On October 22, Treasury issued a proposed rule to implement section 1001 of the 21st Century ROAD to Housing Act, which prohibits large institutional investors (generally, entities that exercise investment control over at least 350 single-family homes) from purchasing single-family homes, subject to certain “excepted purchases.” As previously covered by InfoBytes, the law was enacted on July 11, and its prohibition on large institutional investors takes effect January 7, 2027. Citing the statute’s short implementation period, Treasury described the proposal as the first phase of a rulemaking that may later address other excepted-purchase categories, compliance procedures, reporting and recordkeeping, and enforcement. This initial proposal would clarify terms the statute uses but does not define, the scope of certain excepted purchases, and the calculation of the maximum civil penalty.

Under the proposal, an entity would be “engaged in the business of” investing in, owning, renting, managing or holding single-family homes if it engages in such activity in whole or in part for “investment gains, rental income, management fees, or any other type of income or financial gain.” An entity whose holdings are temporary, incidental and reasonably necessary to a different bona fide business, and not part of a regular or continuing investment strategy, would not be so engaged. The proposal also sets out when an investor holding more than 25 percent of an equity class in a home-owning entity qualifies as a “passive investor.” The investor would qualify only if: (i) no director, officer, employee or designee of the investor or its controlled entities serves as a director or officer of the second entity; and (ii) the investor holds no “property control right,” which the proposal defines as a consent, approval, veto or other right to make, direct or prevent decisions about buying, selling, holding, leasing, renovating or managing single-family homes. Treasury declined to propose a safe harbor for minority-investor protective rights.

As for the statutory exceptions, the proposal would require each program-based exception (i.e., build-to-rent programs, renovate-to-rent programs, homeownership programs, and programs to boost homeownership) to rest on written policies or procedures that are adopted before the purchase and reasonably designed and implemented to ensure compliance. Build-to-rent purchases would be limited to homes that were: (i) never occupied by an owner-occupant; (ii) purchased within 18 months of receiving a certificate of occupancy; and (iii) first occupied by renters. For renovate-to-rent programs, the proposal would require resolving all material structural or core system deficiencies and making improvements worth at least 15 percent of the home’s purchase price, net of the land’s tax-assessed value. Improvements to structural or core systems worth at least 10 percent of that amount would serve as a non-exclusive safe harbor for the substantial-rehabilitation requirement, provided all material deficiencies in those systems are resolved.

For homeownership programs and programs to boost homeownership, the proposal would establish a non-exclusive safe harbor for “meaningful financial support” that scales with rental tenure. Support would qualify if it equaled at least 2.5 percent of the lower of the purchase price or the county’s FHA mortgage limit after five years of renting, or 3.5 percent after seven years, with the required support capped at $5,000. Programs to boost homeownership would also have to give renters a right of first refusal and a 30-day first-look period, with a separate non-exclusive safe harbor setting out notice and timing terms for those rights. The proposal also addresses purchases tied to debts previously contracted and loss mitigation, including certain indirect purchases, as well as purchases from another large institutional investor if the seller owned the home on the date of enactment or purchased it “in compliance with” the act. For purposes of calculating the statute’s maximum civil penalty (the greater of $1 million or three times the purchase price of the property), the proposal would treat a prohibited purchase involving more than one large institutional investor as a single violation. Comments are due by November 23.