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Is The "Buy to Rent" Party Over?

Tyler Durden's picture




 

Submitted by Michael Krieger of Liberty Blitzkrieg blog,

For well over a year now, I have been writing about how this whole “buy to rent” investment strategy is one of the biggest disasters waiting to happen within the U.S. economy.  I have repeatedly noted that these private equity clowns were crowding into these markets with reckless abandon and that this would ultimately crush their business model as there’s no way rents can rise enough to keep yields attractive in a country where most people are struggling to meet their daily expenses.  Well it seems the day of reckoning may be at hand.  From Bloomberg:

Rents for single-family homes are rising slower than property prices as firms such asBlackstone Group LP (BX) flood the market with homes for lease, posing risks to investors betting billions on the burgeoning market.

 

Monthly payments for properties in Phoenix rose 1.3 percent in February from a year earlier, compared with a 25 percent jump in for-sale asking prices, according to Trulia Inc. (TRLA), which operates an online listing service. In Atlanta, asking prices climbed 14 percent as single family rents gained 0.5 percent, and in Las Vegas rents dropped 1.7 percent even as asking prices soared 18 percent.

 

Seems like a fantastic business model...

“Investors are buying homes, in part, to rent them out, and that has added a lot of rental supply, and that’s preventing rents from rising,” Jed Kolko, San Francisco-based Trulia’s chief economist, said in a telephone interview. “It means some investors will start to think about selling those single-family rentals.”

 

“They’re effectively pushing prices up on each other,” Chang, a former Morgan Stanley housing analyst, said in a telephone interview.

 

Tina Africk, a Las Vegas broker who manages 60 single- family home rentals, said houses that might have rented in 30 days in the past can now take 60 to 90 days to fill, while rents have dropped about $100 a month from a year ago.

 

“What we’re seeing is a game of musical chairs,” Wilcox said. “People lose homes to foreclosure and then rent a single-family home from an investor while another investor buys the foreclosure they just left.”

That folks is the U.S. economy in 2013.

Orr estimated that large investors bought 8 percent of the Phoenix-area homes sold last year, peaking in July and August before tapering off as prices rose. Purchases by all investors dropped to almost 32 percent of transactions in January from more than 39 percent a year earlier, he said.

So the almost half the housing market in Phoenix consisted of investors.  Sorry, that’s downright terrifying.

“One of the risks is prices run up and therefore the rental economics don’t justify the business model,” Rahmani, who has an outperform rating on Silver Bay and Colony, the equivalent of a buy recommendation, said in a telephone interview from New York. “The problem could be that you would have assets that are up a lot in value, which isn’t the worst thing in the world. The risk would be that everybody goes to sell at the same time.”

No Rahmani, all you need is for prices to rise to the point the entire business model is dead and then people stop buying.  You don’t even need to see rampant selling.  If the buying dries up, the housing market will totally crash once again.

Monthly leases in Phoenix’s west side, where investors bought the most rentals, fell by about $100 a month, or 10 percent, in 2012, said James Breitenstein, CEO of Landsmith, a San Francisco-based single-family rental firm that sold most of its 250 Phoenix rental houses last year.

 

“There are a lot of properties out there, so the competition to get your property rented is fierce,” Svoboda said. “Tenants are very savvy. If you’re overpriced by $25, they’ll let you know and go to another one around the corner.”

The buy to rent strategy could very well down down as one of the most idiotic investment trends in years, and that’s saying a lot.

Full article here.

 

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Mon, 03/18/2013 - 21:17 | 3345348 Its_the_economy...
Its_the_economy_stupid's picture

Those that know me here know that I have said it before: Have you ever tried to manage 25 stand-a;lone rentals? It is a recipe for getting stripped. The law is tilted against the owner. The lazy ass "property managers" don't give a flying f---, all they care about is the vig. If you are not on the tenants every freakin' second you are toast.

This whole "buy to rent" is a hustle from day one. I said it before, and I'll say it again, and again.

Mon, 03/18/2013 - 21:46 | 3345452 Downtoolong
Downtoolong's picture

Unless you're Blackstone and have access to government guaranteed loans and can flip the whole deal to some unsuspecting pension fund investor in a securitization before the shit hits the fan.

Wall Street, destroying markets around the world one scheme at a time.

 

Mon, 03/18/2013 - 22:42 | 3345637 Raymond K Hessel
Raymond K Hessel's picture

Tenant Landlord laws are skewed to the landlord for buildings with less than 4 apartments, thus the laws governing the tenant/landlord relationship for single family homes and condos favor the landlord.  I can throw out a tenant from any of my single family units within a few weeks or months, depending on jurisdiction.

 

Mon, 03/18/2013 - 22:53 | 3345667 cornflakesdisease
cornflakesdisease's picture

I have rental properties in the hot houston market, and I can tell you, collecting your rent is a 50/50 proposition.  It takes about 60 days to get rid of a non-paying tenant and sometimes as long as 4 months if they now the law and can stall and delay on technical issues.  Then you have to repair several thousand dollars worth of damage.  My properties are not ghetto either, they are rich yuppies in Montrose, Houston.  People today know the system and work it.  being a landlord is no cake walk.

