patrick.net

thomaswong.1986 says

true.. as in the case robert shiller points out.. apprecition rate is close to inflation.

so not the investment many want... a stock with dividend could do better with apprecition in net assets plus income growth.

I've gotten so much experience taking listings and training Realtors through the years you would think after 15 years I would feel comfortable buying real estate but the more I learned the more I learned to pass. Real estate is based on the idea of "the greater fool" which means everyone involved is a fool to either a greater or lesser extent.

I've got to laugh when people accuse Realtors of stealing people's deals. Maybe stupid ones. The top producers who I've trained wouldn't touch real estate with a ten foot pole. The only time I saw the big shots jumping in was when you could put 5k deposit on a 500k condo in Fort Lauderdale or Miami then flip it for 700k (or more) a couple of months later. I'm sorry I didn't get into that scene but those days are long gone.

thomaswong.1986 says

True.. as in the case robert shiller points out.. apprecition rate is close to inflation.

so not the investment many want... a stock with dividend could do better with apprecition in net assets plus income growth.

Liberal elitist!

ELC says

I'm sorry I didn't get into that scene but those days are long gone.

I agree those days are long gone.

I went to an investors, hard money presentation in 2008. There was another guy who I recognized from the Trustee Auctions at the Court House. We both were shaking our heads when there were promises of profits as much as $20K, or $30K.

All you had to do was four transactions a year for those $30K profits to make $120K. It was amazing the number of people who were ready to sign up, buy at auction for what we considered top dollar, and paid fees with interest.

In 2005 if I couldn't buy, and sell for a $30K profit in 30 days it wasn't a deal worth doing.

I think people have really misjudged this market. There is a lot of money going into easy deals, but the returns quoted have been at 6% which is better than a savings account, but you also have to sell this stuff to get your money out.

In the coming years it seems to me that Real Estate will go back to the hard work job that it always was, and many of these investors will be dumping properties so they can go on to do other things.

robertoaribas says

the fools are the banks that allow these short sales to go through,

I'm betting that the banks know better than you being that it's their game.

ELC says

robertoaribas says

the fools are the banks that allow these short sales to go through,

I'm betting that the banks know better than you being that it's their game.

If it's their game, they certainly haven't played it very well over the last 10 years.

robertoaribas says

the home would auction for around $110K,

Why would anyone pay more than $50K at auction. I've got a buddy who buys in Arizona, and he agrees that the auctions have gone crazy, but to say $110K is stretching it.

It makes no difference because banks want to take losses against record high profits that sit in cash reserves.

They sold the mortgages, serviced the mortgages, reinvested that money years ago, and are now collecting more money with the taxes being off set by paper losses.

God bless you for taking on these rental properties, we all appreciate it, but the banks are now collecting more money from you loan, that is paying interest, and servicing fees.

Banks always win, and there was no need for the government to step in except to save an industry that provide thousands, if not millions of jobs.

For what its worth, my 'real job' is in an industry that sells equipment to people who move goods and services. We tend to be a bellwether for the health of the global economy. Last year we did unexpectedly well, but for Q1 2013, we have just been told to 'tighten our belts' and 'curb non-essential spending'.

There's a storm a'brewin...

What effect this will have on the housing market this summer remains to be seen since I don't know the direct reason for the spending cuts directive. For all I know Europe is getting clobbered and the US is fine, in which case housing here could continue to climb. If US order commitments are down though, that doesn't bode well.

David Losh says

robertoaribas says

the home would auction for around $110K,

Why would anyone pay more than $50K at auction. I've got a buddy who buys in Arizona, and he agrees that the auctions have gone crazy, but to say $110K is stretching it.

It makes no difference because banks want to take losses against record high profits that sit in cash reserves.

They sold the mortgages, serviced the mortgages, reinvested that money years ago, and are now collecting more money with the taxes being off set by paper losses.

God bless you for taking on these rental properties, we all appreciate it, but the banks are now collecting more money from you loan, that is paying interest, and servicing fees.

