patrick.net

I would doubt it will pay to be a contrarian in terms of brandNew vs. Used. New house prices have already surpassed the bubble peak prices. Used homes are still behind.

Here in the bay area the relation ship is:

brandNew: Ridiculously amazingly overpriced, and no or very little land
Old: Ridiculously overpriced, and some land if you want to

Once they do start selling they will have their own Realtor system with zero commission and wipe out the Real-estate industry in the way iTunes wiped out retail music stores.

In the bay area in good school districts (like Los Altos), some houses are now taking weeks to sell. The investors have definitely vanished. They are back home watching p@rn, waiting for the next doom and gloom opportunity to buy.

Why would an investor sell?, the loan is a couple of percent (historic low), the home is rented (showing positive income), and it's going up in value. Investors don't have to sell either, they can play funny number accounting games, RE assets and a balance sheet is leverage.

everything says

Why would an investor sell?, the loan is a couple of percent (historic low), the home is rented (showing positive income), and it's going up in value.

Let's say you spent 1B buying 10,000 homes- assuming they are all consistently rented (they aren't) you'll probably start to see a return in about 5-7 years. In the meantime, you're buying dishwashers in bulk, fighting termite infestations, fixing plumbing and paying property tax. Oh, and you're employing people to look after all of the above.

On a small scale it works great (with a little elbow grease), I just don't think any of them really thought this through.

Real estate only goes up in value. Nobody should ever sell.

CMY says

I just don't think any of them really thought this through.

Agree 100%. I've been watching one of these large "investors" in CoCo county for a while now - lots of houses sitting vacant week after week. I can't see them wanting to be in the prop mgmt business for long.

mdiablo says

I can't see them wanting to be in the prop mgmt business for long.

..and they won't be. The only way out of their predicament is massive inflation. Och-Ziff realized the issues before they got too far down the rabbit hole and have been selling their holdings; others are now ramping up with IPO's and even more bank-funded cash.

FWIW, none have even come close to turning a profit. If I was a lawyer I'd be shifting my focus to RE/Tenant law because when this starts to unravel it'll be an absolute goldmine.

robertoaribas says

you are looney toons crazy.

Apparently I'm in good company (but they figured this out in 2012):

http://www.reuters.com/article/2012/10/17/us-foreclosed-hedgefunds-idUSBRE89G1TE20121017

Earlier this year, proponents of investing in foreclosed homes were projecting a return of at least 8 percent a year from renting them out.

But the New York-based hedge fund is looking to sell now because the returns it is generating from rental income are less than expected and it is looking to take advantage of a recent rebound in home prices in northern California, the sources said. It's not clear what kind of return Och-Ziff had expected to earn from renting out homes.

Carrington, too.. and before their delayed IPO we got this nugget from Colony:

Colony American Homes Inc., a division of Thomas Barrack Jr.’s Colony Capital LLC, has found tenants for only 51 percent of the 9,931 homes it bought for $1.4 billion, according to a filing yesterday with the U.S. Securities and Exchange Commission.

SFace says

Once it normalizes (eviction and rennovation), the utilization rate will be in the 90% range once the purchases have 6 months under their belt.

I don't disagree, but I believe that is the least of their problems.

I guess another way of looking at is this: If you have 10,000 homes rented, what does it take to keep 20,000 people happy in a home they spend 30-50% of their income on?

This business model can pay off eventually.. but that isn't what they are betting on (per their own opinions on an exit). What transpires over the next few years will be very interesting.

SFace says

The strategy is pretty simple, buy from the foreclosed at steep discount and sell to the renter/buyer at full retail.

It's the simplicity that bothers me. Have they figured in that rents do not always increase annually, and that homes do not appreciate 10% per year?

Furthermore, the statistical probability of X, Y or Z issues appearing (sewer failure, new roof, fire) with 10k homes is off the charts.

robertoaribas says

1000 good agents,

robertoaribas says

hen you put plumbers, electricians and handymen on staff, and paid a salary

That shouldn't cost much.

mdiablo says

robertoaribas says

1000 good agents,

robertoaribas says

hen you put plumbers, electricians and handymen on staff, and paid a salary

That shouldn't cost much.

I think that is doable. But the question is whether that is the business model they are looking for. I suspect they want their profit bad and fast, like cash out in 2-3 years.

robertoaribas says

So, we still haven't hit 20% of the rent. Subtract tax and insurance, and your finished.

Not quite. First off, I seriously doubt one agent can manager 100 sfh's. I'd say 50 is a more realistic number . And then you still have expenses for advertising repairs, landscaping, legal. And don't forget the operations, HR and accounting staff you will need to hire to manage all of those agents and plumber/electricians.

