"Get Rich Quick In Virginia"

Tyler Durden's picture

Submitted by Mish Shedlock of MishTalk

In response to California Banker: Views from the Business Banker’s Chair I received a pair of emails from readers tuned into Virginia.

Livs in Virginia (LIV) writes …

Hi Mish

 

Richmond VA, where I live, is inundated with radio commercials to get rich quick by flipping houses. And I’ve seen articles in the paper about flippers. I, too, viewed this as being indicative of a top.

 

We’ve also seen a huge surge in new restaurants.

 

There has been a really big surge has been in microbreweries, and its now in the bubble phase, something not seen since 1996. The GM of Legend Brewing, which has been around for 22 years, told me he’s counted > 25 new breweries opened in the greater Richmond area. Most of these have no distribution, no access to shelf space in grocery stores, and are simply trying to find a niche in a crowded market. They will be washed out in the next recession; good brands and brewing tanks will sell for 10 cents on the dollar. I suspect that most of these ventures have been funded with private capital and SBA loans rather than bank lending, but I have no hard data to support this view.

 

And my local banker has repeatedly told me loan demand is as strong as he’s seen in years. The COO of the local ‘bankers bank’ tells me that loan covenants and pricing have been getting weaker for several years due to competition for good loans. The bankers will lend right into the top and won’t recognize the top until it’s too late. Happens every time. And the small banks have taken much duration risk in the investment portfolios in search of yield.

 

There has been a huge 25-year wave of converting old buildings in Richmond into apartments and I’d say in the last 5 years that move has gone into warp drive. I’ve wondered for the past 5 years how many apartments Richmond can possibly support. And if there should ever be some event (e.g. riots) that change the perception of young adults to not wanting to live in the inner city, then good luck finding a bid. FNMA has helped fuel this boom by offering long term cheap fixed rate, nonrecourse financing.

 

LIV

State Tax Plunge

Meanwhile, the Richmond Times-Dispatch reports State Revenue Growth Loses Steam in April as Income Tax Payments Lag.

Total revenues fell by 3.4 percent compared with the same month a year ago, but that’s not what most concerns budget officials. They’re wondering why estimated and final income tax payments from nonwithholding fell almost 18 percent in the month and 4.2 percent for the year to date.

 

“It’s probably weaker than we’d like to see,” Secretary of Finance Richard D. “Ric” Brown said in an interview.

 

State revenues had come out of March strong, growing 4.6 percent for the first nine months of the fiscal year compared with an annual projection of 2.9 percent. The results in April dropped the growth rate for the year to 3.6 percent.

 

“I think the optimism in March gave way to the reality in April,” House Appropriations Chairman S. Chris Jones, R-Suffolk, said Thursday.

What can possibly go wrong?

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astartes09's picture

All over Los Angeles radio at the moment too

Stuck on Zero's picture

San Diego also.  Ads to attend classes on how to flip houses. Loans arranged over the Internet in 20 minutes. Everyone's pre-qualified.

john doeberg's picture

All your get rich quick schemes are belong to us

 

johngaltfla's picture

Pfffttt. Come back to the epicenter of 2006. Southwest Florida, Miami, and Tampa are all having "you can't lose" seminars with these flipping idiots.

Of course there is no information about what to do or how to prepare for when the music stops, but hey, build up a loan portfolio of $3 million on homes worth $1 million then default is the rule of the day.

Same song, different year, and in many cases some of the same stupid houses that were foreclosed on last time.

Antifaschistische's picture

flipping would not be possible without EASY credit.   Microbrewery proliferation would not be possible without easy credit.  New restaurants would not be possible without easy credit.

The "flipping" phenom is not indicative of "the top".  It is a byproduct of easing credit where the great fool is now believed to be the "smartest" kid in the room.

...and, if putting 50k into a house, then selling it for an extra 100k is a business...then, at least it's a zero sum game.  Because the sucker who bought it is going to have to make up that 50k.  but again, the sucker is only enabled by easy credit and collusion with the entire real estate & appraisal sub industry.

Blankenstein's picture

The buyer is enabled through loans backed by .Gov and they keep easing requirements.  If the banks had to keep these loans on their book and take the losses when the borrowers default, the banks wouldn't be making these loans at the current terms.

johngaltfla's picture

Bingo. It's the same as 06-07. Loan is pre-qualified and issued. FICO's have been "modified" by new rules thus allowing a formerly 560 FICO to have a 650 thus barely qualifying for an adjustable. Flipper goes in, gets a 3/27 thinking he'll be out of the house by the adjustment for less than 2% down.

Well, 2017-2018 is year 3. A lot of resets will hit plus anything that was not sold by the time mortgage rates make traditional 30 year mortgages unobatainable by the average person unaffordable.