Banks always win, and there was no need for the government to step in except to save an industry that provide thousands, if not millions of jobs.

It is probably more like the bank takes it back in the auction with $110k price tag. But as you demonstrate, if banks win AND the housing price reinflates (at least in pheonix), Roberto wins out, too, if he sells before the next downturn. Of course this is not a given but he deserves it if it pans out like he wishes.

robertoaribas says

I'll help: 1100-500 = 600 a month for me, so I'd really cry about the interest!

It sounds great. With that sort of return why aren't there loads of investors from all over the world running to Phoenix? You should be up to your ears in competition. You said the homes have been appreciating there too yet you're still finding the same sort of deals you have been for a long time. What's up with that?

As long as the rentier thieves can borrow our money for less than the rate of inflation and jack up our rents more than the rate of inflation, the fleecing of the productive people will continue unabated.

No loans for less than 30% down. Problem solved. Unfortunately, the thieves from other corrupt nations are coming here and bulk buying our homeland - at most we should be giving these criminals 99 year lease, like the brits do, the queen owns the allodial title to all the land there for a reason, if the russians the ME types take over, at least there is a trump card.

ELC says

robertoaribas says

I'll help: 1100-500 = 600 a month for me, so I'd really cry about the interest!

It sounds great. With that sort of return why aren't there loads of investors from all over the world running to Phoenix? You should be up to your ears in competition. You said the homes have been appreciating there too yet you're still finding the same sort of deals you have been for a long time. What's up with that?

Roberto is right. My co-workers are still buying up properties in FL 16-20% returns (after all epenses) I looked at their income/expense statements. They do have multiple offers now though so it's harder but still, there is not enough investors to absorb all the shock, so if you're quick, you can still get a good deal

Also, I have a california condo that returned 8.5% this year, not as good but safe.

robertoaribas says

Why do you bother writing stuff that is clearly idiotic?

Because you are trying to sell an e-book that has extremely limited information, which you also admit.

Losses need to make sense to stock holders, and they certainly do make sense, because you didn't answer the question about why you think the same house will sell at auction for $38K more than you paid for the short sale.

So yeah, I think you paid top dollar for your short sale, and the bank is laughing.

robertoaribas says

I'm buying it cash... How much do they get then?

did you miss the part about renting it for $1100? even if I did mortgage it, my payment would be around $500... I'll help: 1100-500 = 600 a month for me, so I'd really cry about the interest!

Mmmm, cash, that's lots of cash to tie up, no loans, no more opportunities?

Like I said, you are throwing out extremely limited information based on what you think, your opinions, and your personal returns of what I call a questionable investment.

I admire you for providing those rentals, they certainly seem like good deals for your renters, but from what I've read you are buying a job of property owner.

robertoaribas says

you are still postulating I didn't know what I was doing...

I didn't say you don't know what you are doing. You are doing a good job, but it is a job, with limited prospects.

I don't talk about myself too much, but I have made a lot of money buying, and selling Real Estate over a forty year span.

My interest though is in businesses.

In 1986 I was pretty much retired at a fairly young age from Real Estate. I bought an Italian Restaurant that was my listing because no one else wanted it. The owner had died, his partner took it over, and the landlord hated him. The partner was just an opportunist who was trying to extort money from his dead partners estate. I never saw that until the land lord pointed it out to me.

I agreed to take over the lease, paid the estate for the furnishings, and moved the partner out of his position for $1.

I knew nothing about restaurants but turned it into one of the top ten places, just barely, in Seattle in three years, then sold it. It's still there today, and makes money. The guy who bought it became one of my Real Estate clients, and he has done every well with his Real Estate potfolio.

Most of my Real Estate clients have been investors who have bought lots of properties. I bought my own set of properties that I sold in 2005, 2006, and 2007.

I thought about buying in 2008, but stopped myself. Instead my wife, and I concentrated our efforts on building our house cleaning business that we had had for nine years as a side business. We also have two trucks, and prepared properties for sale including bank owned properties.

