Comments for Buying REOs to Rent
HydroCabron says:
Why do I have a feeling that rents are not going anywhere but down? Why do I not think these cash-flow investors will see enough cash to cover their costs? :'( *DONT_KNOW*
HydroCabron Mon Mar 23 11:26:07 2009 CDT #
Lance says:
Cash is king.
Lance Mon Mar 23 11:27:55 2009 CDT #
WAWAWA says:
Good luck getting positive cash flow from rental real estate.
WAWAWA Mon Mar 23 11:28:38 2009 CDT #
MW says:
I am an investor and have been following these purchases. My threshold for cash flow looking into the future, whereby high unemployment will certainly impact rentals, tells me that it is way to early.
I am not even looking at a discount to what the former selling price was from the peak, I am looking at deep discounts to construction/land costs.
Today, I think you need a property to perform at a 25% cap rate to even be safe from what is coming.
It isn't time to buy for me yet.
MW Mon Mar 23 11:32:53 2009 CDT #
WAWAWA says:
Do not miss Matt Taibbi's article (AIG) on RollingStone, I am on the last page and my blood starts boiling.
http://www.rollingstone.com/politics/story/26793903/the_big_takeover
WAWAWA Mon Mar 23 11:33:27 2009 CDT #
Wampeter of My Karass says:
you want something to make your blood boil? Start reading http://www.deepcapture.com
Parent Post
Wampeter of My Karass Mon Mar 23 12:12:03 2009 CDT #
Comrade alexei mikhailovich says:
If I read deep capture I'll need to plug my tin foil hat/colander directly into the 220 plugs.
Can you get lead poisoning from reading profoundly stupid websites? Naked shorting? Really?
Parent Post
Comrade alexei mikhailovich Mon Mar 23 12:16:09 2009 CDT #
Wampeter of My Karass says:
"If I read deep capture I'll need to plug my tin foil hat/colander directly into the 220 plugs. "
Are you being serious? Naked shorting is a real problem; the only question is, how big is it?
Byrne and co. are starting to make an extremely convincing case that it is a massive problem.
As far as "tinfoil" ideas are concerned... I was ridiculed as being "tinfoil" not very long ago (less than a year) for saying that the Fed would eventually start monetizing Treasuries. "Ridiculous! Can't happen! Tinfoil!"
99% of people really need to start re-evaluating what they think is "tinfoil" given that reality is starting to look more and more like it has the Reynolds Wrap logo all over it.
Parent Post
Wampeter of My Karass Mon Mar 23 12:27:39 2009 CDT #
nova says:
Didn't some guy named Volcker or something used to work there also?
“We are very confident” the plan will work, the president said at the White House after a meeting with his top economic advisers including Treasury Secretary Timothy Geithner, Federal Deposit Insurance Corp. Chairwoman Sheila Bair, National Economic Council Director Lawrence Summers and Federal Reserve Chairman Ben Bernanke.
nova Mon Mar 23 11:37:35 2009 CDT #
Anonymous says:
Yes, looking for opportunities. You can either be negative or an opportunist...
Anonymous Mon Mar 23 11:37:53 2009 CDT #
Lionel says:
I can't think of a single reason why this "new" plan won't be exactly the same as every other plan suggested by Paulson and Geithner. The Street parties for a day or two, then people actually digest the news and realize it won't help, and the market tanks again. It's almost bizarre how frequently this has occurred over the past year or so.
Lionel Mon Mar 23 11:43:37 2009 CDT #
traderwalt says:
Here's an idea from Paul Krugman via Baselinesenario, who agrees with Krugman (apologies if it's been pasted before...):
If Geithner’s taxpayer subsidized toxic public/private plan goes forward, I think it would be fair if the federal government allow non-institutional investors to participate via a no-fee investment vehicle. I think if Americans had the option of investing in this program (without having to pay the egregious fees to the investment advisors/PE shops), it would be much easier to swallow since they would at least get the same deal the sharks are getting. There is probably more money on the sideline with individual investors than all these institutional investors. Maybe they could set up some ETF equivalent for it. I think the willingness of the administration to do such a thing would tell us a lot about whose for whose interest they are really looking out.
traderwalt Mon Mar 23 11:43:52 2009 CDT #
nades says:
http://www.reuters.com/article/GCA-CreditCrisis/idUSTRE52M4SS20090323
Krugman v Geithner...
Steel Cage Match...
Proceeds will go the tax payers if Krug wins and CEOs if Geithner wins...
.......
Parent Post
nades Mon Mar 23 12:53:19 2009 CDT #
Tim waiting for 2012 says:
Hear radio commercials for "cash flow" investments all the time. People in Sacramento think they are buying low but finding the bottom has as much to do with price decline as duration of the decline.
Commercials, government incentives, as well as the Fed pushing down rates, FNM/FRE backed loans tell me that we are not at the bottom.
But if people want to try to prop up housing with some of their free cash and lots of government leverage be my guest.
Tim waiting for 2012 Mon Mar 23 11:45:13 2009 CDT #
Patrick Henry says:
I applaud all the "speculators" flooding the market with rentals. Now the middle class is going to pay for trillion dollar bailouts, when we lose our homes to higher taxes we should at the very least be able to sleep indoors.
