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The Great Wall Street Housing Grab


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2020 Mar 4, 7:55am   1,858 views  19 comments

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https://www.nytimes.com/2020/03/04/magazine/wall-street-landlords.html

The Great Wall Street Housing Grab
Hundreds of thousands of single-family homes are now in the hands of giant companies — squeezing renters for revenue and putting the American dream even further out of reach.

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2   SunnyvaleCA   2020 Mar 4, 11:10am  

If you're buying houses here in Sunnyvale — especially 94086 and 94087 — you'll be making a horrible return on a risky and illiquid asset. A $2MM shack rents for at most $60k/year. After your $22k/year property taxes and $5k/year upkeep (remember, these are 60 year old homes with lots of things breaking), you're looking at $35k/year profit. On a $2MM investment that's a 1.75% return. That's exactly the rate on the eTrade.com super-saver bank account that's part of my stock portfolio — I just sweep all spare cash into that. The eTrade is FDIC insured to $1MM (or $2MM?) by spreading the money around to various FDIC banks as needed.
3   mell   2020 Mar 4, 11:32am  

There was def a housing grab and the big cos certainly can roll over their debt longer and sweat it out longer to get the rent they want but I challenge the notion that they are generally squeezing the renters. Some fo the worst rent hikes and slumlords I noticed / heard of were (by) individual landlords. And I've seen some decent renting deals for houses owned by corporations.
4   just_passing_through   2020 Mar 4, 12:40pm  

SunnyvaleCA says
A $2MM shack rents for at most $60k/year


I have a 0.5MM shack on the beach in Maui and get ~68k in short term vacation rentals.

General excise and transient accommodation taxes sum to around 14.4% though. Business property taxes cost me about 4.5I last year.

I wind up with 25-35k in my pocket each year. That's after major remodeling work each year as well.
5   Tenpoundbass   2020 Mar 4, 3:15pm  

If I were king around here, I would build so many new towns with so much housing stock. Your average house under 2K sqft would not be worth over $120K.

I would also outlaw gated communities, and HOAs on any dwelling that does not have at least 4 or more units.
6   AD   2020 Mar 4, 3:29pm  

just_dregalicious says
SunnyvaleCA says
A $2MM shack rents for at most $60k/year


I have a 0.5MM shack on the beach in Maui and get ~68k in short term vacation rentals.

General excise and transient accommodation taxes sum to around 14.4% though. Business property taxes cost me about 4.5I last year.

I wind up with 25-35k in my pocket each year. That's after major remodeling work each year as well.
/''

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

A net of $30,000 in short term rental income off of a $500,000 Maui investment property is a 6% return on investment. That's pretty good.

A friend of mine owns a condo at the Summit in Panama City Beach, FL ( aka: redneck riviera or LA (as in "lower alabama") )

He bought at the peak in 2006 for about $225,000 but earns at least $25,000 annually in profit, and he pays someone to clean and maintain it, as well as keeps it up in appearance and condition.
7   AD   2020 Mar 4, 4:26pm  

mell says
There was def a housing grab and the big cos certainly can roll over their debt longer and sweat it out longer to get the rent they want but I challenge the notion that they are generally squeezing the renters. Some fo the worst rent hikes and slumlords I noticed / heard of were (by) individual landlords. And I've seen some decent renting deals for houses owned by corporations.


You are correct as far as Avalon Properties. I've rented from them and they did not put the squeeze like an individual landlord did trying to push 7% annual increase in rent.
8   SunnyvaleCA   2020 Mar 4, 5:19pm  

^^^ Yes, there are definitely places you could buy and immediately turn around for a profit. I was merely commenting that Sunnyvale is not one of those areas!

I'm still trying to figure out how my area got so out of whack. My theories:
(1) Prices keep going up and up and up so no matter how much you spend you'll be fine in the end. (This is dangerously thinking!)
(2) Ancient person thinks $35k profits per year is great on a house costing only $27k brand new. (Doesn't realizes it's no longer 1960 and he could have more than $1MM in pocket instead.)
(3) Ancient person looks to sell and can't stomach the effort of selling or the heartbreak of $400k taxes.
(4) With Prop 13 benefits, at least the ancient owner is paying negligible property taxes so figures they are "pulling on over on the man."
9   AD   2020 Mar 4, 5:23pm  

SunnyvaleCA says
(3) Ancient person looks to sell and can't stomach the effort of selling or the heartbreak of $400k taxes.


Capital gains tax would apply on anything over $500,000 gain for a couple.