What I was shocked by at first was the number of people willing to pay a lot of money for properties. In 2009 prices seemed to have come down, when commenters started calling it a "bottom" to the Real Estate market.

Nothing made sense to me so, we kept with the cleaning business.

Our business had 20% growth last year, and 30% the year before. This year we should be able to double our business. I can sit here today because we have employees.

I can sell the business for my full investment at any time, cash, or finance.

So there are other ways to make money in Business Opportunities, as an example. You do what you do, and God bless you for that, I'll do what I do.

robertoaribas says

So, I'm not sure about the limited prospects part. It will simply be income.

When I first started you only needed five units to retire, now you need twenty, the way I figure it.

There is no limit on the number of units you can own, but Real Estate, in my opinion, is an addiction.

Most of my guys talk about retirement, but none really do. It's always something else, some other deal, something else to do.

They quit thier jobs do some traveling then are back at it.

Like with me, I have always had the truck with the stuff, and worked on my properties or worked for other people.

Three times in my career I've stopped, traveled, tanned, and laid on the couch until I start all over again with something.

I just pointed out that this market is different than I have ever seen. In my opinion banks are in control of the Real Estate market place, and I just can't figure out what that means.

Sure things are better to me than a market place that makes no sense.

David Losh says

If you borrow a million dollars you owe a million dollars. It makes no difference how low the interest is, you have to pay the money back.

The interest rate clearly matters. The amount you end up paying back is more with a higher interest rate. If your investment has some given return, it may not cover a 5% interest rate, but it may cover a 3% interest rate....that could be the difference between making money and losing money.

Seriously, this is a crazy statement. If you don't think the interest rate matters, please come to me for your next loan. How about 25%?

David Losh says

If you borrow a million dollars you owe a million dollars. It makes no difference how low the interest is, you have to pay the money back.

To add on to what swebb says, interest rate is the price of money. If interest rates are artificially low, then some activity can take place (even if it is totally unproductive to the real economy) which would not happen otherwise. So it does cause misallocation of resources.

Interest rate is a very important signal, but what we have today is market manipulation because the Fed is engaging in open-ended QE.

Monetary inflation without reform is the 'solution' that most favors the monied interests and the financial class given the extractive nature of the system as it is.

http://jessescrossroadscafe.blogspot.com/2013/01/bernankes-hammer-when-everything-looks.html

uomo_senza_nome says

To add on to what swebb says, interest rate is the price of money. If interest
rates are artificially low, then some activity can take place (even if it is
totally unproductive to the real economy) which would not happen otherwise. So
it does cause misallocation of resources

I know this is a generally accepted theory, but I don't see it. Lower rates will allow riskier activity to take place, but it shouldn't cause a misallocation of resources. Only if the risk/reward of investment is misrepresented would misallocatoin occur.

tatupu70 says

Lower rates will allow riskier activity to take place, but it shouldn't cause a misallocation of resources

From the same link that I just posted:

The 'hot money' seeks beta, and that means financial paper, and frauds like collateralized debt obligations, tied to whatever hapless aspect of the real economy that is convenient, such as housing for example.

So yes, you are right. lower interest rates would encourage riskier activity that wouldn't have been taken otherwise. Who knows if this riskier activity is actually productive?

Well, we can figure out if it is likely to be productive or not, by ensuring that the firm which takes on the risk is actually punished for taking such a risk in case the venture fails. What happens in the current economy? Risk is always socialized, Finance is rent seeking through seignorage.

David Losh says

I just pointed out that this market is different than I have ever seen. In my
opinion banks are in control of the Real Estate market place, and I just can't
figure out what that means.

I agree with you but it does not take a genius to see they are trying to pump the price back and higher. If they are going to win, why not ride the tide?

Mobi says

I agree with you but it does not take a genius to see they are trying to pump the price back and higher. If they are going to win, why not ride the tide?

