The 1 Percent Is Buying Up All Of The Low End Real Estate

[xchrom]

http://www.businessinsider.com/the-1-percent-is-buying-up-all-the-real-estate-beware-of-tom-lee-of-jpm-2012-5



Long time real estate pros in Southern California are seeing a phenomenon they have never seen before. The 1 percent is buying up all the low end SoCal real estate! This was reported by the LA Times.

Meantime, Tom Lee was on Bloomberg on 5/21/2012 pumping the housing market. Like a good soldier of the 1 percent, JP Morgan's Lee was saying that real estate will help kindle a boom in manufacturing in the United States. But if you keep in mind that many of the investors pumping the low end of the real estate market are in fact private equity funds, the investors not in the 1 percent should beware.

What could happen is that the 1 percent will squeeze everyone else out of the market, and undercut rental prices. While this is temporarily good for renters, cornering the market by the big boys will not help renters in the long run. Remember, this money could be hot money as well, coming from all over the world to give a boost to real estate that may not last.

We know that the investment funds were talking about getting into these markets, but now they are in the markets and we have locals making us painfully aware of that fact. From the same LA Times article, Mia Melle, a rental management pro, says that many of her clients are now private equity funds.


Read more: http://www.businessinsider.com/the-1-percent-is-buying-up-all-the-real-estate-beware-of-tom-lee-of-jpm-2012-5#ixzz1vbcnmy3V

[Old and In the Way]

1. Actually, I think that today's private health insurance companies -

will be tomorrow's real estate management/development firms. Because the price of healthcare and end-of-life costs mean a lot of the deceased will be losing their properties in probate. Happened to my wife and her mother's home.

[dkf]

3. I bet more houses are lost through Medicaid obligations.

[dkf]

2. Private equity also means Pension Funds, Endowments and union money.

[Scuba]

7. Yes, those poor widows and orphans that rely on these private equity funds for their income...

... or, to suggest a more efficient alternative, we could use space platforms to hurl bales of hundred dollar bills into the eyes of hurricanes knowing that one or two would fall on the front porch of a widow.

[dkf]

10. No those semi comfortable union retirees and their spouses.

[treestar]

4. Instead of big banks and mortgages

we'd have big Rental and Landlords.

The only good to come of that could be tougher restrictions on landlords. With that many renters, there's going to be more consumer pressure. It was true for other things and could become quite so for housing. And states already have a lot of landlord tenant laws meant to protect tenants.

The "we've all got to own a home" thing does have its downside, too. The mortgages are far more confining than a rental situation would be.

[lumberjack_jeff]

5. When everyone is employed, what do you do with all that job-creatin' cash? n/t

[kestrel91316]

6. They are buying up all the rentals, and now they are starting to jack up

the rents, even on crappy, poorly maintained properties. Rents are increasing substantially even though the economy is still terrible.

The unit downstairs from me is 2-BR and has 3 adult women and 2 children (4 generations of one family) crammed into it.

[KurtNYC]

13. Rent is up in many places because fewer now qualify for home loans

and that has put a squeeze on those who were already renting.

[Robb]

18. +1. Rates are low, but qualifying is really, really difficult. nt

[Gregorian]

20. I'm hearing about sales that consist only of taking over remaining payments.

I'm not sue I said that properly. In Sacramento I heard a story about apartments being simply transferred over without any price on the actual property. I'm not sure how it worked, but it meant someone got an incredible bargain.

Not to mention the 100,000 home bundles that are being put together. Huge collections of foreclosures.

[leftyohiolib]

8. this is wilard romney's plan

let the foreclosures happen, let investors but up the property and rent them out

[socialist_n_TN]

9. Folks this should NOT be surprising...............

This is capitalism in it's purest form. That's what all the busts in capitalism are about.

The busts clear the market of all the smaller fish and allow the big fish to swim in and buy out their assets at pennies to the dollar funnelling the wealth upward.

[dkf]

11. Affordability should have brought more into the market but everyone is gun shy.

[socialist_n_TN]

12. The smaller investors don't have the money to come into the market..........

They lost it all (or most of it) in the Great Recession.

[ieoeja]

14. The shift from federal income taxes to local property taxes is what keeps me out.

I paid off my mortgage recently and actually considered buying an incredibly cheap house for a long-time unemployed friend. Then discovered that property taxes on the house amount to almost $1000 a month.

So he will continue living in my basement.

[guardian]

23. OMG!!

Where is this "incredibly cheap house" located that has property taxes of $1000/month??? $12,000 per year in property taxes around here is more typical of a $1 million house value.

