7 ms·

Wall Street Unlocks Profits from Distress with Rental Revolution

44 points by patrickk 13y ago

malandrew 13y ago
"In October, Bloomberg reported that a hedge fund, Magnetar Capital LLC, had quietly bought 1 out of every 11 homes in the Ohio town of Huber Heights and then pushed for property-tax cuts that would have blown a hole in the school district’s budget." That's quite a short-sighted move that makes a quick buck now, but lowers home value in the long term. In areas where there are a lot of single family residences, there is usually also demand for better schools. When the schools worsen, so do property values. Furthermore, this is setting things up for changes in landlord-tenant laws. The level of lobbying power and expertise in tenancy laws they are going to accumulate is going to make them a formidable foe for tenants rights groups to fight against. I fully expect this to get pretty ugly long term.
- geogra4 13y ago
  >That's quite a short-sighted move that makes a quick buck now, but lowers home value in the long term. In areas where there are a lot of single family residences, there is usually also demand for better schools. When the schools worsen, so do property values. This is part of the reason why this trend is so terrible. The Hedge Funds do not care about long term investments or the long term health of the neighborhood. You squeeze as much money out of your investment as you can and then get out of it before the day of reckoning comes. It's the stock market mindset applied to every single assert class.
  - mbillie1 13y ago
    > It's the stock market mindset applied to every single assert class. This is an excellent phrase to describe this phenomenon (and probably many others).
    - VLM 13y ago
      "bad money always drives out good money" is another interesting phrase.
    - patrickk 13y ago
      Wall Street also bets on other basic commodities like food and oil, which drive up their prices. If two parties want to sell each other stocks bonds (asset classes likely purchased by deep pocketed, sophisticated investors), and the asset blows up, fine. Both parties can afford to take the hit. But where those assets are basic essentials, it's just downright slimy. Oil: http://www.nakedcapitalism.com/2012/05/les-leopold-how-wall-street-drives-up-gas-prices.html http://www.nakedcapitalism.com/2012/05/les-leopold-how-wall-... Food: http://www.theguardian.com/commentisfree/2013/may/23/goldman-sachs-agm-drive-food-prices-up http://www.theguardian.com/commentisfree/2013/may/23/goldman...
  - malandrew 13y ago
    Upon further reflection, the purchases in the subdivisions are also going to be very interesting to watch since the hedge funds are basically buying influence and maybe even control on the homeowner's associations when there is one. Their decision to focus on renting is often very against the goal of HOAs. Many HOAs try to restrict the percentage of homes in a subdivision that can be rentals and IIRC the ability to get either federal mortgage loans is impacted by this ratio as well.
- danso 13y ago
  Ah Magnetar, I remember when my colleagues and This American Life did this story on them back in 2010 and were awarded a Pulitzer for it: http://www.propublica.org/article/the-magnetar-trade-how-one-hedge-fund-helped-keep-the-housing-bubble-going http://www.propublica.org/article/the-magnetar-trade-how-one... http://www.thisamericanlife.org/radio-archives/episode/405/inside-job http://www.thisamericanlife.org/radio-archives/episode/405/i...
Von_Jones 13y ago
This article is super interesting and potentially highly political, although Bloomberg does well to neutralize the issue behind straight business reporting. Related, I am interested in the following questions and am looking to do some research in the new year to investigate: 1. How much is paid in home loan interest to banks annually. 2. How much of this bank income is paid in interest to (a) savers, (b) other issuers of debt 3. How much of this bank income is paid in dividends to bank owners. 4. How much of this bank income is paid in salaries to bank staff. 5. How long the average home owner spends working for the above three categories in their quest for home ownership (I look at this as a form of indenture). Following this article, I will also be looking at the question of how much in rental income is paid to financial institutions. I am also interested in the relationship between bank lending and house price increases, ie as banks lend more, do they understand how this affects future business, ie an increase in lending of 10%, leads to house price rises of x%, leading to an increase in bank income of y%. I guess there must be such models out there? Any sources of data / reading would be much appreciated!
