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Home Wholesaling: No Small Investors Allowed

Although the flood of foreclosed homes hitting housing markets around the country has slowed since the mortgage crisis of a few years ago, many foreclosures are still being held by banks, real estate groups and federal lenders such as Fannie Mae. Now, as these groups launch plans to sell these foreclosed homes in bulk lots to large investment groups, legislators are flexing political muscle to block the practice, which excludes individual purchasers.

The housing collapse of 2008-2011 was so severe that mortgage defaults ranged into the millions. When these homeowners failed to make their payments, masses of foreclosure actions were launched by lenders of all types. Many of these foreclosures went up for sale fairly quickly, providing opportunities for small investors to pick up quality properties for very low prices. But the sheer numbers of foreclosure proceedings created a backlog of cases to be processed by both lenders and the courts, many of which are only now working their way through the various systems.

To speed up the action, federal mortgage giant Fannie Mae and some large real estate brokerages snapped up large numbers of these foreclosures. Now these entities are putting those homes up for sale – but only to a select kind of buyer: large investing groups, who then use them for rental properties. These wholesale home sales are closed to the public, which includes buyers such as individual homeowners or the first responder launching an investing career following Jason Hartman’s strategies for rental property investing.

In Fannie Mae’s proposed bulk sale, for example, 2,400 homes are being sold in lots of 200 or more each directly to investors invited to place bids. Most of these homes were never individually marketed. And, since the majority of the investment groups purchasing these homes plan to maintain them as rental properties or “rent to own,” they may not return to the market for years.

A recent online survey reported by housing and real estate site Housing Predictor found that 72% of respondents believed that wholesale housing sales such as Fannie Mae’s should be open to everyone, and that investing groups should not be given special purchasing privileges. These practices, they say, undercut the housing recovery rather than supporting it.

Real estate professionals, too, are opposing bulk sales, since property agents are cut out of the process. Since these deals are conducted directly between seller and investors, real estate agents lose sales commissions and other fees associated with housing transactions. Renters lose too, since those investors holding the bulk of rental properties in a given area also control available rents, limiting alternatives.

The wholesaling of foreclosed homes in bulk lots to large investors means profits for investors and for Fannie Mae and her sister lenders. But for individuals who just want to buy a home, and for the small investor seeking to build a secure financial future, bulk home sales close doors to opportunities.

The Heroic Investing Team


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