[belcffub]

29. you don't live in NY then

around we're we live a $150k house has a tax bill of around $6k... so I would guess $12k would be about right for $300k ish... give or take a little

[badtoworse]

31. In NJ, we're right up there with you.

[ieoeja]

37. Property taxes are on assess values, not actual prices.

The house was only $5,000. But as it is in a nice suburb of Chicago, its assessed value is in the hundreds of thousands.

I am doing well. But not well enough to pay a million dollars for a home primarily just to get the guy out of my basement.

His best friend and I have finally gotten him trying to do something. Specifically, we got him to apply for SSI. I'm no doctor, but he is defnitely not the same guy I used to know. I've had friends and family endure long term unemployment before. I've seen how it saps the life out of them.

But this is different. He seems incapable of sustaining anything for more than a day at most. He even keeps failing to renew his food stamps which only takes a few minutes each month. I got him into counseling once. Never made it back a second time. He needs help, and I'm not the right person.

[SunSeeker]

26. Where do you live?!

I am not aware of any state with 16% property tax rates--which is what I figure you're saying if you're talking a cheap ($75k) house and $12,000/year in property taxes. In CA, it's only 1%--if that.

[ieoeja]

36. The house was selling for only $5,000 in Lindenhurst, IL.

I was guestimating the taxes. My house in Chicago is valued around $300k even though it is in such bad shape that it may be prohibitively expensive to repair. And I pay roughly $7k in property taxes.

My understanding of the toney suburbs is that their taxes are even higher. They are more than happy to pay higher taxes for better schools in their community. They just don't want to pay for better schools for other people. Hence, the shift from income taxes spread evenly across the land to local property taxes.

[belcffub]

30. wait... if you paid off your mortgage

why are you living in the basement... you renting out the upstairs...

[dkf]

32. He was going to buy it for his buddy who is living in his basement.

Wow what a nice gesture huh?

[belcffub]

35. ok... now that I re-read it...

it makes more sense...

[ieoeja]

38. Not that nice. I just want him out of my damn basement!

Okay, there might be a little more to it than that. He is obviously suffering from depression, and basement dwelling is certainly not the best environment for that.

Also, the house was only $5,000. I have seen a ton of listings for houses for $5,000 or so. Most are either in really bad shape or in really bad locations or both. This one is in a great location, and at a casual glance looked pretty nice.

But then I realized that condition meant a high assessed value which means high property taxes. He can't afford it, and I'm not going to pay it for him.

[dkf]

40. Props that you even considered it.

You are a very very good person. So sorry to hear about what your buddy is going through but he is so very lucky to have a wonderful friend.

[ieoeja]

39. Funny you should mention the upstairs....

I live in a single family home with three floors including the basement.

Almost 20 years ago an acquaintance of mine took a reduction in force from the National Guard where he served full-time as a major. The Guard has some administrative staffing as a full-time job rather than having to be called up. When he left that job, he had to downgrade apartments. His new apartment was running late in getting ready when he had to leave his old apartment. So I let him use my top floor for a couple weeks.

Someone stole his car. The samples for his new job as a salesman was stolen with the car. He loses car, job and can no longer afford new apartment. His move-in interrupted me in the middle of rewiring the upstairs, so he lived on an extension cord on the one working electrical outlet for about a year. Then one day it occurred to me that I had rewired almost the entire upstairs to a central spot where I planned to feed it power. All I had to do was build a "jumper" from the one working outlet to a rewired outlet and, voila, 90% of the upstairs now had electricity.

11 years later ... I'm a pretty easy going fellow. But when I had water pouring into my floor, went upstairs and saw a gaping hole in the roof and was informed that it had been there for some time and he kept meaning to mention it to me ... well, he had to go.

Also, my best friend around that time was looking for a new, cheaper place to live. And I could use the extra cash as I had gotten into a bit of a hole renovating an apartment down the street which I bought to help my ex-wife. She wanted a house and had discovered a real estate oddity. The brick two-flats (solid brick, not just siding) were going for half the price of single-family homes! If I bought half of it, she figured she could afford her half. But to get my half to a break even point on the rent, I had to extensively renovate it. That put me in a hole that took a couple years to crawl back out of. So letting my friend move in and chip in on household expenses was to our mutual benefit.

When I originally bought the place, the top floor had some kitchen cabinets and an exhaust vent in one room. So it had either been an apt at one time, or someone had started to convert it then dropped it. After I crawled out of the money pit, I hired some guys to finish a cheap kitchen. Knocked out a wall between the kitchen and a 2nd bedroom upstairs which makes for a nice, airy place. Frankly, his part of the house is nicer than mine.

Particularly since last Thanksgiving. My ex-wife has issues. So her son moved in with me the night before Thanksgiving. So my living room is now his bedroom while my dining room is now my living room.

