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Foreclosures becoming rentals

By curious2 following x   2012 Apr 2, 6:57am 6,327 views   22 comments   watch   sfw   quote     share    


NY Times reports on private equity investors buying thousands of foreclosures to rent them out (including rent-to-own arrangements):

http://www.nytimes.com/2012/04/03/business/investors-are-looking-to-buy-homes-by-the-thousands.html?hp=&pagewanted=all

I don't know if it's a great or terrible investment idea. They're using computers in a new way, which can lead to success or the next WebVan.

The effects on the housing market could be interesting. If it converts investor capital into a greater supply of well maintained rental houses, then currently rising rents may begin to fall. Also, if it keeps these houses from falling into disrepair, then it might help maintain the real value of neighboring houses while reducing prices. Or, as a few NY Times commenters noted, it might increase transience, which can harm neighborhoods and public services, reducing neighboring property values. (I've seen neighborhoods where landlords try to maximize return by overloading, and the race to the bottom can make the area unpleasant.) With so much capital chasing returns, it may become a major factor, for better or worse.

#housing

1   FortWayne   ignore (1)   2012 Apr 2, 8:49am   ↑ like (1)   ↓ dislike (0)   quote        

This doesn't make sense to me. Banks can do this because they get infinitely free money from the Fed. I don't think investors have that luxury and hence will be losing money for a long time before the break even part comes in.

I'm not in that line of business though.

2   PockyClipsNow   ignore (0)   2012 Apr 2, 8:53am   ↑ like (0)   ↓ dislike (0)   quote        

calpers is dumping 100's of millions into these funds.
So we are heading further to cuba where 'government employees are the rich people'. The governemnt employees will own a large chunk of the rental homes. nice.

4   everything   ignore (1)   2012 Apr 2, 10:19am   ↑ like (0)   ↓ dislike (0)   quote        

Bottom feeders, we've been hearing of this for some time, and of course it's a good deal for investors, buying at auction they can get these bought, fixed, rented, and re-listed faster. Yeah, they'll find a way to ruin it for everyone else, chasing RE for profits and payoffs, just business as usual in RE.

5   RentingForHalfTheCost   ignore (5)   2012 Apr 2, 11:29am   ↑ like (3)   ↓ dislike (0)   quote        

So much for pressure on rents. With foreclosures turning into rentals that will just push down the rental prices all across the nation. It'll still have a negative effect on home prices in many areas.

6   drtor   ignore (0)   2012 Apr 2, 11:48am   ↑ like (0)   ↓ dislike (0)   quote        

curious2 says

I had been looking at it in market terms, i.e. are these investors smart or foolish and how will they affect prices, but I should have seen it in political terms.

Obviously the funds only do this in markets with a reasonable rent/price ratio. Plus they surely get a pretty nice discount from the bank. So I think the investors will make a decent return. In the article they mentioned 8%. Even if they only get 6% in the end they can't complain too much considering their options.

As RentingForHalfTheCost said it could put downward pressure on rents. Regarding price, not sure how much impact it will have, but certainly it will prevent the complete crash that would have happened if the properties were all dumped on the market instead. In fact this is probably a main motivator for the bank: they get rid of a lot of poperties at a decent rate without completely flooding the market with new sales. On the flip side it will make the sludge go on longer as these investors probably hope to sell in a couple of years.

7   StoutFiles   ignore (0)   2012 Apr 2, 11:56am   ↑ like (1)   ↓ dislike (0)   quote        

It's not happening in the midwest. The few people that rent their houses are asking insane prices, like the cost of the mortgage payment PLUS the cost of the landlords new rent.

I guess owners would rather miss payments then pay into a rental until they get back on their feet while a renter covers their mortgage. In dire times, people still want to have their cake and eat it too.

8   futuresmc   ignore (1)   2012 Apr 2, 1:27pm   ↑ like (1)   ↓ dislike (0)   quote        

Just wait till these vultures start lobbying to have local laws that protect tenants and require landlords to maintain homes overturned. Then renters will not only own nothing but will be responsible for fixing broken 60-year old plumbing systems and leaky roofs. And rents won't fall too far, not with the TBTF collusion to keep them high as not to force corresponding home values down. This is just one more means of draining resources out of working people and into the coffiers of the banking cartels.

9   PockyClipsNow   ignore (0)   2012 Apr 2, 1:32pm   ↑ like (0)   ↓ dislike (0)   quote        

Add in the massive section 8 money the feds use to keep rents sky high and you will see that the investors like calpers/hedgefunds are going to be on the recieving end of the moneyhose the government is selectively spraying.

11   1sfrenter   ignore (1)   2012 Apr 2, 2:40pm   ↑ like (0)   ↓ dislike (0)   quote        

Class warfare at its best.

And the 99% are losing.

12   TMAC54   ignore (5)   2012 Apr 2, 9:43pm   ↑ like (0)   ↓ dislike (0)   quote        

Maintenance of multiple houses spread out across the city or several counties is like owning an absent owner type business (failures). A handy mans dream.

Will the banks offer a large enough discount to absorb those risks ? Time will tell. More rentals on the market will help balance out Real Estate sales prices. Meaning, more people renting as opposed to buying reduces demand and value.

13   realitycheck   ignore (0)   2012 Apr 3, 2:20am   ↑ like (2)   ↓ dislike (0)   quote        

Flooding the market with rentals will kill Real estate market as well as rental market.

