REO-to-Rental Success? – Nom de Plumber’s Thought of the Day

ndp  Nom de Plumber is a Nom de Plume

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How do multi-family rental properties and single-family REO-to-rental programs differ?

First, take a multi-family property, and physically detach all its living units far from each other.  (Think of each rentable REO today as a pre-towed trailer home.)  

Then, add the following costs:

  • geographic dispersion (REO’s and time-consuming, gas-guzzling sprawl are kissing cousins)
  • custom yard work outside every unit (add extra for increasingly frequent hurricanes)
  • uncooperative neighbors (defaulting borrowers might not engender happy neighbors)
  • disparate, increasingly strict local ordinances (one city might want REO lawns to resemble Martha Stewart tea parties, another city might seize for eminent-domain urban chicken farming).

Then, remove the following operating economies:

  • interchangeable physical fixtures, for repair/maintenance/furnishing purposes (renters prefer matching kitchen cabinets)
  • shared site management/security infrastructure, like lobby attendants, upkeep staff, and closed-circuit monitoring.

Yes, ignoring the above lose-lose tradeoffs, Fannie and Freddie should expect REO-to-rental programs to unwind effectively their foreclosure backlogs. 

Prudent lending begets prudent landlording.

From the ashes of pigeons will rise the next buzzard.

Thank you.

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