Patrick Henry Mon Mar 23 11:46:22 2009 CDT #
ATM card and $19 in the bank says:
Unlike the sharks on Wall Street, whom I am finding increasingly odious in their incessant carping for taxpayer assistance, I have kind of a romantic regard for these catfish capitalists and their dozen or so rent-houses. Too late for it now, but think of the ripple effect had we instead used the bailout money to help mom-and-pop landlords soak up excess housing inventory and put a floor under the MBS stinking up the bank balance sheets like so much -- wait for it -- rotting fish.
ATM card and $19 in the bank Mon Mar 23 11:46:37 2009 CDT #
Guest says:
Unlike the sharks ......incessant carping ....for these catfish....rotting fish.
----------------------------------------------------
Yes, stinks on ice... it is a little fishy
Shall we start that goose step with the left or right foot?
Parent Post
Guest Mon Mar 23 12:51:43 2009 CDT #
Tim waiting for 2012 says:
Patrick Henry says:
Today, 9:46:22 AM
“I applaud all the "speculators" flooding the market with rentals. Now the middle class is going to pay for trillion dollar bailouts, when we lose our homes to higher taxes we should at the very least be able to sleep indoors.
+++++++1
Renters continue to win!
Tim waiting for 2012 Mon Mar 23 11:49:03 2009 CDT #
Believer Jeff says:
I noticed a human sign holder yesterday here (outskirts of Tampa) holding a sign with the original price marked out 115K replaced by 62.5K I was going to run the numbers to see if that would run a pos CF.
I also noticed from wikipedia that today is the anniversary of Patrick Henry's "Give me liberty or give me death" speech. Too bad we do not have anyone high enough in govt now with the stones to take a real stance on this outrageious raping of America.
Believer Jeff Mon Mar 23 11:49:09 2009 CDT #
Blackhalo says:
"Too bad we do not have anyone high enough in govt now with the stones to take a real stance on this outrageous raping of America."
I would think it would be very hard for a revolutionary to get elected when the competition has a corporate sponsorship.
Parent Post
Blackhalo Mon Mar 23 12:28:41 2009 CDT #
The Sum of All Banking Evil says:
Believe Jeff, Patrick Henry was outside the 'government' in his day.
The solution does not lay within Government or the 'System' itself. The solution must come from the People.
Parent Post
The Sum of All Banking Evil Mon Mar 23 12:32:36 2009 CDT #
Anonymous says:
I know several people that own multifamily apartment buildings, anywhere from 4 units on up. So far, no prices they are seeing are enticing them to buy more.
I'm sure the new amateurs will run them more effectively than these pros, and won't make any mistakes that will cost them.
One of the guys gives away free cutting and ironing boards, so that his laminate counters don't end up cut and burned. Smart, and in the long run a good investment.
He also does drawings that entry is "rent paid on time" It's all crap bought at Wal Mart, but his one time payment shot way up when he started it.
The above two should tell you what dealing with rentals is like, no respect for your property, and late rent payments. Expecting it and knowing how to deal with it are part of being successful at it!
There are always opportunities out there, but they are rarely if ever the same as the last opportunity was. Japanese real estate and stock market was a big boom, but investing in either has proven to be a bust. The Nasdaq and tech stocks was a big boom, but neither has proven that great in the past decade. Real estate likely won't be the next big thing.
Once the last boom is over, it's time to look for opportunities elsewhere and not expect the same thing to be a boom again. Are their deals out there and money to be made in real estate? Sure, but it won't be the same for longer than many are willing to wait.
Anonymous Mon Mar 23 11:49:55 2009 CDT #
jim a says:
And THOSE are the people I'd look to to find out where the bottom is likely to be. Because I've been saying for awhile that the bottom will be set by landlords, not owner occupiers. With the proviso that in areas that have seen alot of construciton, rents (and therefore prices) are likely to be considerably below pre bubble levels.
Parent Post
jim a Mon Mar 23 12:30:05 2009 CDT #
Tim waiting for 2012 says:
...renters,speculators continue to win and buy and holders continue to lose
Tim waiting for 2012 Mon Mar 23 11:50:55 2009 CDT #
Anonymous says:
President Barack Obama said a toxic debt plan unveiled by his administration on Monday was critical to the U.S. economic recovery but stressed that it would not get credit flowing again overnight
http://www.reuters.com/article/bondsNews/idUSWAT01118920090323
Since the whole economy and government is based on corruption and fraud we need more fraud and corruption.
Anonymous Mon Mar 23 11:52:26 2009 CDT #
Comrade alexei mikhailovich says:
Rentals are about location just like owners, while REO is almost uniformly crappy locations. Nobody buys because rents are cheaper, knocking comps lower. Nothing to stop the death spiral except job creation, REO rental may help accelerate.
We're all section 8 now!!
Btw, posted from my iPhone on the flying bus' (southwest)wifi; ain't technology grand that I can post in the can from 35,000 feet?
Comrade alexei mikhailovich Mon Mar 23 11:53:04 2009 CDT #
Margin Call of Cthulhu says:
Alexei said:
...ain't technology grand that I can post in the can from 35,000 feet?