14   TMAC54   ignore (5)   2012 Apr 6, 12:04am   ↑ like (0)   ↓ dislike (0)   quote        

The banks have a lot of experience BUNDLING property. Did the big investors forget already ?

15   2k12   ignore (0)   2012 Apr 6, 12:25am   ↑ like (0)   ↓ dislike (0)   quote        

Rental prices are dropping in Phoenix metro area.Many rentals SFHomes offer move in specials and sit vacant for months.Professional bidders at trustee auctions are running up the bid on these big buyers 20 percent or more because they will buy at any price.

16   RentingForHalfTheCost   ignore (5)   2012 Apr 6, 1:05am   ↑ like (0)   ↓ dislike (0)   quote        

2k12 says

Rental prices are dropping in Phoenix metro area.Many rentals SFHomes offer move in specials and sit vacant for months.Proffessional bidders at trustee auctions are running up the bid on these big buyers 20 percent or more because they will buy at any price.

Fools and money are soon parted. You don't need to worry.

17   RentingForHalfTheCost   ignore (5)   2012 Apr 6, 2:25am   ↑ like (0)   ↓ dislike (0)   quote        

2k12 says

Rental prices are dropping in Phoenix metro area.Many rentals SFHomes offer move in specials and sit vacant for months.Proffessional bidders at trustee auctions are running up the bid on these big buyers 20 percent or more because they will buy at any price.

Wasn't someone saying that Phoenix rental market is rising just last month. I guess it is just for their rentals the lucky buggers.

18   FortWayne   ignore (1)   2012 Apr 6, 3:11am   ↑ like (0)   ↓ dislike (0)   quote        

Still doesn't make sense to me.

Investors go to the auction, pay out cash. If they rent it out they won't get their money back for at least 15 to 20 years.... no one in their right mind would call that an investment...

Maybe I'm not understanding something here, but what I hear so far makes no sense.

19   kochevnik   ignore (0)   2012 Apr 6, 7:03am   ↑ like (0)   ↓ dislike (0)   quote        

Rentals are JAFB (just another fing bubble).

Since all other forms of investing are much too risky ( thx MF Global) everyone got the idea to buy cheap houses and rent them out - mostly to people who just lost their house.

It's a very dangerous gamble IMO - there is a huge laundry list of reasons that house prices continue to drop, and costs of maintenance/taxes etc continue to rise.

Not to mention things like negative household formation (multi-gen housing becoming much more popular / necessary.

Like every other bubble - this will not end well either.

20   PockyClipsNow   ignore (0)   2012 Apr 6, 7:28am   ↑ like (0)   ↓ dislike (0)   quote        

Fort Wayne,
Here is the situ:
Option #1:
You got 1m in the bank at 1% it throws off 10k a year (which is taxed at your w2 bracket level like 36%)

Option #2:
You got 1m in phoenix rentals thowing off 7% a year after ALL costs that is a 70k a year return which is taxed at a lower rate due to the insanely complex tax code and its crazy deductions.

People choosing between these two poor options already got burned probably in stocks, bonds pay shit also, and commodities are scary as hell.

21   2k12   ignore (0)   2012 Apr 6, 10:59pm   ↑ like (0)   ↓ dislike (0)   quote        

Phoenix area

vacancy rates are not dropping the MLS shows a glut of Rentals with a high number of days sitting vacant with a high number offering free rent. Rental prices have dropped as more investors pile in to buy homes to rent with more investors doing the same thing this will create a bigger supply as all these investors cut their prices to get renters in.As stated by Reuters recently "Americans brace for next foreclosure wave" meaning the temporary low supply of homes on the market wont last.
Your condos for 40k in Tempe are most likely outdated and require high maintenance and excessively high Hoa fees.

22   Tenpoundbass   ignore (8)   2012 Apr 7, 6:04am   ↑ like (0)   ↓ dislike (2)   quote        

Here's the deal by the time all of the houses are bought to rent out, the "INVETSORS" (if we can call these idiots that) will then turn on each other and under cut each other to fill their empty units. Which when the previous renters move out, they will destory and create a bigger financial drain on the owner to recarpet, repaint, new appliances, patch holes in walls, replace copper wire and pipes. Face it, renters don't have pride of ownership. And unlike an apartment building, where the neighbors on the other side of the walls can hear the destructive commotion and stop them before to much damage is done. As a renter in an Apartment building, has some pride it is the building he lives in. So just because you're jilted the neighbors that weren't evicted and not moving out, don't want you to fuck the building up and create a situation where their rent will rise. They will at all cost stop you from destroying the building. Where as renters of single family homes have no such safety net, they can destroy and take their time doing so. Just like foreclosed home owners. Condos and Townhouses don't get as destroyed as bad.

Between the damage and cut rate rents as landlords undercut each other to fill the vacancies...

It may take a year, it may take up to 10 years, but this too shall pass, and 90% of these houses being leveraged as rentals will go down as the worst idea in history and will be sold even cheaper than the cheapsest wholesale house on the market. It will be chalked up as another failure of the Obama administration.

History books will reserve a "Obama's dumbest moments" chapter and this will be one of the follies highlighted. tell your grandkids I told you so.

Another reason I fully expect the destructive tsunami of jilted tenants, because the RE investor class are a greedy lot, that don't like to play nice and try to screw people out of their deposit every where they can, and there is very little law on the tenants side for recourse. They will have no other option but to destroy. And I for one say "Good Show Old Boy, now was that a 20lb hammer?"





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