- VLM 13y ago
  Most mortgage pushers don't hold the note and promptly sell them off. Commissions and fees vary quite a bit around 2 to 5 percent of loan size. So "most people lending money" are playing a commission game on how fast they can sell and turn around and loan the money again. Dude who pushes / approves loans in the modern system does not equal dude who holds the note. You might find thehousingbubbleblog.com or zerohedge to be interesting reading although it takes a bit of study to understand whats going on.
jseliger 13y ago
It’s yet to be seen to what extent national landlords, with easy access to capital and loans, can keep outbidding first-time homebuyers, depriving families of the opportunity to build wealth, and what their impact on rents will be. This is an insane comment, for the reasons Matt Yglesias discusses in The Rent is Too Damn High and, to a lesser extent, here: http://www.slate.com/blogs/moneybox/2013/04/26/housing_isn_t_an_investment_but_land_is.html http://www.slate.com/blogs/moneybox/2013/04/26/housing_isn_t... . Over the long term buying versus renting should ideally be revenue neutral, and whether or not you can "build wealth" via a house depends in large part on where the house is. Someone who bought a house 30 years in San Francisco or the west side of L.A. has made a lot of money. Someone who bought in the greater Detroit area hasn't. The myth that buying a house is a key to unlocking wealth needs to be addressed and yet is too often propagated by journalists. EDIT: See also this: http://www.slate.com/articles/business/moneybox/2011/05/the_rent_isnt_too_damn_high.html http://www.slate.com/articles/business/moneybox/2011/05/the_... .
- VLM 13y ago
  "buying a house is a key to unlocking wealth" It most certainly is, for journalists. Take a look at the ads and follow the money. You're not going to sell ad space to home depot or the local real estate agents if your readers are renters. Also revenue neutral is not as strong of a claim as inflation neutral. A stick built box of air is the new "gold". A non-performing asset which varies in price somewhat scarily, but more or less on a long term tracks median income, which increases at a lower rate than inflation but not too much lower (else you get a revolution)
  - nwzpaperman 13y ago
    Edit: requires maintenance and taxes. Renting a home is the same thing as mortgaging a home, but with a put option.
  - Brakenshire 13y ago
    Are you suggesting that newspapers are involved in a conspiracy to push the idea of home ownership so that they can sell adverts to DIY / home improvement companies? That is an, interesting, idea.
goombastic 13y ago
That's it, even rents are going to go through the roof now. Earlier it was housing as an investment that meant people had to look for rental homes since the investors had crowded out and outbid actual end users; now this. Housing needs to be made a basic right.
winstonx 13y ago
(1) America's elite creates a housing bubble (2) America's elite forecloses on the residents (3) America's elite buys the houses at low cost, then rents them back to the residents. That's a nice racket.
- busterarm 13y ago
  Looks like they solved the problem South Park's gnomes had.
- Dylan16807 13y ago
  But would the residents have been owners in the first place if not for the bubble throwing mortgages around like candy? I'm not convinced this is a racket. Whereas selling bad mortgage-backed bonds was definitely a racket.
- andybak 13y ago
  While I'm not going to suggest anything conspiratorial, when I first thought about the 'easy mortagages' trend and the fact that the property itself was the collateral, the perverse incentives involved seemed so obvious that I assumed there must be a large mitigating factor I wasn't aware of. One thing I don't fully understand, why don't the lenders themselves auction of the properties rather than keeping and profiting off the foreclosed properties themselves?
- wavefunction 13y ago
  You forgot a few steps: (1b) American taxpayers bailout insolvent securities firms whose whole business is supposedly predicated on competent risk assessment as a core skill yet totally ignored best practices to threaten the entire economy. (1c) Pays themselves handsome commissions. (3 addendum) buys the houses at a low cost made so by the bubble they created _with the bailout money of the taxpayers!!!!!_ (4b) destroys communities, defunds schools, further atomizes and disorganizes the modern American society