So if the couple's cost basis is $200,000 and they sell their home for $1,000,000, then they would pay capital gains tax rate (15% ?) on $300,000.

Better to do that and then buy a house for no more than 50% of that in Arizona, Nevada, or Colorado. I'm not sure why it seems that Californians are not moving to New Mexico.
10   SunnyvaleCA   2020 Mar 4, 6:40pm  

AD says
SunnyvaleCA says
(3) Ancient person looks to sell and can't stomach the effort of selling or the heartbreak of $400k taxes.


Capital gains tax would apply on anything over $500,000 gain for a couple.

So if the couple's cost basis is $200,000 and they sell their home for $1,000,000, then they would pay capital gains tax rate (15% ?) on $300,000.

Better to do that and then buy a house for no more than 50% of that in Arizona, Nevada, or Colorado. I'm not sure why it seems that Californians are not moving to New Mexico.

More realistic numbers for the specific market I was talking about:
Bought house before 1975 and paid $40k. Sold house for $2MM. Maybe $1.86MM after real-estate cartel. Capital gain is $1.8MM. Spouse is dead, so only $250K deduction. So $1.55MM is taxable. Long-term capital gains are 20% for federal. California rate is 13.3% but progressive, so lets say a mere 12.2%. Is there an Obamacare tax in there too? I don't remember.

So you're looking at 32.2% tax on $1.55MM = $500K in taxes. (Remember, you can't write off your California taxes against the federal any more.)

That said, I completely agree that it's better to take the tax pain and buy a nice house in Arizona for 1/2 of the proceeds.
11   just_passing_through   2020 Mar 4, 9:45pm  

AD says
A net of $30,000 in short term rental income off of a $500,000 Maui investment property is a 6% return on investment. That's pretty good.


Yeah, first year couple years 25K and just finished my taxes and verified 35K. I'd like to be at 7% as I'm getting over 10% on cheaper rentals in Texas. I've read a lot about >=9% being a good starting point for real estate rentals.

AD says
A friend of mine owns a condo at the Summit in Panama City Beach, FL ( aka: redneck riviera or LA (as in "lower alabama") )


I like that area. I have gulf coast family in LA and TX and have driven further but haven't explored Florida yet. Very much like Gulf Shores not too far away.

AD says
He bought at the peak in 2006 for about $225,000 but earns at least $25,000 annually in profit, and he pays someone to clean and maintain it, as well as keeps it up in appearance and condition.


Nice... Yeah, I have 'people' in Maui and a cleaning service. It's super easy to get connections out there as it's essentially a complete tourism economy. I've considered a place in the South near water but that part I thought might be considerably harder.

It appreciated ~100K in the past few years but last I checked it's down to only ~30K. Break even on the real estate mafia essentially. Appreciation is the icing I'll celebrate when I sell so I don't really think about that part much. Cash flow...
12   just_passing_through   2020 Mar 4, 9:57pm  

A drag about Hawaii. Damn Leftists. I'm zoned so this doesn't affect me. Yet. On the other hand it might make these sorts of rentals much more valuable. I received this today:

Maui County has begun the process of considering phasing out all short term rentals throughout the County. Short Term Rentals are defined as vacation rental properties that are located outside of an approved zoning district (hotel/resort, business, commercial, apartment, historic).

The County Planning Department is holding a public community meeting on the topic of phasing out short term rentals on Friday, March 6 at 3:00 PM HST. The meeting will be held at the following location:

Kalana Pakui Conference Room
250 High Street
Wailuku, HI 96973

It is CRITICAL that Maui short term rental owners and operators like yourself attend this meeting and share how short term rentals benefit you and the Maui economy as a whole.
If you are unable to attend the meeting, please take a moment to reach out and share your stories and positive experiences with Maui short term rentals with members of the Maui County Mayor, Planning Department, and City Council. Let them know what a ban on short term rentals would do to you and your community! Click the button below to share your thoughts.
13   B.A.C.A.H.   2020 Mar 5, 8:02am  

SunnyvaleCA says
I'm still trying to figure out how my area got so out of whack

(5) You're nouveau riche with ill-gotten gains in your dictatorship country. You shower your one child princeling with the best opportunities money can buy including test prep, to buy into US grad schools with STEM major. Princeling gets residency by the H-1 / green card route. You covet neighborhoods with the highest standardized test scores and no Latinos or blacks. Money is no object.
14   WookieMan   2020 Mar 5, 8:33am  

just_dregalicious says
AD says
A friend of mine owns a condo at the Summit in Panama City Beach, FL ( aka: redneck riviera or LA (as in "lower alabama") )


I like that area. I have gulf coast family in LA and TX and have driven further but haven't explored Florida yet. Very much like Gulf Shores not too far away.

