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carlsbadworker
ParticipantBG, you are basically saying inventory will improve at much higher price point, which is probably what is going to happen unless mortgage rate suddenly went up and dry up buyers (mostly investors for SoCal). Given Fed has pledged not to let the latter event happen, so you are probably right.
Participant[quote=outtamojo]I am starting to wonder now, how much inventory is held by samll time investor groups along with big time hedge funds. I hope it is not a lot, because hedge funds have a tendency to piss and poop on everybody else.[/quote]
I think there is a lot. DQNews said 28% of the houses are bought by absentee buyers in SoCal. Keefe, Bruyette & Woods, an investment bank, estimates that around $6-8 billion is being lined up to invest in single-family homes, the most appealing part of the market. Blackstone is said to be buying some 100 houses a day in selected markets. Normal home owners are the ones with FHA/conventional loans. They cannot compete with hedge funds with REIT to refinance what they just purchased using debt. You cannot beat Blackstone with your credit rating and they are leveraging using loans to improve yields.
Rick Sharga from Carrington recently said: there are three different sources for properties that you can purchase. There is new home development of which there has been virtually none of over the last five years. There is existing home sales, which are limited since between 1/4 and 1/3 of all homeowners who are upside-down do not or cannot sell their property. There are also distressed properties, which are technically existing homes that are put into a different bucket. All three of these things are lower than normal, and there is a limited amount of inventory available. At this precise moment in time Wall Street came in and gave $8 billion to spend on REO properties. Imagine what would that do to the price and that’s exactly what happened. Common men are screwed.
The good comfort is that they may not dump all their rental all at once, because they need the cash flow for the business structure to work so they can only sell a portion of their properties at a time in the future. But it’s not all the evil hedge funds at work, they, like the rest of us, are driven by yield and Ben Bernanke doesn’t give them any other options.
ParticipantOverleveraged bum-losers are actually doing great and could be the seed of the next RE bubble.
Bruce Norris recently told a story happening in Moreno Valley, a person owed $250K on a 2-bedroom house. It went for $57K to one of the Norris Group’s investors, and the owner was given $25,000 to agree to the transaction. After closing costs, the lender netted $23 grand. But the owner who was current on the payment had $25 grand and was able to go buy another house right away since he was just given the money.
And then Bruce gave an example of someone who bought a house back in February for $205,000. This same house has already gone up to $285,000. When they tell this story to their friends who did not receive an $80 grand increase for anything and they began thinking they need to buy something, eventually that’s how the CA RE cycle runs. It almost never stays in a fair value because you will get people migrate into the state when the RE price is rising rather than the other way around. As a rational person, I cannot understand this but that’s how the process goes.
Participant[quote=JohnAlt91941]
In your dreams.[/quote]Nightmare, you mean? Rising price isn’t doing any people here any good because I haven’t know any flipper here yet. You have to be a seller to benefit. I am just talking about the range of possibility, and this is a big one.
Even Economist is talking about “big long” for hedge funds in property market. CA is a safe bet with population growth.
ParticipantWe are probably at the beginning of the next CA RE bubble.
ParticipantThanks. My wife is very into organic food although I personally hate buying labels, whatever it says. Unless there is a scientific study behind about life expectancy for people with my gene for that particular food.
ParticipantI do not have time to read all the posts but a higher paying job doesn’t mean it will always have such high salary. And some job tracks can limit your options down the road. It is actually very easy to switch jobs from pushing one kind of paper to another kind. Auto service techs? Good luck if tech innovations make your job obsolete.
ParticipantThank you, everyone. Just got back from vacation and did the inspection today.
hmc, I can understand your principle of diversification. In fact, real estate is one of my 3-legs diversification strategy. The other two are equity and start-up. I tried to allocate my after-tax savings accordingly. Unfortunately, I am mostly just inline with market return with my equity investment and I think US stock market is over-valued. So I don’t want to invest more at the current moment. And my startup idea never took off from the project stage. So I am stuck.
Again, I said I understand diversification in principle but in real life, no one can be truly diversified. For example, how diversified are you if you only buy properties in US? There are always costs associated with diversification and unlike equity market, diversification is very hard to do elsewhere. It is often said “Put all your eggs in the one basket and — WATCH THAT BASKET” because one may not have the energy to carry a true diversification strategy. Thinking you can diversify away risks is often an illusion.
Buffett says, “Diversification is protection against ignorance.” I would rather buy some places where I know the risks than getting myself into a total ignorance of the associated risks. My strategy may not be the best, but it’s the one that I feel more comfortable given my limited energy.
Part of me just wants to put this into bed so that I can focus my energy to see if I can take the startup idea into the next level. Just like four years ago, I want to buy the property so that I can spend more time studying investing. And once I had the first rental property, things can start manage on itself … at least I hope.
Like I said, I spent quite some time studying investing in the last few years. So if you want to debate the investment strategy, I am very happy to do so.
ParticipantAN, that’s way too high if you are young and healthy. You should shop around. I used selectquote.com and the rate is better than AAA.
ParticipantI agree with others that you should buy it as soon as possible with good coverage and length. I made a mistake by buying only 10 year term about 5 years ago but my wife has since discovered a risk factor in her health that made her term policy very expensive to renew when it expires 5 years from now. Now she will probably get it only through work in the future.
Participant[quote=hmc]Temecula is on the earthquake fault.
I bought one small home there but I have no interest buying more.[/quote]
Yes, there is risk. But on the bright side, I moved to Temecula 6 years ago and I rented. What a difference that made. Because both properties are about 50% off from their ~2006 peak pricing, so there is always a bright side to look at.
Participant[quote=dumbrenter]
Congratulations. Are the rent estimates you mention i.e. $1.2k > mortgage on a per year basis?[/quote]Per month. But I mis-calculate for about $100. So it should be $1.1K and $600 respectively (hey, it’s Temecula! And I bought almost at rock bottom four years ago.) I refinanced in between so the clock restarted…but the monthly payment is much lower as well as the rate.
I will probably price $100-$200 lower than the zillow estimates and there is vacancy. Plus I am really not handy. And I haven’t factor in any additional costs. I am sure insurance will be higher as rental property. And I probably also need some good umbrella insurance coverage. So in the end, I don’t expect too much would be left…with chance of negative cash flow at the beginning. But rents will for sure keep rising in the long run. I hope it can help me to pay part of my daughters’ college in the future …and that’s why it is strategically important to me as long as I can hang on with all the headaches of being a landlord.
Participant[quote=Jazzman]According to a fairly recent Redfin survey, buyers’ main concern is lack of inventory. However, a majority of sellers still think it is a buyer’s market. So something doesn’t quite tie up here.[/quote]
That’s easy to explain. Just look at the graph on the right bottom corner. Price is up but the gap between the list and the the sold is widening.
ParticipantRight. Only innovation can help us with the productivity. And now that we don’t need it anymore because they have got more money to spend.
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