Real Estate Investors Are the SOLUTION to Housing, Not the Problem

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This week, President Barack Obama launched yet another initiative to help the beleaguered housing market — which is now going on its fourth year of economic catatonia.

But Obama has not created a new plan to fix housing. He simply is renewing an existing program, whereby Fannie Mae and Freddie Mac are allowed to refinance homes where borrowers owe more on their mortgages than their homes are worth.

Core Logic estimates there to be about 11 million of these homes in the U.S. housing market.

In the original program from 2009, homeowners would not qualify if they owed more than 25% than their home was worth. Under the new plan, that cap will be eliminated, so homeowners will be eligible no matter how deep underwater they are. In addition, fees are either waved or reduced.

Let’s hope this new plan works better than the myriad other programs tried, including the Home Affordable Mortgage Program and Home Affordable Foreclosure Alternatives programs, both of which never have lived up to their lauded expectations.

But whatever the results, the new plan will not solve the problem of the 6 million borrowers who are not making their payments and still are at risk for foreclosure. Nor will it help the millions of foreclosures that already are hitting the housing market, adding existing inventory to already bloated levels.

Bank of America Merrill Lynch analysts have now estimated that distressed or “real estate owned” sales could reach 1.48 million properties in 2013, a 10% increase from the projected amount in 2012.

Another plan under discussion is to rent houses back to the people who are now struggling to remain living in them with a mortgage. I can’t even begin to imagine Uncle Sam trying to be a landlord, or the strange situation of living in a government-rented home that once belonged to you.

How to Fix Housing — and Fix Unemployment

Among real estate analysts, the one constant savior discussed is the J-O-B. When the jobs come back, real estate also will come back.

But why can’t we solve two problems at once? Why can’t we create a real estate program that will simultaneously reduce the inventory of foreclosures, as well as create an enormous number of jobs to boost the economy?

I am talking about providing incentives (finally) to real estate investors.

For the record, I am both an investor and a Realtor who specializes in selling foreclosures. However, this is not about pumping up my income. This is about pumping up the economy.

A big reason for our rising unemployment rate is the fact that real estate was a big driver of growth in the 2000s. When the bubble burst, construction and other real estate-related jobs dissolved and never really have returned.

A closing requires the services of home inspectors, appraisers, a mortgage broker and all of the people who assist these service providers back in the office. New home construction employs roofers, electricians and plumbers. After the home is sold, the new owners go to Home Depot (NYSE:HD) or Wal-Mart (NYSE:WMT) to purchase paint or furnishings for their new quarters. Fixing housing is the fastest way to fix the job market.

Real Estate Investors are a Good Thing

Although Realtors are seen as the dirty scoundrels behind the real estate bubble, let’s admit it also was created by greedy homebuyers and investors — as well as politicians of both parties.

And although real estate investors indeed had a role in the housing crisis, they also could be the biggest part of the solution. As homeownership rates are declining, who will buy the backlog of houses if not real estate investors?

Many Americans, especially in the younger generations, are now too afraid of buying a home. Millions of former owners who already have lost a home in the bubble will be unable to purchase homes for anywhere from five to seven years from the date of foreclosure, according to new federal guidelines.

The administration ironically has done almost everything possible to thwart home purchases by investors in the past four years. It forced banks to tighten lending standards and increase down payments. While some of this was needed to reduce further risk of defaults among investors, in typical government fashion, it went too far.

In 2010, the Environmental Protection Agency created hundreds of pages of regulations about rehabbing homes built prior to 1978 that contain lead-based paint. Investors now must follow extremely difficult procedures and detail those procedures in work journals. Those who fail to adhere to these arduous regulations can be fined $32,000 per violation!

How Incentives Would Work

What we need is for our politicians to get over their fear of voter disapproval and do the right thing. If we are going to create more jobs and boost the economy, it is time to create incentives for investors who purchase foreclosures.

The incentives could include rebates such as the ones that were given to first-time homeowners in 2009, tax breaks in the form of increased depreciation rates, lower interest rates, or grant monies to repair run-down properties and encourage rehab projects.

Another possibility is to lower the long-term capital gains rate to investors who sell their rehabbed properties to their tenants after a certain length of time, say two or three years. This helps tenants who have poor credit to rebuild their loan worthiness, while living in the home that eventually will become theirs. That’s a win-win situation.

There are some safeguards that can be put into place, too. To receive and keep the incentives, the investor will have to retain ownership of the home for at least two years. This will keep flipping at a minimum. The number of homes bought with incentives also could be capped, thereby keeping the large real estate hedge funds from benefiting the most from buying large groups of homes.

But for these incentives to work, the American public is going to have to get over its myopic view of investors being these house-flipping, appraisal-boosting thieves who created the bubble. We also need politicians who have enough foresight to create such legislation, and the courage to stand up to angry voters in the interest of refueling both the housing market and the general economy.

That’s also a win-win situation for all — even the taxpayers who undoubtedly will have to pick up the cost for such legislation — because all of us ultimately benefit. The job growth and increased tax revenues created by such legislation is exactly what the economy needs right now.


Article printed from InvestorPlace Media, https://investorplace.com/2011/10/real-estate-investors-housing-market-incentives/.

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