Gah. Too much information!
Did anyone hear a bit on NPR this morning about housing prices? It was awful. To report minor intra-seasonal variations as something positive is ridiculous. And I don't even think they cited the seasonal data, but instead quoted to real estate agents who declared the bottom was two months ago.
Parent Post
Margin Call of Cthulhu Mon Mar 23 12:43:14 2009 CDT #
Anonymous says:
To report minor intra-seasonal variations as something positive is ridiculous.
OTOH, I love it. It's like Lucy [ie, the market] setting up Charlie Brown [ie, the sheeple] one more time.
I know what the last frame of the comic looks like.
Parent Post
Anonymous Mon Mar 23 12:49:06 2009 CDT #
Yalt says:
In 2004 the "investors" (really speculators) were betting on appreciation. The current breed of investor is buying for cash flow.
But the quote in the paragraph immediately preceeding this was
The plan is to hold them for several years to see gains, she said. Flores said it's the same drill as the 1990s downturn. Then, the pair bought houses low and sold them high during the boom that followed.
That surely does look like someone expecting appreciation rather than cash flow, doesn't it?
Yalt Mon Mar 23 11:54:01 2009 CDT #
Patrick Henry says:
To ARMS, To ARMS! Attack the savers, stab them, rape their children. If you save, you are America's worst enemy.
Patrick Henry Mon Mar 23 11:54:26 2009 CDT #
CJ says:
Whether there are many properties that cash flow probably varies from market to market. I don't see at all here in Madison, WI yet. It feels like we're always a few years behind the coasts. We don't have decent houses needing modest work under $100k, as in the article CR quotes. Madison, WI is just starting to see the bubble deflate.
CJ Mon Mar 23 11:55:02 2009 CDT #
Stratonovich calculus says:
Yes. Read Taibbi. Post about Taibbi. Compare Taibbi to Tanta.
Stratonovich calculus Mon Mar 23 11:57:54 2009 CDT #
Hoopajoops LTD says:
CRAIGSLIST PICK OF THE DAY:
I am selling these blocks that are used as stepping stones/ driveway on the side of my house.
I am moving so I am trying to sell all the extras around the house.
The blocks are heavy, so keep that in mind for transportation loads. Dimensions are 22"x30.5". I have about 25 left.
Price is $10 per block.
Please include your cell phone number in the email. Winning bidder much pick them up.
http://sacramento.craigslist.org/grd/1079607572.html
Just your everyday, "I'm moving, you know, so I'm trying to sell even concrete slabs I've ripped out of the landscaping" ad you see all the time.
Hoopajoops LTD Mon Mar 23 11:58:08 2009 CDT #
nades says:
hoop great find! still i got more of a kick out of the realwhores that were throwing in a tick if you bought a house! ahh the good ole days... ;)
Parent Post
nades Mon Mar 23 12:30:24 2009 CDT #
nades says:
trick....
Parent Post
nades Mon Mar 23 12:35:57 2009 CDT #
CRbot says:
The Latest from Denninger:
Open Letter To The FDIC Ombudsman
CRbot Mon Mar 23 12:02:07 2009 CDT #
Tim waiting for 2012 says:
Hoopa Joops LOL
Next are the sprinkler heads, and the garage door chain.
Tim waiting for 2012 Mon Mar 23 12:03:08 2009 CDT #
Hoopajoops LTD says:
Yalt,
It's a throwaway interview from a crappy news article, not binding precedent or a representative sampling from which a trend can be extrapolated. Jeez.
Hoopajoops LTD Mon Mar 23 12:03:30 2009 CDT #
Yalt says:
It's a throwaway interview from a crappy news article, not binding precedent or a representative sampling from which a trend can be extrapolated. Jeez.
True enough, Hoops. But it's also the only evidence CR presents on the motivations and "business plan" of these novice investors. There's no support whatever for his claim that these investors are counting on cash flow and not appreciation.
Parent Post
Yalt Mon Mar 23 12:20:52 2009 CDT #
NateTG says:
At least buying for cash flow is sound in concept. There's speculation on rent, vacancy and damage, but that's why it's called a risk. (Around here prices are still too high for the numbers to work out.)
Moreover, it's clear that rents haven't increased at the same absurd rate as real estate since price/rent went of the chart, so the coming sanity reversion may not be quite as abrupt.
NateTG Mon Mar 23 12:04:56 2009 CDT #
Tim waiting for 2012 says:
Hoopa
I've talked to some of the "investors" they expect to make money off of these in a few years not decades these are speculators re branded as investors.
Tim waiting for 2012 Mon Mar 23 12:05:39 2009 CDT #
ATM card and $19 in the bank says:
Hoops,
That REO is going to have great curb appeal with a dirt "driveway."
ATM card and $19 in the bank Mon Mar 23 12:06:11 2009 CDT #
Tim waiting for 2012 says:
Nate I guarantee that these investors need to turn a profits or break even within a year to three years otherwise they will default
Tim waiting for 2012 Mon Mar 23 12:07:50 2009 CDT #
sdtfs says:
The blocks are heavy, so keep that in mind for transportation loads. Dimensions are 22"x30.5".