  - malandrew 13y ago
    Yup, they are giving out mortgages with all that free/cheap money, unfortunately they are only giving it out to themselves.
acd 13y ago
Central banks central plan the interest rate, so credit ( new money ) becomes artificially cheap. Then they investment companies buy up the foreclosures homes and rent them back to the previous owners. In that system you will newer be free, but a slave to the system, always trying to keep up just to stay afloat above the surface. I minor form of debt slavery if you will. The FED is as federal as FEDEX it's privately owned by the big banks. You can read more on how it was created over here: http://www.bigeye.com/griffin.htm http://www.bigeye.com/griffin.htm
bckrasnow 13y ago
My question is, what next? What other industries and/or markets can and will Wall Street do this to now? This is greed at its finest. Especially the property taxes comment in Ohio.
- wavefunction 13y ago
  Next on the agenda is the carve up and sell up public properties and concessions. Every where, every thing must be commoditized for the profit of the few at the cost of the many! Postal services, education, national parks, government agencies turned "public-private." Water, utilities, roads, policing, emergency services! Rights and freedoms! The sky's the limit my friends!
sheetjs 13y ago
Relevant infographic on Blackstone (largest owner of rental homes) which summarizes some of the key aspects of the investments: http://www.bloomberg.com/infographics/2013-12-20/blackstones-big-bet-on-rental-homes.html http://www.bloomberg.com/infographics/2013-12-20/blackstones...
marincounty 13y ago
I don't see a way of fighting back other than rent control. The damage is done. Rent is beyond ridiculous. Oh yea, there's no bank loyalty anymore. There all thieving bastards. Shop around for the best interest rates(I know there dismal). Look at the fees their charging--close your account if necessary. I've noticed people stay with the same banks, and Insurance companies for years? Out of some kind of loyalty? When it comes to making money, and investments; some investments are more moral than others. If you are a thieving Landlord(meaning you are gouging your tenants) I honestly don't know how you sleep at all-- P.S. If you live in a detached "mother in law unit" in San Anselmo, CA.; you have rent control. Look into it. If your Landlord has been overcharging you take them to court and get all your over payments back.
michaelochurch 13y ago
Renting is disparaged in the U.S. because of the assumption that anyone who can own a house, will. It's actually not a great economic move unless you plan on living in a place for over 10 years. Commissions and repairs will eat you, unless the price/rent ratio is really out of whack. On one hand, I viscerally hate that this is happening. It's shitty that the financiers (through wacky adjustable-rate mortgages, pump-and-dump games against the housing market, etc.) have taken communities and houses away from people. The "American dream" game is pretty rigged. On the other, I'm not surprised. Wasn't Blackstone the pinnacle of prestige in private equity, though? I can't imagine them retaining that after going all in on the new suburban slumlord game.
- tptacek 13y ago
  More than half of families with incomes below the median family income in the US buy. Meanwhile, rental is the dominant form of residency in the most expensive areas of the US; for instance, fewer than a third of Manhattanites own. How does one reconcile this with the idea that rental is disparaged as a practice of the lower income classes?
zero_intp 13y ago
Interestingly, I bought a house to rent in 2011, with cash and fixed it up and filled it. This year, I have spent more than six months trying to get financing on it from the major commercial banks. I am closing soon, but it was a MAJOR hassle. What I have found, There is a near conspiracy level arraignment between banks to completely undervalue the properties, give higher interest rates, require a greater stake, and lower the borrowers acceptable debt-to-income ratio. I had three appraisals come in, the bank appraisals were all manipulated and internally inconsistent, and LOW. The independent appraisal I had done came in rationally. When I was house hunting (both in 2009 and 2011), my wife and I would break into the empty foreclosed homes to tour them and inspect them for damage. No one, realtors or bankers, would ever respond to calls regarding the properties, no offers were ever responded to by the banks. All of these properties in our neighborhood were eventually sold, and to big investor groups. They are now predominantly rentals. Our experiences at the time showed what we perceived to be a fixed market where the realtors were holding out to sell to their friends. Now we realize that they were holding out for the institutional buyers.