I haven't followed the real estate much down there in a while, but Navarre Beach is a nice area (Panhandle, FL). My folks made quite a bit of $$$ on a condo down there.

It's landlocked by military land to the East (unbuildable) and Gulf Islands National Sea shore (unbuildable). So scarcity of land could create appreciation. I believe they're somewhat restrictive on density, so I think a bunch of building wouldn't jeopardize an investment. Haven't traveled outside of the Caribbean, Mexico, Costa Rica and US beaches, but it's the best fucking beach sand I've ever experienced. On calm days/weeks, the water is very much like the Caribbean. Chill family vibe, not a party zone.

Biggest problem in the region though is the bath water that is the Gulf of Mexico in fall. It's not a question of if, it's when your place will get hit with a hurricane if you're going to hold for 10 years or more in that region. 10# can speak better to insurance, but that would also likely cut into profit on a rental. St. George Island in that area is another favorite of mine. Specifically the Plantation section. Harder to get to though and limited services (restaurants, entertainment, etc). If you got some fuck you money and pilots license there is a private airstrip on the island. For waterfront or off waterfront, houses are reasonable priced when compared to CA.
15   SunnyvaleCA   2020 Mar 5, 10:34am  

B.A.C.A.H. says
SunnyvaleCA says
I'm still trying to figure out how my area got so out of whack

(5) You're nouveau riche with ill-gotten gains in your dictatorship country. You shower your one child princeling with the best opportunities money can buy including test prep, to buy into US grad schools with STEM major. Princeling gets residency by the H-1 / green card route. You covet neighborhoods with the highest standardized test scores and no Latinos or blacks. Money is no object.
That might explain why people would want to live in the area, but it doesn't explain why people would pay 2x (or more) monthly to "own" the place instead of renting.
16   AD   2020 Mar 5, 10:43am  

SunnyvaleCA says
That might explain why people would want to live in the area, but it doesn't explain why people would pay 2x (or more) monthly to "own" the place instead of renting.


The quote above reads like Patrick :-/

What is chance that rentals of good quality would be available in that liberal white, Chinese, and South Korean public school zone ?
17   AD   2020 Mar 5, 10:47am  

WookieMan says
I like that area. I have gulf coast family in LA and TX and have driven further but haven't explored Florida yet. Very much like Gulf Shores not too far away.

I haven't followed the real estate much down there in a while, but Navarre Beach is a nice area (Panhandle, FL). My folks made quite a bit of $$$ on a condo down there.


Insurance rates went up about 10% after Hurricane Michael in Panama City Beach area. Still the insurance is low (about $50 a month for a $200,000 home) as well as the property taxes (about $125 a month for a $200,000 home). And yes, unlike Mexifornia, there is no income tax in Florida.

To get the white sand beaches and emerald water, you have to be east of Mobile, Alabama. Go west and its muddy water and brown dirt beaches like Biloxi, MS. Alabama has about 25 miles of white sand beaches and then it turns to Pensacola, FL.

Roll Tide Roll, boy.
18   B.A.C.A.H.   2020 Mar 5, 3:30pm  

SunnyvaleCA says
but it doesn't explain why people would pay 2x (or more) monthly to "own" the place instead of renting.


Yes it does.

Compared to the concrete canyons of Asia those are Bargain Spaces, and the region is the Wide Open Uncongested Prairie.

And we have the rule of law. No bullets to the back of the brain (for sale of organs) when we're out of political favor.

Very compelling for them.
19   SunnyvaleCA   2020 Mar 5, 7:08pm  

B.A.C.A.H. says
SunnyvaleCA says
but it doesn't explain why people would pay 2x (or more) monthly to "own" the place instead of renting.


Yes it does.

Compared to the concrete canyons of Asia those are Bargain Spaces, and the region is the Wide Open Uncongested Prairie.

And we have the rule of law. No bullets to the back of the brain (for sale of organs) when we're out of political favor.

Very compelling for them.

Huh? You seem to be arguing that people would rather live here than in "concrete canyons of Asia." I'm not denying people want to live here instead. I'm only wondering why someone would pay 2x more than they had to to live here. If someone wants to live in a house around here, why not pay $4k to $5k/month payment for rent instead of paying $8k to $10k/month just for the maintenance, taxes, and interest on the mortgage.

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