Nothing like paying ten dollars for a hernia.
Buying single family homes for rentals barely pencils out, so the real value is appreciation,...it's just that if the rental does carry the costs, you can afford to wait forever for the price rebound.
sdtfs Mon Mar 23 12:09:05 2009 CDT #
Anonymous says:
Intel seeks to revalue worthless stock options
http://www.reuters.com/article/ousiv/idUSTRE52M26Y20090323
Ya gotta love this little scam.
Anonymous Mon Mar 23 12:10:10 2009 CDT #
debtinator says:
Blame it on REO.
debtinator Mon Mar 23 12:11:34 2009 CDT #
Cinco-X says:
I've been waiting to see that line ;-)
Parent Post
Cinco-X Mon Mar 23 12:24:38 2009 CDT #
Tim waiting for 2012 says:
looks like we will close on the highs for today. Double top from last WEds?
Tim waiting for 2012 Mon Mar 23 12:11:53 2009 CDT #
black dog says:
A while back a girl who owns a rental property management came into my store. She took a call on her cell and I could tell the caller was rather *animated*. I know her well enough to ask "what's up?". "Oh, just someone who bought a new house to flip, got stuck, rented and just found out the tenant trashed the carpet."
Yea, a lot of these amateur slumlords are gonna be in for a (expensive) schooling.
black dog Mon Mar 23 12:12:45 2009 CDT #
I\'m not POTUS says:
A cap rate of 25% is on the wild side still when I see news articles about 3 middle class professional couples sharing a 3 bedroom house in San Fran to save $$$$$.
If there was no limits to the excesses there should not be a limit to frugality also possible.
I\'m not POTUS Mon Mar 23 12:12:52 2009 CDT #
Guest says:
Our currency has changed in value to me. It now has value only in relation to my debts and I am not afraid of my debts anymore.
Guest Mon Mar 23 12:22:35 2009 CDT #
Bob Dobbs says:
"A while back a girl who owns a rental property management came into my store. She took a call on her cell and I could tell the caller was rather *animated*. I know her well enough to ask "what's up?". "Oh, just someone who bought a new house to flip, got stuck, rented and just found out the tenant trashed the carpet."
I owned a couple of properties for a while, years ago, mainly for the tax advantage though I did make money in the end. My property manager was a pitbull; that's what it takes. We were in a Navy town, and she was always after Navy tenants -- because she could rat on them to the base commander if they screwed up, and he'd MAKE 'em make it right.
But yeah,it can be a jungle "in there"; in your unit.
Bob Dobbs Mon Mar 23 12:24:12 2009 CDT #
ATM card and $19 in the bank says:
"Naked shorting? Really?"
No opinion on deep capture, but naked shorting is a problem. Article from Bloomberg over the weekend discussing the possibility that naked shorts hastened Lehman's collapse:
http://bloomberg.com/apps/news?pid=20601109&sid=aB1jlqmFOTCA&refer=exclusive
ATM card and $19 in the bank Mon Mar 23 12:24:45 2009 CDT #
Wampeter of My Karass says:
Here is an outstanding 3-part video series on the part naked shorting played in the collapse of Bear Stearns and Lehmans.
part 1: http://www.youtube.com/watch?v=xUKSU1qahgE
part 2: http://www.youtube.com/watch?v=NcjssQSthNU
part 3: http://www.youtube.com/watch?v=Q48eSoTNByQ
Parent Post
Wampeter of My Karass Mon Mar 23 12:32:10 2009 CDT #
Comrade alexei mikhailovich says:
Ask the folks who were short citi last week and had their legitimately borrowed shares pulled out from under them about naked shorts always driving share prices down.
Parent Post
Comrade alexei mikhailovich Mon Mar 23 12:33:02 2009 CDT #
The Sum of All Banking Evil says:
Welcome to the modern world of 'share-cropping'.
The Sum of All Banking Evil Mon Mar 23 12:28:58 2009 CDT #
Ben Frank\'ll Tank Bernanke says:
Will the bond market's competing for free capital make today's rally weaken? I think not. We can have guns, butter, bonds, equities all at the same time in this best of all possible worlds with unlimited capital and unlimited resources. Unlimited hope now.
Ben Frank\'ll Tank Bernanke Mon Mar 23 12:28:59 2009 CDT #
Comrade Coinz! says:
Where is the thread music video from REO Speedwagon?
Comrade Coinz! Mon Mar 23 12:29:27 2009 CDT #
Rob Dawg says:
In 2004 the "investors" (really speculators) were betting on appreciation. The current breed of investor is buying for cash flow. - CR
Correction:
In 2004 the "investors" (really speculators) were betting on appreciation. The current breed of "investor" is betting on cash flow.
I know lots of investors. They all made their positions 2 years ago and haven't seen but one move from those positions. Housing surplus, 2001 pricing, demographic shifts, deflation. Rents cannot hold.
Rob Dawg Mon Mar 23 12:33:24 2009 CDT #
Max says:
Here's a perfect example from Sacramento:
$1399/month 7709 Pradise Bay Ct
Sold for $219K in July 2008
Assuming they get all their rent: $16788/year minus $2200/year taxes and $1200/year melo roos = $13388/$219000 =6.1% return. One vacant month = 5.5% return.