- busterarm 13y ago
  I would believe this even if I hadn't 100% seen this for myself, except that I have. As a side note, realtors are the absolute scum of the earth. Worse than lawyers. Apologies in advance to any lawyers.
  - malandrew 13y ago
    Real estate agents aren't the problem. My mom is a real estate agent and I've known a lot of real estate agents in my life. The absolute scum of the earth in this industry are actually the members of the Board of Realtors that represent the individual agents across the country and rig everything like a cartel. It's a licensed procession with a lot of political influence nationwide, which gives them immense protection from market forces that would have drive the percentage they earn from sales down years ago. Any shitty experiences you've had with real estate agents are probably better explained by Hanlon's Razor. There are a few exceptional real estate agents, but my experience has been that real estate is a profession for those incompetent at everything else. When they say prices are going to keep going up and that it's a great investment, they usually actually believe that fully. They have bought whole hog into the idea that real estate is the best investment and that prices keep going up. You can't even work as an agent if you don't really believe that since that is the only condition in the market that is really in your interest as a broker since it's the condition where liquidity is highest, and liquidity is the best thing for brokers. If you don't harbor that believe you either stay out of the market/profession entirely or you enter the speculative side of the market, buying low and selling high. Those who can do, those who can't do anything, broker real estate. FWIW, this largely applies to residential real estate. In commercial real estate, the brokers are a lot more like the banksters promoting a kleptocracy.
7Figures2Commas 13y ago
This is really, really old news, and the headline is, if not exaggerated, entirely premature. Yes, some companies have been buying single family houses by the truckload and turning them into rentals, but whether the model can be successful on such a wide scale remains to be seen. There are a number of major challenges, and the treatment of the publicly-traded companies in this space makes it clear that investors are well aware of them. One of the companies mentioned in the article, American Homes 4 Rent, is publicly-traded[1] and raised far less in its IPO than it had intended in its original prospectus[2]. Similar companies, Silver Bay Realty Trust and American Residential Properties, are also publicly-traded[3][4] and currently trade well below their IPO prices. Another company mentioned in the article, Colony Capital LLC, operates its rental venture through Colony American Homes, which pulled its IPO earlier this year[5]. Turning single family homes into rentals on such a large scale may prove to be a wildly successful business, and some of the issues raised by this article, such as the impact on the housing market, are worth discussing, but it's a shame that the article sports a baitlink title and gives the impression that there's no risk to the investors playing in this space. [1] http://www.google.com/finance?q=amh http://www.google.com/finance?q=amh [2] http://www.bloomberg.com/news/2013-07-31/american-homes-4-rent-raises-705-9-million-in-u-s-ipo.html http://www.bloomberg.com/news/2013-07-31/american-homes-4-re... [3] http://www.google.com/finance?q=sby http://www.google.com/finance?q=sby [4] http://www.google.com/finance?q=arpi http://www.google.com/finance?q=arpi [5] http://www.reuters.com/article/2013/06/05/us-colonyamericanhomes-ipo-idUSBRE95411O20130605 http://www.reuters.com/article/2013/06/05/us-colonyamericanh...
awjr 13y ago
Pension funds are restricted in the UK to only be able to invest in commercial properties. There seems to be a conflict of interest here, where banks can make it hard for normal people to buy residential property while there investment arm is able to easily buy. That is one very scary situation to be in.
- chrisaycock 13y ago
  > banks can make it hard for normal people to buy residential property while there investment arm is able to easily buy Under the Volcker rule, banks don't have an investment arm. That's why the article is about Blackstone and Colony, rather than Bank of America or Wells Fargo.