Mon, 03/18/2013 - 23:22 | 3345749 ArkansasAngie
ArkansasAngie's picture

What you haven't learned is that you get them out of your apartment and then let them sue you.  In Texas you get to subtract all of your expenses from any of their court ordered winnings.  First they have to sue you.

I had a honest to goodness french whore once who had a dad gum attorney as a john.  I did everything by the book and lost big time.  Now I take the front door off the unit.  I turn the power off.  Whatever it takes.

Have 33 units now.  I've only had one month's non payment over the last 2 years.  I do do a criminal and credit background check. I've not had to initiate eviction against a single one.  I tell them of all their bills they pay each month they must first pay mine.  My tenants are most middle class and/or students.  And ... guess what ... they love me.  I maintain my apartments.  They refer their friends to me.

 

Mon, 03/18/2013 - 23:49 | 3345804 adr
adr's picture

all it takes is one guy that gets pissed and cracks the gas line to the stove before he leaves. Try proving it wasn't just damage from moving the appliance. That happened to a building next to the one I used to live in.

People don't give a shit anymore because there are more than enough rentals available. Which is the point of the article. A criminal background check won't show if a person cares about you or not. A credit check is only good as long as they have a job.

When I rented my landlord tried raising my rent $100. I told him, "You're building is 50% occupied, if you want another check, fuck off." Also considering I brought six paying tenants to the building, I'd told him I'd take them with me. I left anyway and took two friends with me. Nobody likes their landlord.

Tue, 03/19/2013 - 06:24 | 3346078 negative rates
negative rates's picture

Yea i'm kicken my rents out, demoin the house, and making a 60 site personal graveyard for my used to be friends who havn't even the money to bury themselves today. 

Tue, 03/19/2013 - 09:48 | 3346613 Mrmojorisin515
Mrmojorisin515's picture

Have fun when that student loan bubble pops, me thinks you and many other landlords in cities depend on students

Mon, 03/18/2013 - 22:53 | 3345668 cornflakesdisease
cornflakesdisease's picture

I have rental properties in the hot houston market, and I can tell you, collecting your rent is a 50/50 proposition.  It takes about 60 days to get rid of a non-paying tenant and sometimes as long as 4 months if they now the law and can stall and delay on technical issues.  Then you have to repair several thousand dollars worth of damage.  My properties are not ghetto either, they are rich yuppies in Montrose, Houston.  People today know the system and work it.  being a landlord is no cake walk.

Mon, 03/18/2013 - 23:09 | 3345715 otto skorzeny
otto skorzeny's picture

and my wife wonders why I have such a low opinion of humanity

Mon, 03/18/2013 - 23:14 | 3345724 rlouis
rlouis's picture

It was Blackstone's Pete Peterson that helped put Timmy G. in Treasury.  He also managed some plunder out of the telecom collapse as I recall; I think he could hang with Rubin pretty easily.

Mon, 03/18/2013 - 23:15 | 3345727 william114085
william114085's picture

excellent call, DTL

Mon, 03/18/2013 - 21:56 | 3345489 zorba THE GREEK
zorba THE GREEK's picture

I own 1 stinken rental property, a house around the corner from me. The tenant is a deadbeat who doesn't

pay rent. It would take at least 90 days after they are 30 days late on their rent to throw them out.

The last rental property I had, the tenants beat me for 4 months rent. It is just not worth it.

If it weren't for the fact that my grandkids are

living there, I would have put the house up for sale long ago.

 

Mon, 03/18/2013 - 22:03 | 3345520 killallthefiat
killallthefiat's picture

You need a good rental manager.  I tried to rent it myself as a rookie landlord.  I got terrible tenants.  Since then, I have a rental manager who has kept good tenants in, going into 3 years on one and into 2 year on the other.  She takes 10%, month after month, but will evict a deadbeat in no time flat.  (Had one of those under her several years ago.)

She is worth every bit of 10%. 

I sometmes lament putting $60k into a rental property, but otherwise I would have bought more gold juniors.

 

Mon, 03/18/2013 - 22:46 | 3345646 Raymond K Hessel
Raymond K Hessel's picture

I love how people think they automatically become Donald Trump as soon as they buy a home to rent.  It's amazing.  How does it work, that you can buy a building and now you know property management, lease negotiation, marketing, administrative law, zoning law, tenant law, inny-minny-miney laws, financing, real estate accounting (which is specialized), property taxes, ad volerem, etc etc fucking et cetera.

If you bought a hospital, does it make you a doctor?

If you bought a gas station, does that make you an auto mechanic?

If you bought any kind of business, does ownership endow you with proficiency?

Mon, 03/18/2013 - 23:18 | 3345739 Dr Benway
Dr Benway's picture

In Australia at least, property investors (read speculators) are not actually doing buy-to-rent.

 

They are doing buy-to-flip-to-greater-fool, while the rent received does not even cover costs.

Tue, 03/19/2013 - 07:28 | 3346173 NuYawkFrankie
NuYawkFrankie's picture

Re I love how people think they automatically become Donald Trump...