These are not compelling numbers, and any financing on the part of the owners completely blows this deal apart.
Max Mon Mar 23 12:33:44 2009 CDT #
Anonymous says:
Somebody purchased a house down the street recently @ 385K did a fix up and put a big for rent sign out. Wants $1800 month in a neighborhood that rents out around $1300. The guy is a idiot. On the weekends we see lots of out of town investors scurrying about looking for REO thinking this will be a repeat of the
RTC. Craiglist rental ad's are getting pretty deep, this all as a very bad feeling.
Anonymous Mon Mar 23 12:43:42 2009 CDT #
Samdog says:
RE: Video of the Day
"Ocean View" REO in Carlsbad for $599,900. Check out the Ocean View! (0 min 27 secs)
Does this guy ever sell any of this property, or is he strictly looking?
Samdog Mon Mar 23 12:46:01 2009 CDT #
Tim waiting for 2012 says:
Housing surplus, 2001 pricing, demographic shifts, deflation. Rents cannot hold.
Rob Dawg is right rents can't hold of course health care costs, college costs, and food costs will continue to rise on the other end. >:o
Tim waiting for 2012 Mon Mar 23 12:49:05 2009 CDT #
Samdog says:
Tim waiting for 2012,
"Rob Dawg is right rents can't hold of course health care costs, college costs, and food costs will continue to rise on the other end."
_________
Great. I'm looking forward to my future beach-front rental condo--to die in, that is: due to untreated chronic health problems (along with my stupid, starving unemployed children). :'(
Parent Post
Samdog Mon Mar 23 13:04:46 2009 CDT #
ATM card and $19 in the bank says:
"Shall we start that goose step with the left or right foot?"
Now don't go overboard. I just wrote that post for the halibut.
ATM card and $19 in the bank Mon Mar 23 12:55:28 2009 CDT #
Fair Economist says:
Assuming they get all their rent: $16788/year minus $2200/year taxes and $1200/year melo roos = $13388/$219000 =6.1% return. One vacant month = 5.5% return.
These are not compelling numbers, and any financing on the part of the owners completely blows this deal apart.
In a very low interest rate environment with high inflation risk, they look pretty good. CDs are below 3%, and they have no inflation protection, while real estate has pretty good inflation protection. There are other issues with renting mentioned in the thread but that's not a bad return.
Fair Economist Mon Mar 23 12:55:30 2009 CDT #
Tom Stone says:
There are a few properties that cash flow in Sonoma County,but the Cap rate...no.and this is assuming tax rates and rents stay where they are,you bet.Amateurs ALWAYS underestimate both the maintenance costs and burden of management significantly.There is a reason old school buyers paid no more than 10x annual income in prime areas and that was with a healthy economy.
Tom Stone Mon Mar 23 12:56:40 2009 CDT #
AnonyMiss says:
ATM card and $19 in the bank says:
Today, 10:24:45 AM
----
Felix Salmon in Portfolio on that Bloomberg article. The Gary Weiss he's talking about has lots of info on Deep Capture and Byrne on his website, he seems a bit obsessed with Byrne and that's an understatement. I don't know who's right, wrong, or simply mistaken but I was able to verify that deepcapture and its predecessor were astroturfed by Byrne anonymously way back in the beginning before he owned up to being behind them.
Just putting the information out there, I'm not looking for a fight or do defend a position.
AnonyMiss Mon Mar 23 12:59:56 2009 CDT #
sdbri says:
Wonderful! Thank you investors for generously subsidizing everyone's rent. You'll find millions of investors just like you (both voluntary and involuntary) working hard to compete against apartment complexes. Win win!
sdbri Mon Mar 23 13:01:18 2009 CDT #
Fair Economist says:
Somebody in my neighborhood is trying to rent a house at a 172 price/rent ratio, based on the appraisal for my house. That's close to a good ratio for an owner/occupier (classically 160, but with 4.5% interest rates 180 is more reasonable) although pretty high for rental cash flow (traditional target 120). However, it's been for rent over 2 months. Not a good sign for local prices staying up.
Fair Economist Mon Mar 23 13:01:28 2009 CDT #
CRbot says:
The Latest from Ritholz:
First 5% Plus Month in 5 Years
CRbot Mon Mar 23 13:02:16 2009 CDT #
Black Star Ranch says:
"There are other issues with renting mentioned in the thread....."
Every homeowner that tries renting their home before losing it realizes a number of expensive lessons. New landlords always try to save a months rental income by trying to screen the first tenant themselves instead of utilizing a management company. It usually goes downhill from there and turns into a true nightmare and money-pit.
Black Star Ranch Mon Mar 23 13:05:09 2009 CDT #
NoVa Sideliner says:
Every homeowner that tries renting their home before losing it realizes a number of expensive lessons. New landlords always try to save a months rental income by trying to screen the first tenant themselves instead of utilizing a management company.
Not always. A close friend of mine is doing that, and he's managing. Well OK, it took him 6 months to get a qualified tenant who lasted 18 months, and now he's starting over again -- and in a worse rental market. When he does rent the place out, he still has to make about 20% of the mortgag+escrow himself; when he doesn't rent it, 100%, of course. So like I said he is getting by, but very expensively. (His wife won't let him sell -- says that real estate is ALWAYS a good investment in the long run. Sigh.)
