Define "Rehabbing"

First the purpose of Fannie/Freddie selling REO to investors in bulk is to get inventory off the market now to improve prices. It’s been reported that the investor groups would be required to hold onto the property for three years. While that’s a little nearsighted in my opinion for the worst hit markets, it remains to be seen what the length of time actually will be. Nonetheless as you mentioned deed restrictions will work fine to whatever holding period the agencies chose.

As far as rehabbing goes you need to learn the difference between press releases and corporate speak from reality. The reality is that the market will determine the extent of rehabbing necessary. REO are not in move-in condition or at least what most people expect and rehab like beauty is in the eyes of the beholder. If the investor groups want to earn top rent dollar for their properties, they’ll be forced to “recondition” the properties. If you’re willing to accept less rent perhaps less rehabbing will suffice. Few REO require only cosmetic improvements limited to just paint and carpet. In some cases the condition of the properties will dictate at least minimal rehabbing to get it in “livable condition.” It all depends upon the price of the property, its functional age, its neighborhood, and the market place.

Of course we don’t know what terms and conditions the investor groups might have to agree to, but for any slum lord offenders they can always be removed from the list for future consideration. With the bank roll needed to bid on the packages I doubt if you’ll see the number of problems that can occur with individual investors.

To add to an earlier comment while this is a pretty extensive undertaking and Fannie/Freddie are no doubt creating the property packages, acquiring the minimal documentation, soliciting and filtering potential investor groups, I’d be surprised if they’re to the point where they’re ready for selected investor groups to review the packages, let alone to commence the bidding process.