Because it is not just "pump." It's pump then dump and it WILL take a genius or inside information to figure when they're ready to dump. And when it comes to real estate it's not a simple click of the mouse to get out. IMO you're playing with fire. That's why most of the world is parking it's money and happy to get zero return. A zero return IS a profit in this market, but they'll always be a percentage of people who just can't see the sense in that. Those will soon be your servants.

robertoaribas says

the rest are managed by a business partner for 10% of the rent.

Nice of you to finally mention that. Things are looking less and less rosy.

Mobi says

If they are going to win, why not ride the tide?

And the corollary of that also applies. If the current monetary policy fails, a LOT of people are going down in a big big way. So there will likely be bailouts, tax breaks, and forgiveness up the wazoo. If you are going to fail, might as well do it in America where you get ahead by failing upwards.

Elc, I think you are a bit overly optimistic on the number of people that will get out on the next one. Most 'industry professionals' get caught with their pants down every time a bubble bursts.

robertoaribas says

living on a beach

The crabs and fleas will bite you at night. Stick with the buying a Honda Odyssey plan. You can remove the back seats, put shag carpet down. Sleep in a sleeping bag. It'll be the bomb.

swebb says

The interest rate clearly matters. The amount you end up paying back is more with a higher interest rate. If your investment has some given return, it may not cover a 5% interest rate, but it may cover a 3% interest rate....that could be the difference between making money and losing money.

Yeah, the operative words there are if there is a return.

Now banks get a return on the debt by selling the loan, investing that money on short term contracts, that will be at higher interest, or lending the same money again.

For the banks those loans go onto a balance sheet even if they portfolio the loans. The banks are churning that debt to make more money, the borrower would need to do the same in order to get a return. Your house, at this time isn't an investment.

Roberto gets rental income so he gets some return. The only thing, at this time, the home owner is getting is the difference between rent they would pay, and a mortgage.

So borrowing money to get a return is much different than just borrowing money for a place to live. In that regard the interest rate is irrelevant.

If the interest rates were 25% the price of the property would be much less than it is today.

ELC says

It's pump then dump

That's the term I've been trying to remember for months now.

Yes, it's a bump, and dump, but I think you'll see when the dumping begins.

David Losh says

but from what I've read you are buying a job of property owner.

Light bulb changing skills, slopping out biohazard refrigerators and unclogging pubic hair encrusted drains will certainly come in handy in the future. There's always a place in America for someone with that sort of expertise. Someone who can find a proof to Fermt's Last Theorem. Not so much....

David Losh says

So yeah, I think you paid top dollar for your short sale, and the bank is laughing.

You should see all the fools at the auctions here in Florida. It's like a leper colony. There are a few who know what they're doing and they can barely hold back their laughs.

Roberto, can I mail you a check? Send 5 of those places up my way.

Even with a 10% mgmt fee I'd still be doing better there than I can do here at the moment. Even in a crappy neighborhood here your 4BR house would be $140k and rent for about the same amount.

robertoaribas says

Go ahead, its 1600 square feet 4 bedroom 2 bath, single level, new roof in 85027... will rent for $1100, needs literally just clean up inside, and i'm buying it for $86,500. Show me how that is a terrible deal!

My friend just bought one like that at a tax deed sale here in Fort Lauderdale. Paid 70k. Put 20k into it plus lots of sweat. It's on a nice lake. Furnished it "should" rent for $1700 or sell for 150k if he's lucky. I entered it a week ago. We'll see.

$1100 rent is pretty reasonable for a 4/2. I guess it's a different market there. 86K would be a good deal in South Florida but the taxes are higher here I suspect.

David Losh says

but I think you'll see when the dumping begins.

They've been pretty good at hiding what they're holding. At least good at hiding it from those who don't want to see.

robertoaribas says

my taxes on this house are $800 a year

Taxes on my friend's house is $2214. Quite a difference!

ELC says

They've been pretty good at hiding what they're holding.

I had this discussion on another Real Estate blog where a person pointed out that we pretty much know everything at this point. We know the foreclosure, short sales, defaults, Notices of Default, and every other frigging thing.

If you can quantify it, it's no longer a shadow inventory.