 

Are we talking about Donald Trump the Serial Bankrupt here?

You know - the guy who made an art form outta stiffing - for 100's of $millions -  Pension Fund bond-holders of his failed enterprises?

Why that bloviating, blow-dried, bouffanted  blowhard is held up as some sorta paragon of business acumen remains a mystery to me to this day.

Tue, 03/19/2013 - 09:59 | 3346675 Pure Evil
Pure Evil's picture

He's a celebrity, no matter how much a failure, con man, or buffoon, if you're a celebrity you command respect.

Look at Obama, he's a serial failure on all fronts, yet he's treated as a celebrity and receives all the esteem associated with that position in life.

From Wikipedia:

"A celebrity is a person who has a prominent profile and commands a great degree of public fascination and influence in day-to-day media. The term is often synonymous with wealth (commonly denoted as a person with fame and fortune), implied with great popular appeal, prominence in a particular field, and is easily recognized by the general public."

So you see, you don't really need to accomplish much of anything to be a celebrity, as long as the MSM shines its light of popular appeal on you, and you're easily recognized by the general public, you can just about get away with nearly anything.

Mon, 03/18/2013 - 22:49 | 3345657 Real Estate Geek
Real Estate Geek's picture

It's bad when your own family does that. At least you have your grandkids near.

Tue, 03/19/2013 - 17:21 | 3349564 mkhs
mkhs's picture

No, it is normal.  Family.

Mon, 03/18/2013 - 21:17 | 3345349 chunga
chunga's picture

good

Mon, 03/18/2013 - 21:20 | 3345362 Its_the_economy...
Its_the_economy_stupid's picture

I'm w you. Bring the market down to reality.

Mon, 03/18/2013 - 21:22 | 3345369 fonzannoon
fonzannoon's picture

It's just another byproduct of Zirp. Same as dividend paying stocks. People are looking for a replacement of the interest income they used to get on bonds and cd's.

People are not doing this because they are stupid this time around. This time around they are desperate.

Mon, 03/18/2013 - 21:38 | 3345424 daveO
daveO's picture

They're being conned. The banks have a lot of inventory to unload. This is a 'pump and dump scheme' by the banks. The only decent money I ever made in rentals was appreciation, and I did all the work myself. Rents just broke even after damages. These investors will get their heads handed to them!

Mon, 03/18/2013 - 21:44 | 3345445 Divided States ...
Divided States of America's picture

Check out the Canadian condo market. Everyone is buying to rent and using it to offset the mortgage payments, and they are levering up by buying 2 to 5 condos each. Right now the gravy is still coming in but watchout when rates creep higher.

Mon, 03/18/2013 - 22:23 | 3345576 James_Cole
James_Cole's picture

Check out the Canadian condo market. Everyone is buying to rent and using it to offset the mortgage payments, and they are levering up by buying 2 to 5 condos each. 

That gravy train ended for most a year or so ago, people are just trying to hold it all together now. Had an argument with a mortgage broker a couple years back, guy was so blinded he was making out that I was costing people recommending against. I said better to just throw it on an index and keep an eye out...worked alright! Not a lot of fun for people stuck trying to keep up with multiple properties while fighting for renters. Canadian housing market has been speculator driven for a ~decade.  

Mon, 03/18/2013 - 21:20 | 3345363 Number 156
Number 156's picture

Its looking more and more like 2007 part deux.

Mon, 03/18/2013 - 21:21 | 3345364 LawsofPhysics
LawsofPhysics's picture

So, do wages matter or not? Stupid fucks.

Mon, 03/18/2013 - 22:09 | 3345539 rayduh4life
rayduh4life's picture

Apparently not in AZ.  I had a 4closure bizz down there for a few years - got out last spring.  They still do ridiculous mortgages in Phoenix.   While it's nice to think the big PE guys will get left holding this bag of odorous excrement, I'd bet against it.  YMMV.

Mon, 03/18/2013 - 23:14 | 3345726 Variance Doc
Variance Doc's picture

Exactly.  I've told many o' people:  you cannot leverage rent.  Blank stares in return.  Stupid fucks....

Mon, 03/18/2013 - 21:28 | 3345380 TomGa
TomGa's picture

Funny.  A house down the road from me was just bought and turned into a rental two days ago in a nice section of Atlanta.  And now we have a fresh REO on the corner as well.

Mon, 03/18/2013 - 22:03 | 3345515 DirkDiggler11
DirkDiggler11's picture

Thrown in the Chinese that have been buying up all the mid-tier properties on the North end of Atlanta around Gwinnett and you have a recipe for true disaster.

Tue, 03/19/2013 - 06:50 | 3346111 Go Tribe
Go Tribe's picture

And a lot of missing dogs and cats.

Mon, 03/18/2013 - 21:25 | 3345381 Prisoners_dilemna
Prisoners_dilemna's picture

Wow. I needed this very article today. I told some family to read up on the cyprus event and start to think again about wealth preservation. One suggested getting into rental properties. Now I can at least give him this to ponder.

If you start accepting BTC in your donation link I'll send you some.

