This page has been archived and commenting is disabled.

Guest Post: The Perfect Real Estate Investment

Tyler Durden's picture




 

Submitted by Ramsey Su of Acting-Man blog,

You want to invest $100,000 in agency paper but find the yield to be too low. How can you increase your yield without assuming additional risk? Easy, here is how. You do not have to send me $19.99 for the tapes (plus shipping and handling) or spend $5,000 for my weekend seminar. This is a freebie.

First, go buy a house with your $100,000. Then sell the house to someone who has no money and only a marginal credit history, taking a loan of $120,000 in return. In real estate terms, this is called a 120% LTV loan (loan-to-value).

Instead of receiving interest on your $100,000 capital, your interest is now based on the $120,000 loan amount. For example, if  agency paper is yielding 3%, your $100,000 would normally pay you $3000 interest. With this perfect investment scheme, you would in addition receive the 3% of $20,000, increasing your yield to 3.6%. Furthermore, if the house appreciates in value, you will receive the first $20,000 in addition to getting your $100,000 principal back. There is no risk because your rich Uncle Sam said he will guarantee the loan.

There is an even better way to monetize the loan. Brother Ben, who is as rich as Uncle Sam, said he will buy $45 billion of these notes at face value every month.  Just sell the note to Brother Ben and pocket a $20,000 profit, all with no risk.

Honestly, this is more a scam than an investment strategy. The victim is the sucker who is paying interest on a 120% LTV loan on a house that may never be his unless the value appreciates by at least 20%.

In real life, this scheme is known as HARP. It is the Government that is victimizing borrowers by offering them this terrible deal, somehow convincing them that it is in their best interest to become a mortgage slave.

In closing, this short outburst is a byproduct of my other recent rants.  I simply do not see how we can have a genuinely recovering real estate market before these wild schemes are removed.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 06/10/2013 - 10:32 | 3642053 useless_fact
useless_fact's picture

The Statue of Liberty was originally planned to be put in Egypt to celebrate the completion of the Suez Canal.

Mon, 06/10/2013 - 10:35 | 3642063 Temporalist
Temporalist's picture

The land the statue is on today has a 1000 yr mortgage that is backed by the Fed with MBS.

Mon, 06/10/2013 - 11:03 | 3642160 Sudden Debt
Sudden Debt's picture

The statue of Liberty is actually a man with ManBooBs!! And THAT'S WHY THE STATUE OF LIBERTY IS ALL AMERICAN!!

 

Mon, 06/10/2013 - 11:06 | 3642180 NidStyles
NidStyles's picture

The term ALL AMERICAN actually comes from the patch of the 82nd Airborne denoting that the unit had Americans from every state in the Union. Hence they represented All Americans.

Mon, 06/10/2013 - 12:18 | 3642425 strannick
strannick's picture

UST and MBS. Return free risk -Jim Grant

Mon, 06/10/2013 - 13:49 | 3642811 Oracle of Kypseli
Oracle of Kypseli's picture

From the buyer's point of view he gets to stay for $600 (which more or less equal to equivalent rent) and when he can no longer pay he stays another two years free. If the house appreciates due to mega-printing he gets to keep both the house and the upside.

So both you and he are defrauding .gov or taking revenge on .gov 

Mon, 06/10/2013 - 10:41 | 3642088 Inthemix96
Inthemix96's picture

Your foot size, no matter male or female, child or adult is the same length as your forearm.

Dont believe 96?  Put your heel into your elbow joint and see where your toes end, right at the start of your wrist.

Ta-Da, nearly as useless as the first one.

Mon, 06/10/2013 - 13:09 | 3642644 Demonoid
Demonoid's picture

Holy shit, it's true.

Mon, 06/10/2013 - 13:51 | 3642827 Oracle of Kypseli
Oracle of Kypseli's picture

Michelangelo's human dimensions

Mon, 06/10/2013 - 10:54 | 3642133 Dr. Engali
Dr. Engali's picture

I woke up this morning with a boner, took a piss and the problem was gone.

Mon, 06/10/2013 - 11:04 | 3642173 BKbroiler
BKbroiler's picture

A boner is only a problem if there's no woman to tend to it.  

Mon, 06/10/2013 - 13:50 | 3642820 darteaus
darteaus's picture

Hetero-sexist!

Mon, 06/10/2013 - 11:05 | 3642175 Hulk
Hulk's picture

Golden arches !!!

Mon, 06/10/2013 - 13:02 | 3642604 dirtbagger
dirtbagger's picture

who mops your floor?

Mon, 06/10/2013 - 11:30 | 3642252 imaginalis
imaginalis's picture

Now it's in front of the city that Suez everybody

Mon, 06/10/2013 - 10:34 | 3642058 Cursive
Cursive's picture

Pater Tanenbram's truthiness has been noted and logged in the NSA Prism database.

Mon, 06/10/2013 - 11:40 | 3642281 Stoploss
Stoploss's picture

Yes, but what about the drone strike?

