Fannie Mae, the large mortgage backing entity recently bailed out by the government, has made a smart financial move. They announced that they will be allowing the tenants living in foreclosed properties owned by fiscally irresponsible landlords to remain in place, as long as their rent remains current. Freddie Mac has not yet announced a similar move, but is expected to do so soon. A spokesman for Freddie Mac stated that they were working out the operational details of such a move. [CNN Money]
This move wasn't just an attempt to be a good neighbor, however. The two giants are required to comply and allow tenants to stay in properties "where permissible" as part of the $700 billion bail out plan.
This is a smart move on their part, because it will prevent, or at least slow, the decline in condition of the properties and prevent further strain on the housing markets.
My main concern is that of ability. Fannie Mae and Freddie Mac aren't set up to manage properties in the landlord / tenant sense. This means that they will either have to find property managers, pretty much all over the country, or hire maintenance contractors for every issue that springs up as a result of this move. If a property is already in poor condition, this could result in a serious amount of money being spent to upkeep a property that the previous owner didn't see fit to keep up. In addition, not using an ethical property manager can result in serious price gouging.
However, Keeping tenants in the property may make them easier to sell. In addition, tenanted properties tend to resell for more money. The balance just needs to be reached between amount invested and return on investment, so that potential investors will want to jump on these properties in a timely fashion.
Overall, my opinion is that this is a smart move because of the reduction of diminishing value due to the homes being empty, and the potential ability to turn the properties around quickly. The ability to manage from a distance is just part of doing business, similar to a California investor owning property in New York.
Andrew Schultz is a real estate agent and property manager located in the Western New York area. His articles on real estate investing and property management can be found at www.andrew-schultz.com.
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