So right now:

Top floor - friend
Primary floor - me and my ex-wife's son
Basement - friend of the friend upstairs

The guy upstairs** chips in a little, but only sporadically. He can afford it. He's just irresponsible that way. He is definitely not renting. No lease. There were no locks until he recently installed one to stop his friend in the basement from stealing food. And he only pays when he feels like it. So stop looking at me, Mr IRS agent.



[font size=1]**No, not you, God. When YOU start chipping in on the household expenses, I'll finally believe in you. Believe in you, not worship you. I believe in Bill Gates, but I wouldn't worship him even if he bought me a new house.[/font]

[bemildred]

15. +1

"Buy low, sell high." This is the "buy low" part.

[Gregorian]

16. Absolutely. And I've been watching this first hand.

Being in real estate, I have seen blocks of 100,000 homes up for sale in a bundle.

My timber ranch worth millions just sits on the market. The big money is bargain hunting.

Pretty sick. But who didn't see this coming ten years ago, even.

[Robb]

17. The big money is *always* bargain hunting.

[badtoworse]

19. They're professional investors; that's what they're paid to do.

Would you invest in a fund where the manager overpays for investments? I wouldn't.

[Robb]

22. Nope. I had lunch with a venture capital guy a month or so ago

...Interesting character. Child of old money, he and a few similar buddies had a venture capital group together. Hands in a lot of pots, but a lot of what they chose to invest in he characterized as "bottom feeding"; for example, acquiring a lot of small water or mineral rights in an area nickel-and-dime, then packaging the collection and reselling it to a big oil or mineral company.

Likeable guy, but I still had visions of black-suited creeps sitting in farmhouse kitchens pushing water rights sales agreements across tables and offering a tenth of what they'll get for it from BP or whoever. Probably similar players in real estate right now.

[badtoworse]

25. That actually sounds like a risky play to me

I assume your venture capitalist is buying blindly, i.e. with no test data confirming that the properties have substantial mineral resources. Natural gas prices are down right now, so there may not be the market to sell those rights at present. They may need to sit on them until the natural gas market recovers.

BTW, I've been involved in leasing land for wind projects, a very similar exercise as acquiring mineral rights. Generally speaking, the landowners are savvy people who know what their land is worth and what is a fair price for a lease or sale of the mineral rights. IOW, they're not naive idiots.

[Tikki]

21. I've seen some new start-ups around here (SoCal) advertising their services as...

Last edited Wed May 23, 2012, 05:28 PM - Edit history (1)

property managers...Used to just talk about commercial property, but
now they are advertising residential management as well..

Tikki

[Cleita]

24. So how long will it be before they start setting up fiefdoms?

You know the 99% will become serfs. However, where the liege lords of the Middle Ages knew they had to provide their serfs with minimum housing and land to feed their families, I wonder if the new lords will see such an obligation as theirs?

[slackmaster]

27. They'll never make a lot of profit renting out Baltic and Mediterranean

Marvin Gardens, Pennsylvania Avenue, and Park Place are where the real action is.

The railroads and utilities aren't sexy but they return steady dividends over the long haul.

[SoCalDem]

28. This is always the "next step" in a financial collapse

If you are worried about "the markets", and you have loads of cash laying around, you buy real estate.

There is only so much land to go around, and when it's "on sale", rich people snap it up.

That's why it's so disingenuous when real estate people go on and on about what a great time it is for first time buyers to get that house they have always wanted.

Most of the really good bargains never make it to market, or are immediately snapped up.

A real estate agent friend of mine said they often have multiple houses bought at one time.. with cash.

Rich people have legal people already on staff, who can research the validity of documents that come with the house, and they can cut through a lot of red tape that a first time buyer may not ever know about.. and who may end up buying that first house that comes with a tangled mess of dubious paperwork.


People who foreclose on houses always prefer a quick cash sale, to a long drawn out process of newbies trying to qualify for loans..

[Fire Walk With Me]

33. A robber baron land grab creating a nation of rent slaves.

Their plan from the beginning.

[MineralMan]

34. Where I am, existing

housing inventories are going down quickly now, and median prices are rising. Time on market is getting shorter, too. And this is happening across all price ranges. I just did a bunch of research for a web site I'm writing for a real estate broker here in Minnesota. However, I'm also seeing a lot of sales to individuals who are moving into houses. The house next door to me, for example, finally sold after three years on the market, to a young woman and her son.

There seems to be something of a recovery going on here in the Twin Cities. Some of it may be due to investment buyers, but there are also a bunch of sales to individual families. They'll be moving as the school year ends.