The Important Role Real Estate Investors Play in the Housing Market
It is common knowledge that that Federal, State and local governments cannot make laws that discriminate against certain protected classes. A corollary of this is that governments can make laws that discriminate against non-protected classes. The income tax is a good example of this.
Another good example is the seemingly insurmountable legal barriers which real estate investors have to overcome in order to take advantage of the current housing market. With programs such as the homebuyer tax credit , the Making Home Affordable program and state and local efforts to forestall foreclosure , government at all levels is doing everything possible to encourage owner-occupied homeownership, even if that means keeping people in homes that they cannot afford.
On the other hand, it is equally apparent that these governments are doing everything possible to prevent real estate investors from purchasing much of the remaining housing inventory. At the same time that the above programs are being launched, we see Freddie Mac introducing “Short Payoff Fraud Guidelines” , Minnesota’s Department of Commerce strictly interpreting Minnesota Statutes Section 58.13 to prohibit any sort of post-sheriff’s sale mortgage being granted by a foreclosed owner to an investor who will redeem, and the City of Minneapolis imposing a $1,000.00 penalty against investors who buy a home and convert it to a rental, calling it a “conversion fee.” Also, the FHA has temporarily suspended its “seasoning rule” for sales to first time home buyers only; sales to investors are still subject to the 90 day hold period imposed by the rule.
The difference in how the law is treating homeowners and investors has significant long-term implications. At the same time these laws are being imposed, mortgage lenders continue to tighten lending standards. Many foreclosed homeowners were smart enough to save the money they were using to make their mortgage payments; thus they have cash but no credit. How are these homeowners going to re-enter the housing market? Certainly not through a conventional mortgage because of their damaged credit. Instead, these individuals’ best option is to purchase via a rent-to-own or contract for deed arrangement, where they can rebuild their credit and in time qualify for a conventional mortgage. Who, though, will be willing to be party to this type of transaction? Not a traditional lender, but rather private investors. In other words, facilitating the sale of residential real estate to investors is essential to replenishing the numbers of available and qualified homebuyers. Investors are not the problem, but rather the solution, to the long term health of the housing market.