44 points by patrickk 13y ago

"In October, Bloomberg reported that a hedge fund, Magnetar Capital LLC, had quietly bought 1 out of every 11 homes in the Ohio town of Huber Heights and then pushed for property-tax cuts that would have blown a hole in the school district’s budget." That's quite a short-sighted move that makes a quick buck now, but lowers home value in the long term. In areas where there are a lot of single family residences, there is usually also demand for better schools. When the schools worsen, so do property values. Furthermore, this is setting things up for changes in landlord-tenant laws. The level of lobbying power and expertise in tenancy laws they are going to accumulate is going to make them a formidable foe for tenants rights groups to fight against. I fully expect this to get pretty ugly long term.

geogra4 13y ago
>That's quite a short-sighted move that makes a quick buck now, but lowers home value in the long term. In areas where there are a lot of single family residences, there is usually also demand for better schools. When the schools worsen, so do property values. This is part of the reason why this trend is so terrible. The Hedge Funds do not care about long term investments or the long term health of the neighborhood. You squeeze as much money out of your investment as you can and then get out of it before the day of reckoning comes. It's the stock market mindset applied to every single assert class.
- mbillie1 13y ago
  > It's the stock market mindset applied to every single assert class. This is an excellent phrase to describe this phenomenon (and probably many others).
  - VLM 13y ago
    "bad money always drives out good money" is another interesting phrase.
  - patrickk 13y ago
    Wall Street also bets on other basic commodities like food and oil, which drive up their prices. If two parties want to sell each other stocks bonds (asset classes likely purchased by deep pocketed, sophisticated investors), and the asset blows up, fine. Both parties can afford to take the hit. But where those assets are basic essentials, it's just downright slimy. Oil: http://www.nakedcapitalism.com/2012/05/les-leopold-how-wall-street-drives-up-gas-prices.html http://www.nakedcapitalism.com/2012/05/les-leopold-how-wall-... Food: http://www.theguardian.com/commentisfree/2013/may/23/goldman-sachs-agm-drive-food-prices-up http://www.theguardian.com/commentisfree/2013/may/23/goldman...
- malandrew 13y ago
  Upon further reflection, the purchases in the subdivisions are also going to be very interesting to watch since the hedge funds are basically buying influence and maybe even control on the homeowner's associations when there is one. Their decision to focus on renting is often very against the goal of HOAs. Many HOAs try to restrict the percentage of homes in a subdivision that can be rentals and IIRC the ability to get either federal mortgage loans is impacted by this ratio as well.
danso 13y ago
Ah Magnetar, I remember when my colleagues and This American Life did this story on them back in 2010 and were awarded a Pulitzer for it: http://www.propublica.org/article/the-magnetar-trade-how-one-hedge-fund-helped-keep-the-housing-bubble-going http://www.propublica.org/article/the-magnetar-trade-how-one... http://www.thisamericanlife.org/radio-archives/episode/405/inside-job http://www.thisamericanlife.org/radio-archives/episode/405/i...

Von_Jones 13y ago

This article is super interesting and potentially highly political, although Bloomberg does well to neutralize the issue behind straight business reporting. Related, I am interested in the following questions and am looking to do some research in the new year to investigate: 1. How much is paid in home loan interest to banks annually. 2. How much of this bank income is paid in interest to (a) savers, (b) other issuers of debt 3. How much of this bank income is paid in dividends to bank owners. 4. How much of this bank income is paid in salaries to bank staff. 5. How long the average home owner spends working for the above three categories in their quest for home ownership (I look at this as a form of indenture). Following this article, I will also be looking at the question of how much in rental income is paid to financial institutions. I am also interested in the relationship between bank lending and house price increases, ie as banks lend more, do they understand how this affects future business, ie an increase in lending of 10%, leads to house price rises of x%, leading to an increase in bank income of y%. I guess there must be such models out there? Any sources of data / reading would be much appreciated!

VLM 13y ago
Most mortgage pushers don't hold the note and promptly sell them off. Commissions and fees vary quite a bit around 2 to 5 percent of loan size. So "most people lending money" are playing a commission game on how fast they can sell and turn around and loan the money again. Dude who pushes / approves loans in the modern system does not equal dude who holds the note. You might find thehousingbubbleblog.com or zerohedge to be interesting reading although it takes a bit of study to understand whats going on.

jseliger 13y ago

It’s yet to be seen to what extent national landlords, with easy access to capital and loans, can keep outbidding first-time homebuyers, depriving families of the opportunity to build wealth, and what their impact on rents will be. This is an insane comment, for the reasons Matt Yglesias discusses in The Rent is Too Damn High and, to a lesser extent, here: http://www.slate.com/blogs/moneybox/2013/04/26/housing_isn_t_an_investment_but_land_is.html http://www.slate.com/blogs/moneybox/2013/04/26/housing_isn_t... . Over the long term buying versus renting should ideally be revenue neutral, and whether or not you can "build wealth" via a house depends in large part on where the house is. Someone who bought a house 30 years in San Francisco or the west side of L.A. has made a lot of money. Someone who bought in the greater Detroit area hasn't. The myth that buying a house is a key to unlocking wealth needs to be addressed and yet is too often propagated by journalists. EDIT: See also this: http://www.slate.com/articles/business/moneybox/2011/05/the_rent_isnt_too_damn_high.html http://www.slate.com/articles/business/moneybox/2011/05/the_... .