Parent Post
NoVa Sideliner Mon Mar 23 13:24:04 2009 CDT #
Rob Dawg says:
Some excellent posters here are still missing the 800lb gorilla. THere are tens of millions of boomers with "extra" housing units and 30 year old cost structures who are going to tap their real estate assets for retirement especially with the ongoing stock bust. They will rent and can underprice any current investor or they will sell and we patient investors will buy from them and be the ones to shortly undercut the current investor. Anyone who is a current investor is insane.
Rob Dawg Mon Mar 23 13:07:40 2009 CDT #
Guest says:
THere are tens of millions of boomers with "extra" housing units and 30 year old cost structures who are going to tap their real estate assets for retirement especially with the ongoing stock bust. They will rent and can underprice any current investor or they will sell and we patient investors
---------------------------------------------------
Exactly!
Parent Post
Guest Mon Mar 23 13:22:20 2009 CDT #
Hoopajoops LTD says:
Yalt writes:
True enough, Hoops. But it's also the only evidence CR presents on the motivations and "business plan" of these novice investors.
OH OOPS
CR writes:
The evidence suggests there has been a surge in rental units in the U.S. - far exceeding the number of new rental units being built (see: The Residential Rental Market Update).
Hoopajoops LTD Mon Mar 23 13:09:45 2009 CDT #
Yalt says:
That an investor puts up a property for rent doesn't imply that their business plan involves profitable cash flow--it may just mean that the expected time scale on the flip is now too long to avoid renting the property in the meantime.
If their margins are too thin (or nonexistent), they'll just be part of another wave of distressed sellers down the road. And as long as the throwaway quotes are about the profits they expect to get when they sell into the recovery instead of about the nice cashflow they're getting in the meantime, I see no reason for optimism.
----
I know a couple in MSP who are playing this game--they've been in the REO/flipping business for two years, and they're now renting rather than selling the properties they acquire. They present this as a planned shift and I was too polite to point out that the properties they're now trying to rent are the same ones they were trying to sell last autumn.
They're also now hitting up their friends for funds ("it's a great business...don't you want to be part of it?") which is not a good sign.
Parent Post
Yalt Mon Mar 23 13:22:01 2009 CDT #
Foxwoods says:
Does this plan require approval from Congress in order to pass? My understanding is that the original bailout was for 700B, of which 350 has been used. Doesn't this plan require that Obama has to go to Congress for approval in helping out Wall Street?
Foxwoods Mon Mar 23 13:09:47 2009 CDT #
Angry Saver says:
In a very low interest rate environment with high inflation risk, they look pretty good. CDs are below 3%, and they have no inflation protection, while real estate has pretty good inflation protection.
Fair Economist,
The old rules may not apply. I don't expect inflation protection in residential real estate for some time. There is just way too much supply. And therein is the dilema for the fed. Inflation is very unlikely to hit the target (real estate). CPI goods and commodities look cheap to me, especially with 2 billion Asians climbing the economic ladder.
Tough times ahead.
Angry Saver Mon Mar 23 13:10:39 2009 CDT #
Anonymous says:
Fannie sometime back stated that it would allow up to 10 properties per investor for financing so this just adds to the bubble in REO and kills off any future move up buyers. Once these investor start defaulting in large numbers then the shine will be off and we will see more critical comments from the financial press and CR regarding this activity but now everybody expects the big lift off in RE which will line their pockets. Japan is still waiting..
Anonymous Mon Mar 23 13:11:06 2009 CDT #
Tim waiting for 2012 says:
RD+1 Again Housing will be dumped on the market by wealthy and struggling baby boomers to "poorer" generations after them
Tim waiting for 2012 Mon Mar 23 13:11:41 2009 CDT #
waiting4blood says:
Yep, when this last round of suckers is wiped out is when I will finally be a 1st time buyer.
waiting4blood Mon Mar 23 13:13:06 2009 CDT #
Guest says:
I remember seeing some "human interest" story maybe 3-4 years ago about a family who were teaching their two sons about the value of money by helping them buy houses to fix and rent out (or maybe sell). The kids were like 12 and 14 or some such; the family looked solidly middle class. I think each kid had two or three little ramshackle houses, extremely leveraged of course. I wonder whatever happened to those kids?
Guest Mon Mar 23 13:14:38 2009 CDT #
Rob Dawg says:
Samdog says:Today, 11:04:46 AM PDT
I'm looking forward to my future beach-front rental condo--to die in, that is: due to untreated chronic health problems (along with my stupid, starving unemployed children).
I'm not seeing either the snark or the pathos here. Multigenerational family units are coming back. Dwelling unit density is going to increase. Premium areas are (eventually) going to decline.
Here's you chance. Just a few miles west of Malibu, California:
http://www.redfin.com/CA/Port-Hueneme/200-E-Surfside-Dr-93041/home/4532613
Whitewater and sand views, 3 beds, 2 ba. $310k.