Tue, 03/19/2013 - 02:55 | 3345960 uncle_vito
uncle_vito's picture

Buy farmland.   Specifically orange ranches in Calif.   $600k buys you 40 acres that net you $100k a year.  Look up Booth Ranches, Paramount Citrus.   Those wealthy owners know what they are doing.   Residential RE is for muppets.

Tue, 03/19/2013 - 06:51 | 3346113 Go Tribe
Go Tribe's picture

Not in the Midwest. You buy farmland when it just looks like a muddy field and not an investment.

Mon, 03/18/2013 - 21:26 | 3345383 Nid
Nid's picture

So when the rents don't cover the expenses they just hold on to the properties, not dump them on the market wholesale, right?

Real Estate recovery...

Mon, 03/18/2013 - 21:37 | 3345419 Its_the_economy...
Its_the_economy_stupid's picture

If you r a bank, maybe yes.

Hedgies are forced to mark to market, and maybe dump the losers.

Mon, 03/18/2013 - 23:02 | 3345447 Number 156
Number 156's picture

What will probably happen, is the Hedgies will be forced to sell, and the banks will buy up the supply. They can now act against all moral hazard and will be fully backed by the fed. They wont loose a cent.

Then, the government will begin either bulldozing homes that the banks write off as losses, or coming up with some sort of low income housing scheme to buy votes.

History Lesson:

http://www.zerohedge.com/article/cnbc-video-let%E2%80%99s-bulldoze-forec...

http://www.zerohedge.com/news/2012-12-10/obama-phone-back-time-its-real

Mon, 03/18/2013 - 22:02 | 3345512 W74
W74's picture

I'm hoping for this.  What's great is other investors will see "bargains" all the way down.  When their business models are far more competitive then the old business models they can then charge less rent than before, keeping the whole thing in a nice downward cycle.  We might actually see a revovery and housing become affordable.

Oh, and New Construction (mostly apartment complexes for rent and townhomes for sale) is the bulk of "the market" these days.  Those will all tank too.  You can buy two somewhat beat up SFH's where I'm at for the price of one new townhouse.  Even the ones that've been up for over a year are still largely empty and the prices are ridiculous (no wonder) yet more are still going up.  I can't wait for development to halt.

On a side note: Anyone flew into Vegas at any point during the last 5 years and looked out the window?  Empty lots, and sometimes paved roads with cul-de-sacs but no structures.  Hilarious.

Mon, 03/18/2013 - 22:59 | 3345682 ForTheWorld
ForTheWorld's picture

In Australia, rents rarely cover the expenses (mortgage, repairs, insurance, land rates etc.). This is apparently an awesome thing for people who invest in property because you write this off when it comes to tax time. If you ask property "investors" in Australia, people are lazy if they don't own property, they're selfish if they want to find a place to inhabit in an area they want to live in (I'm serious about this), and negative gearing is absolutely the best thing ever.

I even heard one guy telling about guy about buying properties to rent out, and how he has switched his loans to interest only, and that's a good thing, because you rely on the capital gains. I didn't want to butt in and tell them that I'm watching property prices dropping throughout the city, and if you rely on capital gains, you'll be waiting a long time.

Tue, 03/19/2013 - 12:43 | 3347790 Nu Yawks hottes...
Nu Yawks hottest club is's picture

Ditto that for the UK and Ireland.

Mon, 03/18/2013 - 21:28 | 3345397 algol_dog
algol_dog's picture

Someone needs to pay for all this ... That's all I'm gonna say ~

 

https://www.youtube.com/watch?feature=player_embedded&v=bjUIE5haVDw

Mon, 03/18/2013 - 21:38 | 3345415 sitenine
sitenine's picture

I've often wondered, if someone can't afford to buy, how come they can afford to rent for more? Thanks for clearing this all up for me.

Mon, 03/18/2013 - 21:56 | 3345472 W74
W74's picture

Never could figure that out.  I guess it's a matter of perspective.  Those who were paying $3,000-4,000/mo. on a mortgage see a townhouse rental for $1,700 or a SFH for $2,100 as a bargain.  In Maryland those prices are typical. 

People who have a kids see renting a house as a must and I'd have to agree with them since ghetto apartment complexes are not a healthy environment to raise children in.  As long as they don't move too often the kids will never know the difference.  So sad, too bad that they couldn't save up a downpayment for a house, but my next door neighbors (for example) are renters (at leas they're quiet) and have a Lincoln Navigator and an F-250 in their driveway.  I'd hate to see their gas bill, but we all make choices in life don't we?

Considering that a lot of mortgages were no down and a lot more were interest-only (or both) those people "losing" their homes were effectively renting anyway and had little to no equity socked into the property. 

Honestly I don't feel sorry for them any more, especially those who lost Gawkey McMansions when a Rancher in a decent mostly White working class area with a half decent school would've been quite affordable.  Don't bite more than you can chew.  Think about it, if people had just bought half the house and saved the difference they would have a few years worth of mortgage payments to tide them over.  So sad, too bad if they didn't do that during the good years when jobs were plentiful.