VLM 13y ago
"buying a house is a key to unlocking wealth" It most certainly is, for journalists. Take a look at the ads and follow the money. You're not going to sell ad space to home depot or the local real estate agents if your readers are renters. Also revenue neutral is not as strong of a claim as inflation neutral. A stick built box of air is the new "gold". A non-performing asset which varies in price somewhat scarily, but more or less on a long term tracks median income, which increases at a lower rate than inflation but not too much lower (else you get a revolution)
- nwzpaperman 13y ago
  Edit: requires maintenance and taxes. Renting a home is the same thing as mortgaging a home, but with a put option.
- Brakenshire 13y ago
  Are you suggesting that newspapers are involved in a conspiracy to push the idea of home ownership so that they can sell adverts to DIY / home improvement companies? That is an, interesting, idea.

goombastic 13y ago

That's it, even rents are going to go through the roof now. Earlier it was housing as an investment that meant people had to look for rental homes since the investors had crowded out and outbid actual end users; now this. Housing needs to be made a basic right.

winstonx 13y ago

(1) America's elite creates a housing bubble (2) America's elite forecloses on the residents (3) America's elite buys the houses at low cost, then rents them back to the residents. That's a nice racket.

busterarm 13y ago
Looks like they solved the problem South Park's gnomes had.
Dylan16807 13y ago
But would the residents have been owners in the first place if not for the bubble throwing mortgages around like candy? I'm not convinced this is a racket. Whereas selling bad mortgage-backed bonds was definitely a racket.
andybak 13y ago
While I'm not going to suggest anything conspiratorial, when I first thought about the 'easy mortagages' trend and the fact that the property itself was the collateral, the perverse incentives involved seemed so obvious that I assumed there must be a large mitigating factor I wasn't aware of. One thing I don't fully understand, why don't the lenders themselves auction of the properties rather than keeping and profiting off the foreclosed properties themselves?
wavefunction 13y ago
You forgot a few steps: (1b) American taxpayers bailout insolvent securities firms whose whole business is supposedly predicated on competent risk assessment as a core skill yet totally ignored best practices to threaten the entire economy. (1c) Pays themselves handsome commissions. (3 addendum) buys the houses at a low cost made so by the bubble they created _with the bailout money of the taxpayers!!!!!_ (4b) destroys communities, defunds schools, further atomizes and disorganizes the modern American society
- malandrew 13y ago
  Yup, they are giving out mortgages with all that free/cheap money, unfortunately they are only giving it out to themselves.

acd 13y ago

Central banks central plan the interest rate, so credit ( new money ) becomes artificially cheap. Then they investment companies buy up the foreclosures homes and rent them back to the previous owners. In that system you will newer be free, but a slave to the system, always trying to keep up just to stay afloat above the surface. I minor form of debt slavery if you will. The FED is as federal as FEDEX it's privately owned by the big banks. You can read more on how it was created over here: http://www.bigeye.com/griffin.htm http://www.bigeye.com/griffin.htm

bckrasnow 13y ago

My question is, what next? What other industries and/or markets can and will Wall Street do this to now? This is greed at its finest. Especially the property taxes comment in Ohio.

wavefunction 13y ago
Next on the agenda is the carve up and sell up public properties and concessions. Every where, every thing must be commoditized for the profit of the few at the cost of the many! Postal services, education, national parks, government agencies turned "public-private." Water, utilities, roads, policing, emergency services! Rights and freedoms! The sky's the limit my friends!

sheetjs 13y ago

Relevant infographic on Blackstone (largest owner of rental homes) which summarizes some of the key aspects of the investments: http://www.bloomberg.com/infographics/2013-12-20/blackstones-big-bet-on-rental-homes.html http://www.bloomberg.com/infographics/2013-12-20/blackstones...

marincounty 13y ago

I don't see a way of fighting back other than rent control. The damage is done. Rent is beyond ridiculous. Oh yea, there's no bank loyalty anymore. There all thieving bastards. Shop around for the best interest rates(I know there dismal). Look at the fees their charging--close your account if necessary. I've noticed people stay with the same banks, and Insurance companies for years? Out of some kind of loyalty? When it comes to making money, and investments; some investments are more moral than others. If you are a thieving Landlord(meaning you are gouging your tenants) I honestly don't know how you sleep at all-- P.S. If you live in a detached "mother in law unit" in San Anselmo, CA.; you have rent control. Look into it. If your Landlord has been overcharging you take them to court and get all your over payments back.