We also know the time line, the cut off is when the Fed said they would stop holding interest rates as low as they could which is 2014, I think, but they have also said they will easy monetary policy when unemployment is at 6.5%, if I recall correctly.

We are well on our way to having a relaxed Fed policy and I do think that is why we are seeing price rise.

The last time prices rose like this was in 2006. There was plenty of inventory, 2007 not so much inventory, and prices rose faster. That's when the dumping began.

Banks will be the ones to pull the plug, at the end of this year or beginning of next year. All of a sudden everything will be approved. Auctions will release properties, short sales will be approved, loans of questionable substance will be made, and boom, there it goes.

The economy as a whole is no longer dependent on housing, or construction, so no one will care, economically, except those who made hefty investments. That's when the big players will dump. By 2016, 2017 we will have a clean house. Prices will be lower, interest rates will be up, and housing will once again be another cost of goods, and services rather than an investment.

robertoaribas says

i'm buying it for $86,500. Show me how that is a terrible deal!

You've published that purchase all over this blog, so I'm pretty comfortable saying you paid top dollar, because that is what the bank wanted for the property.

You're the one making assertions here about your great deals.

I don't need to analize your individual purchase to know that the bank is making money, when you claim they were stupid.

Wait a minute, does it have a pool? I'm asking because for that price it must. 4/2 pool $86K sounds about right.

Your short sale is your market place. It makes no difference what the retail market is because of the number of short sales, and the price the banks are asking, and getting for short sales is going up. There is a point when people won't pay the higher prices and the banks will start taking what they can get, once again, but this time they won't stop until they deplete any, and all inventory they can get.

They'll take all the foreclosures people are squatting in, all the excess that big investors didn't buy, and dump them all, quickly, but surely they will.

E-man says

No we don't.

Yeah we do, we do know the data. I was wrong about that to until this guy, who I don't really like very much, posted a bunch of links, talked a bunch of nonsense, but over the course of like a week, he was pretty much right, if you want to know, it's all out there.

There is nothing in the data that's particularly compelling one way or the other. We had a soft landing, with this bounce, but if you remember the 1970s, and most of the 1980s, except for that period of hyper inflation which the Fed has promised to control, and they certainly have, you'll know we are headed for an even keel.

There will be no tops, or bottoms to the market, just housing.

robertoaribas says

you could compare the home using zillow or trulia,

yeah let me get right on that.

You should have taken the $110K like most of the smart guys are doing.

robertoaribas says

ok, says the alleged businesman!

What's your problem?

You made a million dollars, so what are you kicking about every day on these threads.

Who cares about your strategy, money is money.

You have a million dollars so what do you care?

My point is that banks are making money. Banks are everything about money, and they have entire departments that run numbers all day, every day.

The bank is in control of your market place.

Making satements like the banks are stupid shows very little consideration for your position.

So, do what you do, write your book, do your job, but once you start insulting people it shows a high level of insecurity.

I don't believe we've seen the lowest in real estate prices. The can is near the end of the road. When faith in a major currency fails - and it need not be the US dollar - then all fiat will be mortally struck. Post election disasters coming right up.

David Losh says

You should have taken the $110K like most of the smart guys are doing.

You keep asserting that he has overpaid for his properties and that he should sell them and get out now if he can. What's the reason? Do you not believe his rental income numbers? Do you think the rental income doesn't justify the price? Do you think rental rate are going to crash? I don't get it. If he's covering his payment and profiting the same amount each month, why is that a bad deal? You either have to believe the rents will decrease significantly, or that there are better opportunities right now...If prices are going to drop in the near term, maybe he would have been better waiting, but it doesn't make his investment bad in an absolute sense, just relative (and if he used debt to finance it, all the better).

Why specifically do you think it's a bad investment? It sounds good to me, and it sounds like he's doing pretty well.

swebb says

It sounds good to me, and it sounds like he's doing pretty well.

Glad I wasn't the only one thinking that. Even if housing goes into the dumper, he's still making a sound ROI any which way you slice it.