Tuesday, June 10, 2008

Follow the $$

While working out on the treadmill at the gym, I couldn't help but notice the RE infomercial on the big screen. Apparently they are having a seminar in Sacramento, hence they were running their pitch locally. They showed a guy, who bought a home that appraised for $315, 000 in Henderson NV. He was bragging about how he paid, $315,000 (well actually the bank, since it was a 100% LTV loan), plus he got money back from the seller who also paid closing costs.

Why are banks willing to give folks like this $$? I'm sure that home has lost at least 20% of its value by now.

I came home from the gym, to an e-mail about someone's recent experience trying to purchase an REO in a community nearby. They had put in a full price offer 6 hours after it hit the MLS, only to be out bid, 3 hours earlier with an all cash offer. This was very disturbing news for me. It is similar to the experience my brother-in-law is having over in Santa Rosa.

What the hell are these investors doing with these homes? Where is the cash coming from? Something seems wrong to me when investors constantly beat out well qualified offers from real buyer (people who actually intend to occupy and live in the house full time). Neighborhoods need stability and community to survive and thrive. Too much investor activity kills even the nicest of places (for instance, where I live in Serrano, its almost all rented homes and there is little to no neighborliness).

I would love to see them change the (tax?) laws to give buyers a fighting chance.

21 comments:

Buying Time said...

Just saw this story on the WSJ RE site.....might be part of the explanation.

http://blogs.wsj.com/developments/2008/06/10/spitzers-next-act-distressed-real-estate/

Patient Renter said...

What the hell are these investors doing with these homes?

Preparing to lose money like the investors before them.

Where is the cash coming from?

That one, I dunno.

Sippn said...

Cash has been coming out of the stock market and CDs as both are below inflation the last year. At least with purchasing discounted real estate, you have a chance, especially below $250K.

What, you think they should put all their money in oil?

Patient Renter said...

A CD, even with a return below inflation, is obviously better than an investment in a declining market (RE). It doesn't matter how good of a deal you think you can get - all that effects is how much money you're going to lose in the near term.

Sippn said...

Like those before you, I think you should assume real estate trends will continue infinitum...

Buying Time said...

If everyone is buying homes as an investment for their rent value.....that floods the market keeping rents low...which means return on investment is minimal at best.

I would think that CDs and Stocks would be much more appealing, since they don't involve nearly as much elbow grease and transaction costs are considerably lower (they are also more liquid in a down market).

sacramentia said...

A CD, even with a return below inflation, is obviously better than an investment in a declining market (RE). It doesn't matter how good of a deal you think you can get - all that effects is how much money you're going to lose in the near term.

It isn't so obvious to me. The assumption that may or may not be true is that the declining market will continue forever.

sacramentia said...

(for instance, where I live in Serrano, its almost all rented homes and there is little to no neighborliness)

I don't disagree with your point that all renters doesn't help, but compared to where we used to live, there is very little neighborliness here in Serrano. And everyone on my street owns - no rentals.

Patient Renter said...

It isn't so obvious to me. The assumption that may or may not be true is that the declining market will continue forever.

I didn't say a CD is a better investment forever, but right now it certainly is.

Husmanen said...

I still think the vast majority of so called ‘investors’ using cash are really ‘speculators’ trying to profit from an expected rapid rebound of the home prices (<3 years) and not buying a home to use for any time of income stream. Let them purchase.

Even a low return on a CD is better than losing money on a non-liquid asset like a house at this time. When the rent to own ratios pencil out speculation will have turned into actual investment.

Deflationary Jane said...

Don't forget transaction costs on RE (the dreaded 6% plus fees just to get your money back) vs a CD (0).

Then you have taxes and ins which you pay our but never recoup.

Sippn said...

The risks and returns are usually interrelated.

CDs with really no risk, are only a partial hedge against inflation, inflation which is really understated. A "slow spiral to zero" as a near retirement businessman friend explained to me today.

To make more than inflation, you have to "work your money" with with a smart investment adviser (for a fee or a % of the action) or investing directly in a business (yours or someone else's) or something like real estate.

Of course, you have to understand the cycles and risk.

CAPERs today announced a 31% loss on 2 bil in re holdings - actually it was raw land - the most volatile and speculative of RE holdings IMHO. They were claiming 8% return last year on their RE holdings (of 23.5 bil) so that should negate last year - but don't worry you'all us CA state taxpayers will probably have to make up the fat retirements as well as pay out the handshakes for the executives who just left CAPERS!

Did I digress?

Hey BT did you every try the prepped food at the new Nugget? You're welcome.

Sippn said...

Hey Gwynster, nice to hear from you. Did you check in that new town ur looking at to see if they allow those Mary Janes?

"Toto, we aren't in Davis anymore..."

Deflationary Jane said...

Getting a flight out of the midwest was less then easy but we're finally back.

The zipcode we will be living in has a larger % of college educated residents and a MHI far higher then 95616. I kid you not. My shoes will fine.

Jacob said...

It isn't so obvious to me. The assumption that may or may not be true is that the declining market will continue forever.

The market won't decline forever. But it also won't be rebounding anytime soon. And I highly doubt that we will see inflation adjusted 2005 prices ever again.

Places like NY or SF can have insane prices, and the jobs support it, but sacramento? I don't think so. The days of buying a home at 10x income are long gone.

Buying Time said...

DJ - I still can't believe you are leaving....sniff sniff sniff

Sippn - Nugget is nice. What I really like is that Raley's keeps sending big coupons to keep our business.

Patient Renter said...

DJ - so you guys are all set to go, like, for sure? This one's not a drill?

Paul said...

BT-Have you been getting coupons in the last couple of weeks? Ours stopped about one month ago!

Buying Time said...

Paul - Not really.

In general, I'm not a foodie, so lots of selection and exotic dishes don't get my pulse going. Tasty fruits and veggies are a plus though (these days, they seem to look good, but don't taste like much).

Deflationary Jane said...

PR, not a drill. Mr. Jane begins work on the 1st. >; )

We've been ready for this for about two years. We sold off a major portion of my antiques and other non necessities in 05 and 06. Been weeding down our baggage to the point where we could be packed and gone in a weekend and it's paid off.

We're hoping to be on the road on the 21st.

Patient Renter said...

Well best of luck in the midwest. Watch out for those tornadoes and such.