The 4 Property Rule in Real Estate Investing
Portfolio lending is becoming increasing popular. One of the reasons for this is portfolio lending is not restricted to the horrific 4 property rule. Through a portfolio lender, it is possible to acquire a multitude of mortgages. However, those looking to procure loans through entities such as Fannie Mae and Freddie Mac will run into the 4 property rule wall.
It is understandable that new rules need to be put in effect to prevent the fiasco that precipitated the nefarious $750 billion bailout bill. However, the onset of the 4 property rule is among the most egregious. In fact, this particular rule is a complete rejection of the principles that the free market is founded on. That is, the 4 property rule is a massive overreach of government regulation designed to limit the free market. Worst of all, this type of regulation limits a great deal of personal liberty and freedom.
So, what exactly is the 4 property rule? Well, the new conventional lending rules according to Fannie and Freddie state that a person will be limited to a maximum of four financed properties. This ridiculous rule takes away the ability to invest in real estate in the long term. If you are limited to only four financed properties, you can not flip many properties simultaneously or have a rental portfolio of any significance.
And, as an investor this includes your primary residence! Again, this rule does nothing to help real estate investors. It is simply protectionism. And, as we all know, protectionism usually backfires. It does absolutely nothing to help the market and overall economy. Instead, the 4 property rule can significantly weaken the economy.
Prior to the mortgage meltdown, most real estate investors took advantage of astronomical appreciation. They practiced what all good investors practice: buy low/sell high. Most investors were buying everything they could and mortgages were easy to come by. Some bought to flip, some held in their own rental portfolio and some bought properties in bulk. All of those activities pumped a lot of money into the economy.
That is, in the absence of the 4 property rule, the sale of massive volumes of real estate would yield a number of positive effects. For example, the revenues generated could be invested into the stock market. Once invested, it would provide liquidity to many different companies. It would also generate significant tax revenue to the state and local governments. And, of course, the wealth created by this multiplexing of real estate sales would greatly expand purchasing. This would improve the economy in other sectors of the market. With the onset of the 4 property rule, all of this would cease and much of the economy could be undermined. Hopefully, this rule will eventually be revoked and return a more free market approach to the world of real estate.
Then again, regardless of whether or not this rule is revoked, portfolio lenders are not restricted to such a rule. If you wish to seek massive financing, a portfolio lender is the lender to visit.
