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Government Policy Continues to Fuel the Residential Property Management Industry

By Ben Holubecki, STML Realty Group, Glen Ellyn, IL

Over the past four to five years, I have been posed all of the questions asked of many business owners in the real estate industry. How has the downturn in the economy hurt your profits? Has the housing collapse crippled your business? What about the high unemployment rate? My answer to these questions has been consistent throughout all of these turbulent times. Business is great, and consistently so.Housing Market Slows I usually walk away from those conversations feeling fortunate to be a part of a strong niche within a deeply depressed industry, and I think many good property managers feel the same way. However, I don’t know that we give a lot of thought to how profound external factors affect our industry. The recent announcement by President Obama regarding expansion of the HARP (Home Affordable Refinance Program) got me thinking about the ramifications for the property management industry as well as how the housing collapse has shaped our industry overall.

One factor that seems to be absolutely clear is that the U.S. government’s incompetence and inability to stabilize the housing market continues to drive the residential property management industry forward. I was first exposed to the property management industry during the apex of the housing boom. It was a time when everyone had equity, mortgage approvals and refinances were easy to come by, and anyone with a few dollars in the bank was trying to rehab and flip property in their spare time. The portfolios of many property management companies were comprised primarily of real estate investors of one type or another who actually expected to turn a profit as a result of operating their investment properties. Sadly, many of these investors continued to buy property all the way into the height of the market, overextending and overexposing themselves, and blindly wagering their economic futures and retirement funds on a market preparing for collapse. As a result, we have seen many of these investors, including many of our own former clients, get crushed by adjusting mortgages, credit tightening, and the evaporation of millions of dollars in equity.

Those investors, who at one time filled our portfolio with property to manage, seemed to disappear as quickly as they previously appeared. Only the more savvy and stable investors have made it through the storm thus far and those less fortunate investors have been replaced by a flood of single property owners forced to rent a property due to the terrible sales market conditions. This flood of potential clients will continue to benefit our industry, so long as our government fails to find a permanent solution to solve our housing crisis. There are few factors that drive homeowners to make the decision to lease and have a property managed, and one of those primary factors may be swinging in our favor.

The newly announced upcoming changes to the government’s home affordability initiative (if they actually go into effect as planned) will allow many deeply underwater homeowners the ability to refinance into a reasonable interest rate and monthly payment. There is also a possibility that those who bought a house as their primary residence but now hold the property as an investment will be able to refinance through HARP at an additional cost. What does that mean for us as property managers? It means that there may be an additional pool of thousands of homeowners who will now have manageable monthly overhead related to their property, but since the new program does nothing to solve the overall problem of negative equity, these owners still have no chance to sell their properties. For those owners who would have otherwise never considered renting out a property due to the fact that they would be operating in the negative every month, they may be able to break even with reduced monthly mortgage payments, or dare I say, even make a few bucks by putting their property on the rental market.

This scenario makes a couple of assumptions. It assumes that the government can actually roll out the changed terms. It also assumes that the banks can figure it out and implement the program. There is no guarantee that all of these stars can align and this program will work as planned. Since the government and banks are involved, I’d almost be certain that it will fall apart at some point. Even so, if the program only helps a fraction of the 900,000 homeowners projected, an eventual influx of thousands of sustainable rental properties will hit the property management market over the next few years. These properties will carry less overhead, be less likely to default, and be sustainable as rental properties on a longer term basis. This means more available clients and profit for leasing agents and property managers throughout the country and built-in growth for our markets. It’s not often that a bad policy hastily implemented to grab a few presidential votes will help to build your business, but it looks like that is exactly what is going to happen here. I continue to feel fortunate to be in the right place at the right time.

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