Haus-Targaryen's picture

Just wait fellow ZH'ers.  

Wanna start flipping properties?!  Lemme tell you how -- 

All these idiots trying to flip home right now with hard money loans have no clue what they're doing.  They are people who just mortagaged their priamry residence to secure the hard money loan, as these people are having to borrow cost of home + repairs. E.g., most flippers I talk to back state side are douple collateraising their first few flips to build cash flow to fund repairs (because no one has any savings anymore).

All we need to do is wait.  Wait until the credit cycle slows down/stops.  Wait until all these units start hitting the market at the same time.  

Step into a collapsing market with liquidity in the form of AG and AU and start purchasing real estate when there is blood in the streets.

Rent it out and generate massive passive income.

 

John Law Lives's picture

***   SPAM ALERT   ***

Do not click on AltRight Girl's link.

AltRight Girl = scumbag who uses multiple ids to SPAM here

HRClinton's picture

Those who can, do. Those who can't, teach.

Those who offer classes, are the ones making the money.

During the gold rush, more people got rich by selling things to gold seekers, than from panning for gold.

A fool and his money...

sgt_doom's picture

And Seattle as well!

This is the way the housing situation actually breaks down in Seattle and King County, WA (Seattle and Redmond areas, etc.):

On Housing and the Globalization of Housing 

 

Essentially, we are witnessing the globalization of housing, much the same as they globalized employment:  fifty percent or more of houses $500,000 plus in King County were purchased by mainland Chinese --- sometimes EB-5s, and sometimes through Chinese corporate entities.  This tends to drive up the local rentals as housing becomes more unaffordable. 

The purpose of this is multiple:  to move their money here and out of China, as an investment (preliminary investigations on the East Coast by government agencies strongly suggests that the vast amount of purchases involves money laundering --- both by Chinese and other foreign purchasers), and occasionally to actually reside in.

 

On the Capital Hill area (a Seattle neighborhood) --- a perfect example --- what was once affordable housing has been frequently torn down, with local small businesses and small merchants losing their customer base, while (unaffordable) condos have been built in their place --- with low occupancy.

 

Now this is not to say they haven’t been sold, but again to foreign purchasers and sometimes corporate entities (possibly for AirBnB purposes) who purchase as an investment, so therefore there is no new customer base for the local small businesses and merchants!

 

So the globalizing trend has been to replace affordable with unaffordable investments, while shrinking or disappearing the local customer base as far as Main Street is concerned.

 

Local real estate firms today not only list the houses and condos (and apartments) locally and nationally, but also in eighty-nine foreign countries!

 

Now add to this the recent localized churn:  latest surveys indicate that apartment dwellers who have recently moved here for jobs are most likely to relocate to better apartments, or better situated apartments, and we must realize that each time there’s a vacancy, the landlords normally raise the rental rates.

 

Add to this churn the further churn that fifty percent or more of Amazon’s new hires never last beyond their first year --- haven’t yet been able to ascertain the reasons for this (Amazon has not been particularly forthcoming), perhaps they are laid off for lesser performance, fired when they become pregnant, or opt to leave --- but it does require four years of employment before they can be vested in Amazon’s employee stock plan.  So that is further possibility for apartment vacancy churn, again adding to rising rental rates.

 

Unless these facts and variables are taken into account, the Big Picture cannot be addressed, which is why Vancouver, CA, and Ontario, CA, and Bonn and several other cities in Germany, and several in France and in South America, have enacted taxes on foreign purchasers of homes in their respective real estate markets --- something to think about in the coming days.

 

In the 20th century, Black-Americans were excluded from much housing by government policies through the FHA, thus when looking at wealth and asset disparity between Black and non-Black-Americans, it can be directly attributable to home ownership.  Now, many if not most Americans are being excluded with the globalization of housing.

 

rent slave's picture

The Red Chinese are doing it in Hudson County,NJ as well,moving in the Section 8 people from Newark.The Jew now has competition.

hairball48's picture

 There are ads like that on Bloomberg radio every day---and have been for years. Real Estate, investment schemes in oil wells, etc.

Sucker born every minute as the man once said.

U4 eee aaa's picture

They tried to get the old commodity futures scam going a few years ago but I guess the boomers aren't that stupid with their money. Those quickly went away. We do still have the stock seminars though. It seems to be drawing the suckers in. Why don't people realize that if you can make tens of thousands only working 15 minutes per day that you wouldn't need to run seminars every weekend?

jcaz's picture

...When all you need to do that is a Law degree....

johngaltfla's picture

Bloomberg is now MSDNC with so-called "financial experts" posing as hosts. It's become the voice of the hucksters on that network which is a shame because the Asian coverage is halfway decent. It goes to hell in a handbasket however when the socialists take over at 0400 ET.

