patrick.net

You don't think they know what they're in for? Those guys are making a killing on this bet. The stockholders might be left holding the bag, but not these guys. They know what they're doing. It's just a number's game for them.

I'm pretty bullish on real estate, but I still wouldn't touch one of these IPOs. Too many things can go wrong even if the fundamentals are going the right way.

E-man says

You don't think they know what they're in for? Those guys are making a killing on this bet. The stockholders might be left holding the bag, but not these guys. They know what they're doing. It's just a number's game for them.

I don't doubt they will make some tidy sums flipping these, especially the ones they bought early on. I just don't think they will see the returns from renting they are expecting. Especially from the new REIT portfolios that are yet to be acquired.

Hausmeister T says

Those idiots are buying SFR's in SoCal for $450k and rent them out for $2,750. Appreciation might save their ass but profit on rental income will be next to nothing.

Are hedge funds and private equities stupid for paying those prices, or are the renters stupid for paying those rent prices, or both?

mdiablo says

E-man says

You don't think they know what they're in for? Those guys are making a killing on this bet. The stockholders might be left holding the bag, but not these guys. They know what they're doing. It's just a number's game for them.

I don't doubt they will make some tidy sums flipping these, especially the ones they bought early on. I just don't think they will see the returns from renting they are expecting. Especially from the new REIT portfolios that are yet to be acquired.

The hedge funds and private equities are gambling with OPM. They focus on areas with a 7% cap rate.

This is how it works. They buy houses at a 7% CAP rate, paying $100k for a projected net of $7,000 annual cashflow. They hold the asset for 2 years before convert it to a REIT and sell shares to the public at a 5% CAP rate raising $140k ($7,000/0.05). That's $40k return in addition to $14,000 in cashflow over 2 years. That's $54k return on a $100k investment. 54% return in 2 years. Imagine if they can get a 10% cap rate and leverage it at the same time. My friend just borrowed over $1M from Charles Schwab at 2.2% interest rate. I wouldn't be surprised that these big boys can borrow the money at 1% or less. Once you factored in their leverage, the return is way north of 100%.

Here is the catch. After they converted it to a REIT and sold it to the stock investors. It's someone else's problem. They already made their money. Let the property management companies and the stock investors worry about the maintenance, etc. It's just a number's game. Thanks for playing.

E-man says

The hedge funds and private equities are gambling with OPM. They focus on areas with a 7% cap rate.

I believe your numbers, at least on the ones they got early. I looked at a couple Waypoint bought in Antioch. One 3/1 available now they bought at auction for $96K in Feb 2010 and they're trying to get $1600. The previous sale was $430K in May 2006.

But like the man said, there's a lot of stupid money jumping in now.

E-man says

Here is the catch. After they converted it to a REIT and sold it to the stock investors. It's someone else's problem. They already made their money. Let the property management companies and the stock investors worry about the maintenance, etc. It's just a number's game. Thanks for playing.

That's the basic problem of most of the US economy and the reason the US is falling behind. People inserting themselves at the earliest point in the "game" via connections / crony capitalism, first access to freshly printed money (i.e. ultra-low rates), then slicing and dicing the crap and selling it to gullible "investors". But when the TBTF's are threatened to go bankrupt, it's not someone else's, but the taxpayers' problem ;)