Mon, 03/18/2013 - 22:08 | 3345535 Water Is Wet
Water Is Wet's picture

I can't speak to the people you are talking about, but transaction costs on real estate are expensive, around 6%.  If a person doesn't plan on staying long enough, renting makes sense.  If a person moves frequently, houses would just be a pain in the ass.

Tue, 03/19/2013 - 01:03 | 3345886 Bear
Bear's picture

And now +3.8% thanks to Obamacare

Mon, 03/18/2013 - 23:18 | 3345733 Real Estate Geek
Real Estate Geek's picture

x

Mon, 03/18/2013 - 21:39 | 3345427 HowardBeale
HowardBeale's picture

Owning rentals, other than a managable complex of size, is a hands on--full-time--job that is, in essence, a lifestyle; one that no reasonable person who has some interest in actually living his life would consider. By the time you've made your nut on the "investment," your life is over...

Mon, 03/18/2013 - 21:40 | 3345430 Son of Loki
Son of Loki's picture

Flood of rentals is right. In my area not only are Landlords giving "incentives" to rent their house but tenants are requesting (and getting it) 10% reductions on their rent. Property taxes soaring 5% on top of school tax increases for increased school security, etc. plus soaring maintenance costs and utility increases make RE a risky investment.

 

When a landlord wants to raise rents, the tenant simply moves out. This can cost the landlord a years profits --cleaning, fixing, re-renting, weeks if not months of vacancy and so on. I was a landlord once for a townhome and it turned into a Nightmarish black hole of money loss.

Mon, 03/18/2013 - 23:01 | 3345689 cornflakesdisease
cornflakesdisease's picture

You hit the nail on the head.

Mon, 03/18/2013 - 21:41 | 3345438 Golden_Rule
Golden_Rule's picture

The smart ones are doing just fine.  If you don't have a mortgage on it you can comfortably ride the waves.  ;)

 

But people try and treat rentals like a tax cheat, doing interest only payments, taking equity out, etc.  Of course the dumb ones will get burned.

 

Food, fuel, housing, and water-- those are the necessities that will always have demand.  If you can produce any or all of those without debt, you are set for life.  Rentals are IMO the obvious first step.

Mon, 03/18/2013 - 21:49 | 3345460 LawsofPhysics
LawsofPhysics's picture

Correct, the underlying debt is the problem. It is possible to grow a business without debt, although bankers really hate that. Anyone remember when you got interest on the savings you allowed the banks to hold for you. Bankers actually had to work then.

Mon, 03/18/2013 - 22:00 | 3345507 TrulyStupid
TrulyStupid's picture

If you dont have a mortgage on it  you are truly fooked. The carrying costs will kill you and the real equity loss will tear your heart out. Your only choice is to liquidate, but to do so is tantamount to pleading stupidity.. take my advice .. own up.

Mon, 03/18/2013 - 23:23 | 3345753 Golden_Rule
Golden_Rule's picture

carrying costs will kill you and the real equity loss will tear your heart out

 

Not in the slightest.  Maybe I'll find I should've stayed in cash and waited.  Maybe I'll find I bought the bottom.  Either way I'll have a property producing income.  Should the bad scenario happen, levered people will lose equity and the property.  And if all goes well I'll be splitting my profits with the gov while levered folk are splitting it with the gov and the banks.  ROI isn't what I was looking for in purchasing a rental, for me its all about retiring early.  I wouldn't go out and overpay for something just for the fuck of it, but I know shit can happen.

And the only reason the threat of severe devaluation is true is because of the political situation we find ourselves in.  The same could be said for holding gold, money, assets, etc, etc,.  There is no safe storage of wealth right now.  Getting all levered up is the anti-answer.

Tue, 03/19/2013 - 01:00 | 3345885 Bear
Bear's picture

Not if they take all the money out that they put in and rent in out until the bank takes it back in 36 months ... then we (the taxpayers) via the Fed get stuck with the bill.

Mon, 03/18/2013 - 21:43 | 3345441 stocktivity
stocktivity's picture

The buy to rent strategy could very well down down as one of the most idiotic investment trends in years, and that’s saying a lot.

well...there are more idiotic ones out there like buying more guns and ammo ...as if someone with even bigger guns and more ammo won't take yours.  Or one of those nut case survivalists spending their money on a shanty in the woods and dried food...and of course more guns and ammo to protect their shanty because ...(sarc) ...no way will others with even bigger guns and even more ammo ever steal their food and water. No sir.

Mon, 03/18/2013 - 23:03 | 3345694 cornflakesdisease
cornflakesdisease's picture

Looks like we go us a city slicker.

Tue, 03/19/2013 - 09:53 | 3346658 eatapeach
eatapeach's picture

By 'city slicker', you mean 'douche', yes?

Tue, 03/19/2013 - 15:08 | 3348874 phyuckyiu
phyuckyiu's picture

It's really sad to realize you once belonged to the Socialist Party Of America when you were younger, but yes this douche has a broom handle with his name on it the next time he is arrested at his occupy protest.

Mon, 03/18/2013 - 21:46 | 3345453 Seasmoke
Seasmoke's picture

When the lease is up , On the way out , Wreck every rental owned by these motherfuckers.

Oh and make sure you stay in for at least 6 months rent free.