Bill of Rights's picture

Liberal tears for sale five for a dolla...

OCnStiggs's picture

People doing a remodel with no hands-on experience in building a home or going through a paid (and often botched) home remodel can lose their butts in a hurry. Doing things wrong and having to pay a pro to come in and undo before re-doing the task will eat your lunch. I can't even watch the home flipping shows done by newbies. They rarely turn out well and I end up screaming at the TV..."NOOOOOOOoooooo!!!!"

a Smudge by any other name's picture

No kidding. How many of them are familiar with the building codes? How about firecodes? Zoning restrictions? How about ADA accessibility? That's a big one.

And no, you can't learn all of this stuff from Youtube.

BeansMcGreens's picture

Yes you can learn how to wire your own place on youtube. Building codes, a piece of cake even a meth head can understand. See all my informative downloads.

Derick Almena

Mr.BlingBling's picture

I know, right? Just yesterday on HGTV some chick who successfully renovated ONE home was looking at her next potential acquisition and was talking about 'popping the top' as if there's no cost to the time that would take. She was also focused on blowing out a wet wall (to reconfigure a perfectly functional powder room) as if relocating plumbing is free.

I really wish HGTV would follow up on some of these rookies. But that would ruin the escapism they're selling.

shovelhead's picture

Because solder and copper pipe is so expensive? 1-1/2" pvc has gone through the roof? Drywall and mud, precious as blood?

Nope, no big deal... Oh, you really don't know how to do any of that stuff?

Hahaha. Good luck.

 

swmnguy's picture

Yes indeed, that's where the hard money is going.  To the subcontractors.

The soft money, which is most of the money, is abstract finance moonbeams.  But the real money is spent on pointless "updates."

When my wife and I get the baby birds out of the nest in the next five years, we'll be looking to buy a small house.  Hopefully with no "updates" whatsoever.  I don't want to pay for somebody else's granite-textured plastic laminate countertops, fake cherry cabinet doors, or stainless steel appliances.  I can either do that myself, or pay the guy of my choice for exactly what I want.

Mr.BlingBling's picture

One of Clint Eastwood's famous movie lines was, "A man's got to know his limitations," and I know that others have both comparitive and absolute advantages over me in the plumbing field. Cheers.

Antifaschistische's picture

the shows are a scam.  There's NO WAY those TV "remodel" jobs stay in budget.  But they make money on their show, so they don't care.  I'm guessing when they put $50k into a remodel job WITH landscaping, etc...it's probably more like $110k....but, who cares right as long as they're making money on the show and pumping the Real Estate market.

Blankenstein's picture

The materials most of them use are cheap crap and they aren't using highly skilled labor either.  Yet they price them as though the house is full of high-end details and the sheeple line up.  

Withnail's picture

What are the odds that those shows are basically a front for some real estate holding company to just acquire more old property under the guise of putting on a show? 

We all know that reality TV is a farce; those two words "do not belong in apposition to one another," as Christopher Hitchens said. So what happens during a home flipping show is of course staged, and it isn't necessarily what happens in reality. 

On the show, the host couple buys the house, fixes it up so it's pretty much new, and then decides to either keep it or resell it at a big profit. This is the part that is staged for the cameras. 

But if I were a rental property empire, I would hire actors to put on the show, stage scenes so that we tell the world it was "sold" at a profit to some interested "buyer", when in reality, before the show was even filmed, the couple would sell the homse to my company at a pre-arranged price as per a contract and get their payment by doing the show. 

Regardless of what happens in the script, at the end of the day, my company has acquired a property it can rent out to students or to families, or to Chinese escaping the shitstorm of financial collapse that they're expecting. 

chosen's picture

Clearly we are at the peak.  2008 again, anyone?

AGuy's picture

"Clearly we are at the peak. 2008 again, anyone?"

Probably, but never underestimate the Peak. Back in 2005,2006 & 2007 I thought we hit peak, but it kept on getting bigger until the Summer of 2008. If somehow the Omnibus spending bill does get passed then the Bubble probably will continue into 2018.

swmnguy's picture

No kidding.  Timing this insanity is the bitch of it.

My wife and I bought our starter home in 1996.  We refinanced in 2003, to lock in a rate because our first-time homebuyer FHA mortgage had a floating rate and it was screamingly obvious in 2003 that interest rates could go nowhere but up.  I mean, I got a 6% rate and couldn't wait to sign it and get out the door before they came to their senses, right?