Mon, 06/10/2013 - 10:41 | 3642090 pragmatic hobo
pragmatic hobo's picture

yup, this is how a small wound festers into gangrene eventually requiring amputation.

Mon, 06/10/2013 - 10:42 | 3642094 wallstreetapost...
wallstreetaposteriori's picture

Thats OK because the stock market and the housing market "can only go up".  Fundamentals don't matter and this time is different.  

Mon, 06/10/2013 - 10:44 | 3642102 Meat Hammer
Meat Hammer's picture

Fuck you, Bernanke.

Ahhhhhhh, it always feels so good.

Mon, 06/10/2013 - 11:10 | 3642192 auric1234
auric1234's picture

It feels better when you know he's reading.

 

Mon, 06/10/2013 - 11:22 | 3642226 sodbuster
sodbuster's picture

Thanks Meat Hammer- no comments section is complete until I read that!!

Mon, 06/10/2013 - 11:29 | 3642248 Groundhog Day
Groundhog Day's picture

I think Bernanke gets a woody everytime someone tells him to fuck off.  Sociopaths like bernank could give a rats ass what anyone thinks of them

Mon, 06/10/2013 - 10:44 | 3642104 Dr. Engali
Dr. Engali's picture

"I simply do not see how we can have a genuinely recovering real estate market before these wild schemes are removed."

 

What are you talking about? The teevee told me we are in a housing boom. Get your facts straight man! Sheesh!

Mon, 06/10/2013 - 17:54 | 3643757 XitSam
XitSam's picture

It assumes they want a recovering housing market. They don't. 

Mon, 06/10/2013 - 10:44 | 3642106 AgLand
AgLand's picture

"There are no markets, only manipulations...."

Mon, 06/10/2013 - 10:49 | 3642125 yogibear
yogibear's picture

It's all about the next scheme to create a bubble.  The banksters always push losses to the taxpayer.

It's become the wild west of finaicialization.

 

Mon, 06/10/2013 - 10:50 | 3642128 ghengis86
ghengis86's picture

Uh...Nikkei anyone? That shit got smashed through the roof almost 5%!!

Mon, 06/10/2013 - 10:58 | 3642138 Kreditanstalt
Kreditanstalt's picture

"There is no risk because your rich Uncle Sam said he will guarantee the loan."

Yet the majority of people say we aren't living under socialism...

The ONE thing they want, more than ANYTHING at all, is to get the public borrowing again.

What better way to do that than artificially propping up asset "values" so much so that anyone trying to afford a house has to borrow?

Mon, 06/10/2013 - 11:12 | 3642197 asteroids
asteroids's picture

No, its worse. The schemes have to be unwound. There is a reversion to the mean. It usually means shooting to the other side for a period of time.

Mon, 06/10/2013 - 11:20 | 3642222 Ban KKiller
Ban KKiller's picture

I stopped paying my alleged mortgage. Still in my home 18 months later. Fighting the banksters is fun if you have the time and smarts to know the scheme of "securitization" which clouded the title. My proof is that the alleged "lender" who tried to foreclose on me used a NOTE with no indorsement. Too bad I have a copy of the NOTE (from the ever so friendly but corrupt servicer "nationstar mortgage, LLC, aka stupid fucks) WITH an indorsement FROM the alleged lender in blank. So...I accused the lender of forgery and fraud. Of course the courts don't want to hear that! Hence the lack of action. I know they will come back with some story saying it does not matter but I KNOW it does and my pleadings to the court are only getting better thanks to the large foreclosure defense group out there. Fight the banks, fight the FED, fight the "free" market of Wall Street....DEFAULT....deny all debts under the UCC. I am no longer a debt slave and it is great. 

Mon, 06/10/2013 - 12:30 | 3642485 Larry Dallas
Larry Dallas's picture

But you can't spell for shit. Perhaps that's why you can't pay your mortgage. Low wage job?

Its "endorsement", not "indorsement".

Mon, 06/10/2013 - 12:42 | 3642522 fourchan
fourchan's picture

most genouses are bad spellers. fact.

Mon, 06/10/2013 - 11:24 | 3642233 Payable on Death
Payable on Death's picture

Another example of liberal help that isn't. It is in no way help to be indebted $120K on a $100K asset. I believe that these deals also extend the amortization beyond 30 years. If so, yet another example of, well, you know...

Mon, 06/10/2013 - 11:46 | 3642298 apberusdisvet
apberusdisvet's picture

All those hedgie investors in s/f homes (by the 1000s) are going to be in for a rude awakening when their proforma 5% YOY rent increases do not occur.  Ben:  are your listening?  We gonna need a bailout.

Mon, 06/10/2013 - 13:28 | 3642727 Panafrican Funk...
Panafrican Funktron Robot's picture

House prices average 193K

Household income average 50K

Historical "sustainable" ratio is 3:1

It is currently 3.86:1

Mon, 06/10/2013 - 13:46 | 3642806 darteaus
darteaus's picture

$120K? What an amateur! Try $200K next time.

Do NOT follow this link or you will be banned from the site!