Tue, 03/19/2013 - 06:29 | 3346082 negative rates
negative rates's picture

Do I wreck the place before or after i stay my 6 months?

Mon, 03/18/2013 - 21:49 | 3345461 working class dog
working class dog's picture

may the Schwartzman be with you, I imagine we will find him floating in one of the retention ponds of his slum neighborhood he is creating.

Mon, 03/18/2013 - 21:49 | 3345462 rzero
rzero's picture

Finally. I've been waiting since the bust for rents to start coming down here in Phoenix. They've stayed unreasonably high while sale prices have declined dramatically. And now this might in turn start another leg of price declines.

Mon, 03/18/2013 - 21:53 | 3345476 q99x2
q99x2's picture

I agree. And worse the losses could be substantial with each house if the economy tanks even further. That is why I believe single family homes for rentals have been the opportunity for individuals that have the time and energy to personally and diligently oversee their investment. It is a high stakes invenstment that requires an individual to watch it like a hawk and then move onto the next one if they feel compelled. But to mass purchase such risky and problematic investments is all but suicide.

Mon, 03/18/2013 - 22:03 | 3345519 Herkimer Jerkimer
Herkimer Jerkimer's picture

'

'

'

Same crap, different plate, up in Toronto, Canada.

Schlubs think they're going to live the dream, by buying a crappy little semi-detached with a postage stamp lawn and backyard, that's 40 years old, on a 3% mortgage, paying $2400/mnth and rent the basement for $1500.

At least that's the looks on the faces of the people that trapsed through my basement apartment to look at the house I was living in were, as they oogled and awed and said, "Oh-hh-hh! It's so big!"

"Oh-hh-hh!" I reply, "It's a ƒµç?¡?§ basement apartment and everybody is renting them to pay off their mortgage."

What they don't get is the low rates are bringing everyone into market, as soon as their rent gets too high, so the competition for renters is getting fierce.

The Canadian housing market is overbought, overpriced, and a bug looking for a windshield at a racetrack.

 

•J•
V-V

 

Mon, 03/18/2013 - 22:18 | 3345560 rzero
rzero's picture

Canada seemed ridiculous five years when I was still following housing markets. Can't imagine what it's like now.

Mon, 03/18/2013 - 22:20 | 3345562 Seer
Seer's picture

Another lesson in declining margins.

I'm lucky, I was only a "landlord" for a few months.  Bought my property, it came complete with a renter in it.  As much as I'm not someone who froths about the importance of "ownership*," I could see how non-owners tend to be a bit less caring...

* In my life I have rented for a good (or bad?) 20+ years.  I have ALWAYS left where I was living in a better state than when I arrived: I believe that "pride of ownership" should just be "personal pride."

Mon, 03/18/2013 - 22:22 | 3345571 johnnynaps
johnnynaps's picture

I'm going contrarian on this one!  Wasn't there an article about a month ago about JPM getting into the landlord business? With that in mind......now is the time to get into rentals!  

Tue, 03/19/2013 - 17:47 | 3349705 mkhs
mkhs's picture

Are you a moron? (No offense intended)  When the golden squid says "Get out!" then you get in.

Mon, 03/18/2013 - 22:26 | 3345583 zorba THE GREEK
zorba THE GREEK's picture

Rental properties bring investors an average of 11% annually. Gold has yielded an average of 16%

annually for the last 11 years. Hmmmm... Where do I want to invest my hard-earned money?

Mon, 03/18/2013 - 23:08 | 3345708 cornflakesdisease
cornflakesdisease's picture

Lets see.  I live in a brand new luxury apartment in Houston where my rent is 35% less then a cheap crappy starter home.  I take the difference between the rent and a mortgage and buy gold and silver and have been for the last 14 years.  Oh yeah, i feel good.  Did I mention it's physical?  The wife an I plan to live in the Texas hill country when we retire in a nice RV in Leakey Texas for about $425 a month all bills paid.

Tue, 03/19/2013 - 01:36 | 3345912 syntaxterror
syntaxterror's picture

What RV will you retire in? Class A?

Tue, 03/19/2013 - 06:31 | 3346083 negative rates
negative rates's picture

No, those are AAA cadillac rv's. The one where the vehicle wakes up in the morning lookin better than it's occupants.

Mon, 03/18/2013 - 22:36 | 3345617 billsykes
billsykes's picture

OMG!!! 

The sky is falling, REO crash happening as we speak!!!!!!  Start prepping preppers, buy gold! buy guns! short rentals! USA economy imminent crash!!  ZH you have been bearish for yrs..... 

The rent is down less than 2%- wake me up when something happens. 

In the mean time fuck off with these !!! and ??? type articles.

Come on Tyler, why don't you do some follow up articles like the fact that the state took over Detroit or a fed gold audit 

This is a non-issue, ooooh the rent is down less than 2% chapter 11 for all the over-leveraged PE firms. 

whatever. 

Any one who has rented from owner/operators is generally unlikely to do so again- they tend to be cheap, fix nothing and try to treat you like shit. Same w. 3rd party property mgt firms. 