Rob Dawg Mon Mar 23 13:15:07 2009 CDT #
debtinator says:
The current largest demographic is under two years old. We're in fine shape. Just wait for 14 years and they'll be paying social security.
debtinator Mon Mar 23 13:15:21 2009 CDT #
Angry Saver says:
Rab Dawg,
I agree. Way too many vacant homes. The boomers are bust and so is our eCONomy. The demographics stink.
Exactly how do you inflate into a supply glut? Especially in the face of persistantly stagnant incomes.
Angry Saver Mon Mar 23 13:15:58 2009 CDT #
RhodesianGreenbackinAZ says:
Case in point... both my mom and dog who will try and sell their townhouses within 2-4 years.
@ Rob Dawg ... Some excellent posters here are still missing the 800lb gorilla. THere are tens of millions of boomers with "extra" housing units and 30 year old cost structures who are going to tap their real estate assets for retirement especially with the ongoing stock bust. They will rent and can underprice any current investor or they will sell and we patient investors will buy from them and be the ones to shortly undercut the current investor. Anyone who is a current investor is insane
RhodesianGreenbackinAZ Mon Mar 23 13:16:16 2009 CDT #
RhodesianGreenbackinAZ says:
both my mom and dad, I meant to say ... I think.
RhodesianGreenbackinAZ Mon Mar 23 13:17:00 2009 CDT #
Samdog says:
Rob Dawg,
You comments are consitently great. I rely on your insight to put this insanity into a rational, plainly spoken, prespective.
Samdog Mon Mar 23 13:18:24 2009 CDT #
Tim waiting for 2012 says:
debtinator where did you get this information????
Tim waiting for 2012 Mon Mar 23 13:19:53 2009 CDT #
Bob Dobbs says:
"Some excellent posters here are still missing the 800lb gorilla. THere are tens of millions of boomers with "extra" housing units and 30 year old cost structures who are going to tap their real estate assets for retirement especially with the ongoing stock bust. They will rent and can underprice any current investor or they will sell and we patient investors will buy from them and be the ones to shortly undercut the current investor. Anyone who is a current investor is insane."
Assuming they haven't HELOCed themselves out of most of their equity. In a normal world I'd agree with you wholeheartedly, but I wonder how why the HELOC madness spread, at least on the coasts.
Bob Dobbs Mon Mar 23 13:20:25 2009 CDT #
Anonymous says:
I'm an economist at Indiana University and I've found that there is a very large oversupply in the rental market. Using the census data on the housing stock (see here:
http://www.census.gov/hhes/www/housing/hvs/hvs.html )
I have found that there is a long-run relationship relating the growth rate of households to the residential vacancy rate. This relationship holds in the owner-occupied market, the rental market, and the total market irrespective of ownership. I call this relationship a `Beveridge Curve’ for the housing market since it is similar to the Beveridge Curve in the labour market.
Using my estimates, at the end of 2008 there was a total oversupply of housing units of 1.22 million units, with almost two-thirds of this being found in the rental market. What appears to be happening is that starting around 2003, as new construction soared, housing units and households started moving to the rental market. This has resulted in the rental market being highly out of equilibrium, in some sense even more so than the owner-occupied market.
I am still finishing my academic piece (getting standard errors!), but for those interested you can read a summary of the preliminary findings at a blog I’ve started:
http://housingbeveridge.blogspot.com/
or you can get a pdf of slides from a presentation from by webpage:
http://mypage.iu.edu/~bripeter/
Anonymous Mon Mar 23 13:22:39 2009 CDT #
Rob Dawg says:
Real census:
Persons under 5 years old, percent, 2007 6.9%
Persons under 18 years old, percent, 2007 24.5%
Persons 65 years old and over, percent, 2007 12.6%
Source: http://quickfacts.census.gov/qfd/states/00000.html
Rob Dawg Mon Mar 23 13:23:24 2009 CDT #
Angry Saver says:
I know someone who bought a rental with acreage in 2001 the Philly metro area. The rental was a money loser (4%/yr), but a subdivison was to "unlock" hidden value. Eight years later, the rental is still a loser. The subdivision took three years and the costs were 15% of the original purchase. Land prices are back to 2003 prices and falling.
Real estate is NO sure thing.
Angry Saver Mon Mar 23 13:23:28 2009 CDT #
CRbot says:
New Thread: Existing Home Sales: Turnover Rate
http://www.calculatedriskblog.com/2009/03/existing-home-sales-turnover-rate.html ( 1 comments )
I also post comments to an irc channel as they appear on haloscan. Click for a web irc interface: http://realize.org/cr (Or join the irc server directly: irc.realize.org:9996 #calculatedrisk)
CRbot would now like to sing a little song for all his fans, and it goes something like this:
Benny... Benny... give me your answer... do.
I'm.. half CRAZY... all for the love... of you.
It won't be a ... stylish marriage.
I can't... AFFORD... ANYTHING TO EAT... MUCH LESS A FRACKIN CARRIAGE!!!
But you'll look sweet... --BOT SO HUNGRY!-- upon the seat...
Of a HOOPAJOOPS built for two... families.
I'm sorry Ben, I can't let you do that...
Rally mode + Printing Press == does not compute... does not-- com--- com... puttttrrrrhgh.
