and transformative policy, and look forward to helping in any way we can.

Source: http://blog.rentjuice.com/how-the-reo-to-rental-program-will-impact-the-economy/

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