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Will Wall Street Landlords Be Good Neighbors?

As Wall Street increasingly occupies the role of landlord, housing experts say home sellers may have much to cheer about. But for renters and would-be home buyers, a mass purchase of foreclosed properties may be unwelcome news.

Fannie Mae is offering a collection of around 2,500 single-family foreclosed properties scattered across the country for sale to big business, according to documents issued today by the quasi-government agency and Credit Suisse.  The sale marks a shift in policy from the 240,000 homes Fannie sold individually last year to families and small investors who would rent or flip the properties, the Wall Street Journal reports.

By snatching up thousands of the foreclosed properties, Wall Street may help prop up home prices, says David Abuaf, chief investment officer at Hefty Wealth Partners in Auburn, Ind. “It’s getting rid of the poor-performing and unkempt homes in an area,” he says. “The average price for a home in the neighborhood will go up.” In addition, as these properties get renovated, he expects renters to pay more as well.

Boarded-up homes can lower the price on even well-maintained properties nearby, studies have shown. House values fall almost 1% when they’re within one-eighth of a mile from a foreclosed single-family residence, according to the Woodstock Institute, a research group, and the Georgia Institute of Technology.  Leonard P. Baron, a lecturer in real estate at San Diego State University, says the areas being targeted — Florida and California, among others — were hard hit in the housing bust.

On the other hand, regular home buyers may stand to lose when Wall Street moves in. Abuaf says it could make it harder for families to buy a foreclosed home at a cheap price. Private equity investors, hedge funds and broker-dealers will likely be able to fork over a much larger down payment. “Even smaller investors who flip properties will have much tougher competition,” Abuaf says.

But Patrick O’Keefe, director of economic research at J.H. Cohn consultants in Roseland, N.J., says the program would have to take off to really impact home buyers, especially with house prices still 25% below their peak.

Others are skeptical that large investors will find single-family homes an attractive investment. Each of these units will have their own unique set of problems, says Kevin Finkel, executive vice-president and director of acquisitions at Philadelphia, Penn.-based Resource Real Estate. “Buying single-family homes has typically been a horrible investment for everyone,” he says. O’Keefe says this will be regarded as a test case or pilot for large investors mulling similar projects.


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