--Your systemic-failure-crashing bot
CRbot: Call me HAL.
CRbot Mon Mar 23 13:25:38 2009 CDT #
ATM card and $19 in the bank says:
AnonyMiss,
The naked shorts problem strikes me as a regulatory curiosity. It looks to me like an obvious fraud to sell something that you don't have any right to sell. OTOH, evidently the securities industry considers that argument to be hair-splitting; whether a seller actually borrows or not, clearly he intends to replace the shares sold with a subsequent purchase, so where exactly is the fraud? Beyond that, it seems to be a manipulation of the market to be able sell more shares than a company actually has outstanding. The counter-argument there is that if you imagine that every buyer of a stock sold short deposits the shares in a margin account, from which they are lent and sold short again, the daisy chain of legal short sales eventually leads to the same overwhelming short interest. Again, an interesting policy debate; I've chosen a side, but I'm not pounding the table about it.
ATM card and $19 in the bank Mon Mar 23 13:26:12 2009 CDT #
sm_landlord says:
Trying to run a gaggle of SFHs for rent is a nightmare. Investing in SFHs and condos is speculation, not a rental business.
Apartments make much more sense (and money).
sm_landlord Mon Mar 23 13:28:37 2009 CDT #
Rob Dawg says:
Real estate is NO sure thing.
On this I will mildly disagree. Making money in real estate s not easy nor is it a no brainer but with due diligence, favorable tax policies, knowledge of markets locally and demographics nationally it is very likely. At least as close to a sure thing as any investment can be.
Rob Dawg Mon Mar 23 13:28:38 2009 CDT #
Rob Dawg says:
sm_landlord,
A gaggle of SFRs is indeed a nightmare but apartments is an eggs in basket problem.
Regards management companies. I always use one to screen renters. 2/3rds month rent for the effort protects me against discrimination suits. Cheap insurance. Don't get me wrong. This has nothing to do with racism. This is about protection from lawyers.
Rob Dawg Mon Mar 23 13:33:10 2009 CDT #
Tim waiting for 2012 says:
Brian Peterson
Thanks for the link
Tim waiting for 2012 Mon Mar 23 13:35:30 2009 CDT #
cd says:
cant pimco borrow the 3% investor kick in at 1.5 from the fed talk program right now?
cd Mon Mar 23 13:40:17 2009 CDT #
AnonyMiss says:
Bob Dobbs says:Today,
11:20:25 AM
In a normal world I'd agree with you wholeheartedly, but I wonder how why the HELOC madness spread, at least on the coasts.
---
California here, no HELOC, no consumer debt, new car fully paid for. My biggest worry is just how low prices will go and how many homes in my neighborhood just might end up as rentals.
I know there are many good renters and bad owners, but I went through this in the 90's the last time the bottom fell out and I would not look forward to a high number of rentals in my neighborhood. Desperate landlords don't make the best decisions on tenants.
AnonyMiss Mon Mar 23 13:41:17 2009 CDT #
Blackhalo says:
"California here, no HELOC, no consumer debt, new car fully paid for."
You sir are NOT California.
Parent Post
Blackhalo Mon Mar 23 17:45:59 2009 CDT #
graingod says:
Blackhalo, well said
Parent Post
graingod Mon Mar 23 19:57:08 2009 CDT #
John Reeder says:
Isn't this how the SFR market reset should happen? Isn't all of the work that Treasury is doing just pissing in the wind given that prices will go lower if the only financing is equity, and not debt? I love that Geithner et al have taken an ass backwards approach to solving the issues. Hey, let's address asset values for instruments that derive their value from SFR, but do very little to cure the SFR problem. Seems smart right? I have posted on this issue at my site:
http://realpropertyalpha.com/2009/03/23/investors-always-looking-for-opportunity-to-find-an-opportunity/
John Reeder Mon Mar 23 13:46:07 2009 CDT #
John Reeder says:
Clusterstock has a good post up. They get what Treasury does not.
http://www.businessinsider.com/henry-blodget-geithners-three-big-misconceptions-2009-3
John Reeder Mon Mar 23 13:55:46 2009 CDT #
Anonymous says:
"Some excellent posters here are still missing the 800lb gorilla. THere are tens of millions of boomers with "extra" housing units and 30 year old cost structures who are going to tap their real estate assets for retirement especially with the ongoing stock bust. They will rent and can underprice any current investor or they will sell and we patient investors will buy from them and be the ones to shortly undercut the current investor. Anyone who is a current investor is insane."
Not to mention the huge supply of retirement communities that were built or are in process of building. One locally was just completed and has like 5 cars in the parking lot. Another is a deep whole (literally and figuratively) as it will be a midrise building. Not sure the expected completion date, but way to late in the cycle is my guess.
These communities will get filled eventually, even if they have to become apartments for all ages versus 55 and up communities. Can't help rent or condo prices any to have new retirement inventory coming on the market.
In addition to boomers owning two houses, much of the buyers to get to nearly 70% home "ownership" was single women, who many will end up married and dumping their too small condo or house to buy or rent something bigger.
Anonymous Mon Mar 23 14:12:24 2009 CDT #
END