Government bailout without a business plan of how to dispose of the troubled housing stock will fail as housing inventories continue to decline without a buyer. This will further decay housing values, increase the cost of the bailout and make for a deeper economic pullback. Any solution that does not include getting products off the books of the government and the tax payers and into the hands of investors or buyers that are willing and qualified to bear the risk of ownership will fail.
The exact solution to shoring up real estate values immediately is laid out in this article:
1) Create a Business Plan to Immediately Dispose of Housing Inventory Create a simple and executable business plan that would involve experienced real estate investors and entrepreneurs who can manage and acquire the risk of the current real estate inventory. This should result in relieving the government of the existing problem, shore up real estate prices, stimulate the economy and use the experience of Americans across the country that handle real estate for a living.
Put together regional real estate teams to immediately access every troubled real estate asset on the books. Just the assets from Fannie and Freddie alone would relieve the system. These evaluation teams are very easy to put together and are available for work. Their job would be to evaluate today's property values based on rental income returns with set asides for vacancy and expenses allowing for positive and attractive cash flow to investors. This would make these properties appealing for immediate purchase by qualified investors (see 2 below). This is critical, otherwise the tax payers will have to wait on the housing market to return before these properties are purchased causing homes to sit vacant in neighborhoods for years.
3) Make Assets Available to Qualified Investors
Once values are assigned make these assets available to qualified investors in each regions. These qualified buyers and investors would have to be experienced with real estate. This will allow them to quickly evaluate property values and act. They must have a proven history of managing this type of real estate asset and (very important) have a history of perfect loan repayment with these types of assets. It is critical that we don't wait for just individual home buyers to purchase these properties as they will not move fast enough to dispose of the product and shore up pricing. Bringing investors into the market will stimulate qualified home buyers and they should be allowed to bid on these properties along with the qualified real estate investors. This will stimulate real estate immediately and shore up housing prices.
4) Make Financing and Incentives Available
Provide the market financing and tax incentives below to qualified buyers and experienced investors in each region, which reward the risk they are taking on. These groups or individuals would have to have the following in order to qualify for financing and incentives:
a) A perfect repay history on all debts they have ever incurred involving real estate transactions.
b) Use of their own cash in order to obtain favorable financing terms (cash down is a must as no money down transactions is part of what created this mess).
c) Investors must have a net worth significant enough to support the properties in transition so that these properties do not come back into the market. Government incentives whereby depreciation schedules are advanced to further enhance investors' risk (like the GoZone Tax Incentives used after Katrina), must be put in place.
These simple steps will open up the use of money again, shore up real estate prices immediately, get action into the market that has stagnated, ensure that the government (taxpayers) is paid back quickly, and stimulate the economy by putting people back to work at titles companies; escrow companies; bank lending; mortgage brokerage firms and real estate firms. They will also alleviate any continuing decline in real estate values.
There are financially qualified investors sitting on the sidelines today waiting for the bottom in real estate before they become active again. This is a problem and they must be encouraged into the market.
My plan will take time out of the current situation and provide a true solution for a successful bailout and ensure that the tax payers are handled while jump starting the economy. While Government is saying it is vital they sign this 700b bail out bill immediately, the signing of the bill will not dispose of the problems.
Government cannot successfully manage the expedient disposition of these properties without the cooperation of real estate experts in each region. The RTC took years to get rid of product in the late eighties and real estate prices suffered longer than necessary as a result.
Without investors and entrepreneurs brought in to the solution, real estate will lag for 3-5 years or longer just in disposing of the properties. Our economy cannot afford this.
Please forward this plan to anyone you know in Congress as I would be happy to assist in the implementation of this solution. It is critical to each of us that our real estate values are shored up immediately, that homes don't stay vacant, hurting the entire neighborhood, and that our economy gets a stimulation of production and hope.
Author and Real Estate Expert