This is why I wouldn't try to get smart and read between the lines to short national multifamily prop. owners.  I say bullish for RE multifam. 

 

 

Tue, 03/19/2013 - 15:17 | 3348943 phyuckyiu
phyuckyiu's picture

"Any one who has rented from owner/operators is generally unlikely to do so again- they tend to be cheap, fix nothing and try to treat you like shit. Same w. 3rd party property mgt firms."

The only other option besides the two you just ruled out is owning property, or living in an RV in an RV park. Are you really that stupid?

P.S. This blog is about noticing trends, and the property rental market is played atm, hence this article. Go back to Maxim where you feel more comfortable.

Mon, 03/18/2013 - 22:38 | 3345629 Bicycle Repairman
Bicycle Repairman's picture

Now with this investing "model" out of the way, the real estate "market" can commence "Collapse Part Deux".  I believe we will go to the bottom this time.

Tue, 03/19/2013 - 00:54 | 3345880 Bear
Bear's picture

In my are in California, they are back to within 15% of all time highs .... up 25% this year (2012-2013)

Mon, 03/18/2013 - 22:43 | 3345639 Diogenes
Diogenes's picture

To all the people who have been saying since 2009 that real estate is dead, will continue to go down in value, and will never come back in our lifetime:

Did you see the part about house prices being up 14%, 18%, 25% in one year?

For those of you who took my advice and bought now might be a good time to think about selling.

(As soon as the weather gets better I plan to list the rest of the houses I bought between 2009 and 2011)

Mon, 03/18/2013 - 23:07 | 3345707 rlouis
rlouis's picture

Better hurry DG - in my area prices are still 65% -70% of the bubble toip and that is ONLY becasue of low interest rates.

Mon, 03/18/2013 - 23:14 | 3345725 otto skorzeny
otto skorzeny's picture

you and jamie dimon should take turns teabagging the bernank in gratitude. good luck catching the dead cat bounce.

Mon, 03/18/2013 - 22:49 | 3345658 Jadr
Jadr's picture

I'm an analyst at private equity firm that is doing this very thing.  I don't really know how I feel on the investment thesis overall since I am a long time zerohedge reader but they aren't my investors and I just make decisions based on what the manager is looking for.  I don't think it is necessarily the worst idea given that the real estate will probably hold value as well as many other assets if inflation starts coming around.  Deflation is really the only way to lose and we all know the fed would do anything to stop that. 

 

I will admit that it is quite funny that after following zerohedge for years and becoming quite the bear to be around people who are so bullish on the future of real estate. 

 

From my position at the firm I have come to understand how ridiculous section 8 subsidies are.  Properties that have a market rent of $1300 per month rent for $1800+ to section 8 tenants.

Mon, 03/18/2013 - 23:58 | 3345815 adr
adr's picture

Entire cities are turing into section 8 zones. Landlords are demanding it. Most want people on welfare because it is guaranteed rent. A guy with a job is a bad prospect in this economy. A welfare queen is a tenant for life, at least until she ODs or gets shot.

In Cleveland all property must be made available to low income renters. The building with the $2k a month luxury apartment, yes $2k is a lot for Cleveland, the crack dealer pays $200 a month and the government kicks in the rest.

As a renter how would you like a crack dealer living next door when you pay $2k a month? Well you won't like it and you'll probably leave. Pretty soon the luxury apartment building is filled with more criminals that the county jail. The owners don't care, the building is packed and they get paid in full.

Tue, 03/19/2013 - 00:07 | 3345828 the grateful un...
the grateful unemployed's picture

when the WQ ods or is shot, there's another to take her place

Tue, 03/19/2013 - 02:23 | 3345941 jeebus
jeebus's picture

Sounds accurate. You got any links by chance?

Tue, 03/19/2013 - 06:34 | 3346088 negative rates
negative rates's picture

That was his personal link.

Mon, 03/18/2013 - 23:56 | 3345812 Meat Hammer
Meat Hammer's picture

I vaguely remember a time when people bought houses in order to live in them for a decade or three.

Tue, 03/19/2013 - 00:29 | 3345856 Rubbish
Rubbish's picture

Wait till one of you suckers gets my dog. Built on expansive soils, walls all cracked, house moves up and down, footings cracked, underground sewer lines broken, slabs out of level by 2 inches. You're never going to know till you own it. Oh and the pool popped out of the ground 10 inches :)

 

Rental time....I'm coming

Tue, 03/19/2013 - 01:25 | 3345902 alfbell
alfbell's picture

If the money velocity picks up and inflation starts hitting the economy hard, that will save the single family residence "buy to rent" people. They are in a tangible asset, right? Their mortgage will be easier to pay off with cheaper dollars, right? You're protecting your purchasing power by being in real estate when in an inflationary period.

A deflationary trend is a different story. That would really hurt the SFR landlords, especially those that are all levered up. But Bernanke would rather sit on a turned on waffle iron rather than allow deflation. He'll print like a fiend.

Good solid Class B apartments are the ideal investment. The economy fundamentals are going down. They'll be more people needing/wanting apartments due to the bad job scene, etc. A good building with excellent property management is a pure investment. Only threat is some sort of local, state or Fed intervention that hurts multi-family landlords.