I'm not saying you can't make a profit. I just think it's going to be a lot harder than they think. And when the monthly financials start rolling in and targets aren't being hit, selling is going to start looking better and better.

CMY says

It's the simplicity that bothers me. Have they figured in that rents do not always increase annually, and that homes do not appreciate 10% per year?

I agree this isn't their strategy. I think Warren Buffet's original discussion of the issue made it pretty clear. He said "if he could" buy huge numbers of houses at a time, he would. So people went and figured out how to do it. The end goal is definitely to get rid of them all eventually. As interest rates rise, there will be safe places to earn a nice return on huge amounts of money.

Investors are really dumping them out in the bay area, folks.

Look for sunnyvale in mlslistings. You will see much more supply than what you used to see just a few months a go. And even in good school districts.

Though the curve does not explain properties being listed for weeks before selling. And, more importantly, the fact that investors are not showing up to the bidding.

I hear realtors calling this a "dumb money" real estate market.

Having said that ... folks. I don't wanna sound as if I knew the future.

I'm just a potential buyer with a very good sense of humor wishing that prices go down (which i do not know if it's gonna happen or not). Pls, folks, do not take my comments personal. (and for those of you thinking of getting competitive in this market, please do not take me seriously, just let me know before you decide to foreclose :-) )

CMY says

It's the simplicity that bothers me. Have they figured in that rents do not always increase annually, and that homes do not appreciate 10% per year?

Furthermore, the statistical probability of X, Y or Z issues appearing (sewer failure, new roof, fire) with 10k homes is off the charts

How much they paid for the homes is a big question mark right?

Without knowing how much they were able to buy the homes for, how can you even begin evaluating how successful they will be?

zesta says

How much they paid for the homes is a big question mark right?

http://www.colonyamerican.com/ + http://www.trulia.com/

Work backwards from there (I sampled around ten, all of which lead me to the 5-7 year payoff).

If you're feeling lazy, just average it out. 100k seems to be the sweet spot.

Then there's always the whole "Wall Street screwing the working class" angle and its potential for some ugly publicity or worse.

Seems like an easy target for some enterprising "community organizers" or Occupy groups.

Like this just posted today:

http://oak.lc/H6Ni4

Dude hates him some $12 sandwiches.

Folks, seriously. If you look at los altos, cupertino and sunnyvale, you will start seeing some properties, occupied by nobody, that are on sale. Some of them, curiously, by exactly the same agent/investor.

I may be (admittedly) wrong about this, but if they are investors, this could be the start of a sales wave, and the end of the investors bubble that took bay area good school district prices 20% above 2008's peak.

As I said. I think i'm just going to give up on my search temporarily until the market starts crashing. (it's still too hot, and am starting to feel confident the market is about to crash.).

What do you think? do you think the bay area's good school district real estate market is about to crash?

Not true at all my friend.

The bay area is it's 4th bubble now, and counting.

1st bubble: early 90s. Crash: early 90s.
2nd bubble: late 90s. Crash: early 2000s.
3rd bubble: mid 2000s. Crash: late 2000s.

With low growth and more volatility, bubbles and crashes are more likely to happen more often.

There is one thing in which real estate agents are true: The bay area is different. It bubbles and crashes more than a drug addict with an engineering degree earning 250K a year :-) (with a drug addict lawyer wife, that earns another 250K a year :-) )

Dude!,

Thanks for the graph. However, the 90s was worse than what I thought!.

With a 7 year decrease in nominal prices of say 10%. And with yearly inflation at 2-4% yearly, we are talking of 24% to 38% decrease in real value of housing.

The 2000s was steep, but with shorter duration. I guess you do not live in the bay area, but I do remember asking prices dropping 30% in the bad school districts. Jus the same as in 2008 - 2009.

So, yes, your graph looks like the chinese stock market, no question about it. But with tons of bear markets. So, my friend, crashes happen, and they do happen often when there is tons of dumb money piling up into businesses in which they are not experts.

Having said that, I would still give it a 30% chance that this is not the crash. We may need to wait fur another recession. (and please, now, do not tell me that recessions do not happen often. At that point, I will just stop replying).

FunnyBayAreaBuyer says

With a 7 year decrease in nominal prices of say 10%. And with yearly
inflation at 2-4% yearly, we are talking of 24% to 38% decrease in real value of
housing.

The posted Case Shiller chart is inflation indexed isn't it? So nominal prices weren't down 10% over 7 years.