[quote=livinincali] . . . There’s some out there that are truly free and clear but I’d guess that it doesn’t represent most and certainly doesn’t prevent them from cash out refinancing at some point. If they end up with a bad experience dealing with tenants do they stay there when other yield investments start being more competitive. Maybe, I don’t know. I just feel like the emotional attachment isn’t there. People have drained retirement accounts to keep an owner occupied home. An investor probably has some kind of risk tolerance where they are prepared to exit even if it means a principal loss.[/quote]
I personally don’t know anyone who has “drained their retirement accounts” to keep their home. I think cash out refinancing is done by a very small minority of longtime owners. I don’t see this being done in the submarkets I follow which are heavy with free and clear owners. Some of the owners are occupying and some are not. These properties are in their estates and will ostensibly be passed down to children/grandchildren upon their death sans reassessment pursuant to Props 58 and 193.
If rates rise, LL’s will stay LL’s if it makes financial sense to do so. When rates go up on passive investments, a free-and-clear LL may decide to figure out if they will still be making more landlording than they would on investing in passive vehicles, which would have less work involved. They will have to also take into consideration what the price and likely terms would be at that time if they listed their rental property and figure out the cost of repairs and improvements they might have to make to it to market it successfully for the highest price in light of its current competition.
A LOT of longtime owners don’t have an “emotional attachment” to RE. I myself have never had an “emotional attachment” to RE whether the property in question was actually my home … or not. Emotional attachment and RE don’t mix well, especially when buying, selling, renting out and attempting to improve a property. Taking off the rose colored glasses and looking at the numbers in the light of day to see if they make sense or will make sense is what should always be done with a piece of RE, whether a longtime owner-occupier, investor or in buying one’s first principal residence. I think a lot of longtime RE owners feel as I do, especially in coastal CA.
[quote=livinincali]Just like there’s a flurry to get in right now there’s potentially a flurry to get out at some point down the road. Don’t be in the position of having to compete with them to sell at that point. I suppose you could hope that the bigger players unload in bulk sales that don’t hit the open market. . .[/quote]
I just don’t see this “massive exit” resulting in excessive inventory happening all at once. Just like the Big Banks, a free-and-clear owner doesn’t have to market his tract home if there are already 2-3 of the same floor plan as his in his subdivision currently listed for sale … or for any reason inventory is plentiful and/or the market is leaning towards a buyer’s market or is a buyer’s market.
The future residential RE market won’t have the same conditions as it did post millenium-boom, when nearly ALL recent buyers, recent cash-out refinancers and recent ATMer’s were “underwater” (comprised of “owner” occupants and mostly amateur LL’s.)
It seems some here are postulating a tsumani of sorts or a residential RE bust that isn’t going to happen, IMHO.
Nor do I think the sold comps will keep escalating into infinity. But it’s different this time because the recent purchaser-pool is vastly different from that in the millenium boom.
