Guest Post: I Sold Short My Neighbor's House
Submitted by Damien Hoffman of Wall St. Cheat Sheet
This evening I was sipping on some California wine when I had the most American of entrepreneurial ideas (to get rich): short sell my neighbor’s house.
That modern cave has been on the market for several months and we’re about to head into the seasonal slow period. I’ve seen some glossy graphs and charts in the local paper showing prices should dip at least 5% in the winter.
I quickly walked outside to get the real estate agent’s number off the For Sale sign. I’ve passed it a trillion times, but I have a neurological-type popup blocker protecting me from anything with Glamor Shots and a sales pitch.
After some extremely brief haggling (i.e., the agent asked for a high price, and I said, “No.” The agent came down 10%, and I said, “No.” Etc.), we arrived at what I considered a great deal. As a sweetener, I even told her to forgo any improvements or an inspection. I am short-selling this house …
So, to make a short story shorter, the agent created a legal agreement with me by which I borrowed the house to sell now, I could buy it back for less in the winter, and then return it to the current “owners” (such a frail term).
Sure, there were issues about who would occupy the house and when, what if I can’t buy back the house later, am I artificially driving down the market if I am selling something I do not “own”, etc. But the agent and I consider those pesky deal-breakers only lawyers would get neurotic about. Besides, if this financial scheme works with stocks, why not houses? This is America. It’s a free country.
So, if you are up this way sometime between Christmas and late February, give me a call. I have a risk-free investment you might be interested in seeing …
(2 votes)
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on Fri, 10/16/2009 - 15:45
#101275
This doesn't really work for non-fungible assets. There is no "market" in the house, it's very illiquid. No real comparable transactions that occur with any regularity (assuming the other neighbors are also not selling their houses). The price is set by a single bid.
So later in the year, when it comes time for you to "buy" the house back, you can sufficiently lowball to ensure an excellent return.
on Fri, 10/16/2009 - 21:19
#101616
This is timely, because I'm pretty sure he was serious.
on Fri, 10/16/2009 - 15:55
#101289
even better...take out an insurance policy on the house then burn it down
on Fri, 10/16/2009 - 17:28
#101393
Naked short ??? teehee
on Fri, 10/16/2009 - 15:57
#101294
There was a case several years ago of a scammer
who put up other peoples' empty, undeveloped land
as colateral for loans. He only got caught when two
banksters were talking to each other about recent
customers and realized they had both done business
with the same scammer. I read that he had obtained
roughly 1.7 million in loans before getting caught.
A similar idea!
on Fri, 10/16/2009 - 16:06
#101300
Here's a better idea. Buy the house for a steal and orginize for a deadbeat buddy to buy it off you, at an over inflated price of course, and then have that buddy default with 12-18 months free rent to look forward to. So what's a FICA score worth anyway, eh? Win-win
on Fri, 10/16/2009 - 16:26
#101325
Straw man purchases are also illegal...
on Fri, 10/16/2009 - 16:29
#101330
Goldman already did it.
on Fri, 10/16/2009 - 16:52
#101353
Why not go out and get a FHA loan for 3% down and if the house price goes up then you you make money; if it goes down on the otherhand, then walk (after squatting for 24 months free of charge, of course). Not a bad investment... actually it's a tax-payer financed, risk free put.
on Fri, 10/16/2009 - 18:53
#101484
Why stop at houses?
My neighbor has a SUV that's been sitting in his front yard for sale for the last 7 months...
on Fri, 10/16/2009 - 19:11
#101498
The bank still has a lien on the property - foreclosure risk
on Fri, 10/16/2009 - 21:06
#101601
.
Excellent analogy for the casino that our financial system has become!!!!
.
on Fri, 10/16/2009 - 21:19
#101615
Great satire. :^)
"Think naughty. Act nice."
on Sat, 10/17/2009 - 03:08
#101860
Title should be "I'd LIKE to short my neighbors house, and have obtained borrow in order to do so".
Good luck getting someone to lift your offer.
on Sat, 10/17/2009 - 11:37
#102045
Is that you Bernie?
on Sat, 10/17/2009 - 11:39
#102048
Is that you Bernie?
on Sat, 10/17/2009 - 14:05
#102130
Why didn't you just buy a CDS on the house, er, I mean fire insurance?
We could end this depression quickly if everybody bought fire insurance on their neighbor's houses [The way the Banks bought "insurance" on mortgage backed securities they didn't own...]
After all if you bought fire insurance on all your neighbors houses - the local Fire Department would have full employment, they'd be adding "shifts," and the local builders wouldn't be able to keep up with the demand. ....just think of the economic stimulus.... new refrigerators, ranges, carpet, tile, linens, cloths, TVs.... virtually every sector of the economy would be thriving!
on Sat, 10/17/2009 - 15:02
#102180
WTH happened to PMI???? Isn't PMI supposed to pay off defaulted loans and become the owners? Why is there a problem? People STILL pay PMI...is somebody taking PMI and scurrying off with the loot?
on Mon, 10/19/2009 - 15:36
#103733
PMI only covers a small portion of the loan. The portion that has the highest likelyhood to not be repaid once the house is liquidated.
Think the last 20%...
Anyway, the private mortgage insurers are in deep with all these defaults. Check out the FHA and their losses with 7% of loans in default