Tue, 03/19/2013 - 03:33 | 3345985 Pareto
Pareto's picture

Money velocity is toast unless and until the Fed fully monetizes the debt. The Fed's $85b/month of MBS CDS and whatever toxic crap they decide to purchase will not influence (v). So the 2nd leg down in the housing market is inevitable unless the Fed monetizes the debt. He who sells first, sells best.

Tue, 03/19/2013 - 07:16 | 3346155 andrewp111
andrewp111's picture

As long as interest rates remain at zero, even monetization will make no difference whatsoever. The only difference between outright monetization and QE is that under QE the Treasury is still paying the Fed some interest. No, the only thing that can overcome a new round of deflation is a massive increase in federal spending, and Congress has to do that. The Fed can't. And unless Obama succeeds in getting the House back under his control in the midterms, you can forget about any big increases in federal spending before 2017.

Tue, 03/19/2013 - 01:57 | 3345926 dunce
dunce's picture

I was a land lord for years and hated it plus i lost a ton of money. If you want real estate as part of your assets as an investment buy a REIT, no plumbing, broken windows, painting or taking tenants to court, plus you can sell your position with a phone call.

Tue, 03/19/2013 - 02:06 | 3345929 dolph9
dolph9's picture

The problem is the inflated price of all bonds, stocks, and real estate, including rentals.

The sad truth is that half of all of these (or more) are practically worthless.  The establishment can't admit this, which is why ultimately the currency will be hyperinflated.

Who is going to pay the mortgage let alone the rent?  People are going broke left and right just paying for gas and fleeing once their towns become ghetto.

I laugh at the spectacle of the speculator becoming the rentier in a desperate bid for income.

Even conservative income plays like the safest sovereign bonds, dividend stocks, and rental properties are overpriced and won't keep pace with inflation.

Generally speaking you will do much better owning physical gold and silver, although I must admit it carries political and confiscation risk.

Tue, 03/19/2013 - 02:13 | 3345934 ghostfaceinvestah
ghostfaceinvestah's picture

Go on Zillow and look at any a city like Vegas or Phoenix.  Seach for rentals.  The lower end neighborhoods, where there were tons of foreclosures a couple years ago, are now flooded with rentals.  And if you look at the purchase history, you can see these were all purchased in the past few years.  

More malinvestment, thanks to the Fed.

Tue, 03/19/2013 - 03:09 | 3345944 alfbell
alfbell's picture

 

 

Stocks, bonds, real estate, land, commodities, gold & silver is about all we've got. None of them are guaranteed to preserve your wealth. All of these investments  are very scary due to Fed printing, government regulation and intervention which adds up to no prediction on where things will be in the future. Analysis paralysis has hit many investors. Savers and retirees just don't know what to do or where to go for income, and their being forced into risk investments to get a return. Talk about nowhere to run and nowhere to hide. The frog is in the pot and the temperature keeps rising in small increments. Whether these circumstances have been created by a power elite with an agenda, or they are just the result of decades of stupidity, idiotic policies and iignorance of history... the conditions are what they are and the future for our current system looks grim. An earthquake is coming. A crash. A reset. But when? And where? And what is really the solution for an individual to be able to weather the coming storm? (Please... don't respond with "Gold and Silver bitchez!")

Tue, 03/19/2013 - 06:58 | 3346128 RunningMan
RunningMan's picture

Exactly right. I suspect any resurgence in real estate in certain markets is (1) mostly hype, but (2) more investors looking to buy homes to rent in a desperate or greedy attempt to make a better yield on their savings.  But the US seems to be stuck in the doldrums. Absent a major trigger event, I suspect a continued multi-year slide of poor investment opportunities and lousy returns. Stagflation is the word, but "official" stats are masking inflation, so maybe we need a better phrase to suggest stagflation by stealth.

Tue, 03/19/2013 - 08:01 | 3346243 mikem54321
mikem54321's picture

"Talk about nowhere to run and nowhere to hide."

Welcome to the plan and 3,000 years of history. The only proven winner throughout history has been precious metals but hang on for a WILD ride as the criminals try to shake those that are not in a zombie state off.

Tue, 03/19/2013 - 02:52 | 3345959 luckylongshot
luckylongshot's picture

What the banksters forgot to think about is the logical consequence of growing their parasitic business too big...they are killing the dog. This will not end well.

Tue, 03/19/2013 - 02:56 | 3345961 laomei
laomei's picture

The thing I like best about this, is that you KNOW they didn't pay cash in full for them, investment bank or not.  Hell no, profit is all about leverage and leverage means debt. What happens when their wizardry fails and fucks the system in the same exact way all over again?  It will be hilarious.  Who gets left holding the bag though? That's the question.

Tue, 03/19/2013 - 09:50 | 3346633 d edwards
d edwards's picture

The gov't/bankster cabal will do a "Cyprus" to us-watch for it.

Tue, 03/19/2013 - 12:08 | 3347495 AynRandFan
AynRandFan's picture

All I know is that as soon as the media started saying that housing was recovering, prices jumped back up to 2007 levels.

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