I learned then that in the 7 years we'd owned the house, its value had increased by 2.5x.  Of course, the income of any buyer wanting to buy a starter home hadn't increased 2.5x.  It wasn't like half the houses in town had burned down or something, nor that there had been a huge in-migration of starter homebuyers.  Nor were interest rates that much lower.  There was no plausible reason for that appreciation.

So I knew then, in August, 2003, we were mere months if not weeks from collapse.

Thank god I didn't pull some Millerite survivalist maneuver at that point.  I was right, of course, but the timing of "imminent collapse" stretched out another good 4 years.  And even then, a solid house, with a seller who has equity and can price it right, in a middle-of-the-road neighborhood, never did take that much of a hit where I live.

ebworthen's picture

I've heard the same on the radio here in the Intermountain West.  Road signs, Sunday T.V. infomercials.

People who want to buy talking about how high the prices are, owners crowing about their "equity".

Reminds me of 2006-2007 for some reason.

Greenspazm's picture

The "really big surge" at ZH lately has been the stinking spam from The Daily Festerer and the Shitticism Insitute.

To Hell In A Handbasket's picture

The ponzi scheme and bubble must continue somehow. In the UK, I took my car to Halfords Autocentre, to get 4 new tyres and pissed myself when I saw an advert. Britain's 2nd biggest autocentre/repairs/tyres, was offering 0% interest on car repairs. Yes, credit for the poor bastard who cannot afford to get their car fixed at their extortionate prices. So you can spread the cost.

IE: To replace a shock absorber and spring x2 on a Ford Foucs, these bastards will charge around £480 and I'm fucking serious. So £40 a month to a pleb, looks like a good deal when you are short of money. It's only a matter of time before BlackHorse finance delivers this option to 90% of UK garages. The debt serfdom and bubble is almost endless. Soon everything will be available on credit.

Pigeon's picture

I guess Halfords is assuming people will actually keep paying off a loan they know was made under duress and for work massively over-priced? Good luck collecting. It's not like Halford can come and take the car. Even if they did, who would buy a lot full of used cars that recently had to be fixed, in a deflationary environment?

Mr.BlingBling's picture

But that's the beauty of this scam. After only four or five payments, Halfords has been made whole on its out-of-pocket costs for parts and labor.

Subsequent payments are just gravy. And when that gravy is sweetened with a borrower's despair, as it certainly is in these circumstances, it's irresistible to (((some))).

To Hell In A Handbasket's picture

Whether or not people pay off their loan, is a side issue. The fact credit has reached this region of the market/economy, tells you things are FUBAR behind the scenes. Sometimes I wished I lived in China, so these fucking banker criminals would get executed. Wall Street and City Of London are the epicentre of the fraud, run exclusively by the Kosher Nostra.

Hyjinx's picture

Another good one is the low interest mattress commercials. We're just about finished.

Antifaschistische's picture

EIGHT YEAR FINANCING ON YOUR TEMPERATUREPEDIATRIC MATRESS!!!   That's longer than a home mortgage a century ago!!

To Hell In A Handbasket's picture

I'm already there. Even though we had the money for a new bed, including the mattress, I was a sucker for their 0% 4 years interest free finance at DREAMS. For the price of a KFCl Bargain Bucket per month, I had myself a new bed. Over 4 years its the equivalent of the price of 2 boxes of cigarettes a month. How could I resist? "Just when I thought I was out...they pull me back in." The moneymen suckered me in. I was weak.

swmnguy's picture

Don't beat yourself up over it.  Just don't do it anymore.  And stop to think, "Why am I taking out a loan to buy...(a mattress, a carton of cigarettes, a case of beer, a load of groceries)...whatever it is.  Only borrow money to buy something that will either appreciate in value, or will improve your ability to make more money.

That's advice I got from my grandfather, who ran a hardware store in an Appalachian hellhole through the Great Depression.  Credit/debt isn't evil, but if used improperly can sure hurt you bad.

Using credit/debt to buy things you want and deserve (sez you) but can't afford right now is the problem.

U4 eee aaa's picture

It is also happening in Washington. Vancouver is being blanketed with real estate commercials glorifying real estate deals just south of the border in Semiahmoo Washington where, "We haven't seen these prices in years." Those prices would be $750 K for a home

space junk's picture

Downside is, if the Sasquatch family moves in down the street, the property values all go to hell....

grunk's picture

Is it good beer?

christiangustafson's picture

Perfect Schadenfreude moment dead ahead ...

OverTheHedge's picture

How am I supposed to look dead ahead with that (those) gyrating in front of me?

I think I need to lie down I n a dark room now

I am Jobe's picture

Same kinda of thing happening in Texas , no different than Virginia.