michaelochurch 13y ago

Renting is disparaged in the U.S. because of the assumption that anyone who can own a house, will. It's actually not a great economic move unless you plan on living in a place for over 10 years. Commissions and repairs will eat you, unless the price/rent ratio is really out of whack. On one hand, I viscerally hate that this is happening. It's shitty that the financiers (through wacky adjustable-rate mortgages, pump-and-dump games against the housing market, etc.) have taken communities and houses away from people. The "American dream" game is pretty rigged. On the other, I'm not surprised. Wasn't Blackstone the pinnacle of prestige in private equity, though? I can't imagine them retaining that after going all in on the new suburban slumlord game.

tptacek 13y ago
More than half of families with incomes below the median family income in the US buy. Meanwhile, rental is the dominant form of residency in the most expensive areas of the US; for instance, fewer than a third of Manhattanites own. How does one reconcile this with the idea that rental is disparaged as a practice of the lower income classes?

zero_intp 13y ago

Interestingly, I bought a house to rent in 2011, with cash and fixed it up and filled it. This year, I have spent more than six months trying to get financing on it from the major commercial banks. I am closing soon, but it was a MAJOR hassle. What I have found, There is a near conspiracy level arraignment between banks to completely undervalue the properties, give higher interest rates, require a greater stake, and lower the borrowers acceptable debt-to-income ratio. I had three appraisals come in, the bank appraisals were all manipulated and internally inconsistent, and LOW. The independent appraisal I had done came in rationally. When I was house hunting (both in 2009 and 2011), my wife and I would break into the empty foreclosed homes to tour them and inspect them for damage. No one, realtors or bankers, would ever respond to calls regarding the properties, no offers were ever responded to by the banks. All of these properties in our neighborhood were eventually sold, and to big investor groups. They are now predominantly rentals. Our experiences at the time showed what we perceived to be a fixed market where the realtors were holding out to sell to their friends. Now we realize that they were holding out for the institutional buyers.

busterarm 13y ago
I would believe this even if I hadn't 100% seen this for myself, except that I have. As a side note, realtors are the absolute scum of the earth. Worse than lawyers. Apologies in advance to any lawyers.
- malandrew 13y ago
  Real estate agents aren't the problem. My mom is a real estate agent and I've known a lot of real estate agents in my life. The absolute scum of the earth in this industry are actually the members of the Board of Realtors that represent the individual agents across the country and rig everything like a cartel. It's a licensed procession with a lot of political influence nationwide, which gives them immense protection from market forces that would have drive the percentage they earn from sales down years ago. Any shitty experiences you've had with real estate agents are probably better explained by Hanlon's Razor. There are a few exceptional real estate agents, but my experience has been that real estate is a profession for those incompetent at everything else. When they say prices are going to keep going up and that it's a great investment, they usually actually believe that fully. They have bought whole hog into the idea that real estate is the best investment and that prices keep going up. You can't even work as an agent if you don't really believe that since that is the only condition in the market that is really in your interest as a broker since it's the condition where liquidity is highest, and liquidity is the best thing for brokers. If you don't harbor that believe you either stay out of the market/profession entirely or you enter the speculative side of the market, buying low and selling high. Those who can do, those who can't do anything, broker real estate. FWIW, this largely applies to residential real estate. In commercial real estate, the brokers are a lot more like the banksters promoting a kleptocracy.

7Figures2Commas 13y ago

This is really, really old news, and the headline is, if not exaggerated, entirely premature. Yes, some companies have been buying single family houses by the truckload and turning them into rentals, but whether the model can be successful on such a wide scale remains to be seen. There are a number of major challenges, and the treatment of the publicly-traded companies in this space makes it clear that investors are well aware of them. One of the companies mentioned in the article, American Homes 4 Rent, is publicly-traded[1] and raised far less in its IPO than it had intended in its original prospectus[2]. Similar companies, Silver Bay Realty Trust and American Residential Properties, are also publicly-traded[3][4] and currently trade well below their IPO prices. Another company mentioned in the article, Colony Capital LLC, operates its rental venture through Colony American Homes, which pulled its IPO earlier this year[5]. Turning single family homes into rentals on such a large scale may prove to be a wildly successful business, and some of the issues raised by this article, such as the impact on the housing market, are worth discussing, but it's a shame that the article sports a baitlink title and gives the impression that there's no risk to the investors playing in this space. [1] http://www.google.com/finance?q=amh http://www.google.com/finance?q=amh [2] http://www.bloomberg.com/news/2013-07-31/american-homes-4-rent-raises-705-9-million-in-u-s-ipo.html http://www.bloomberg.com/news/2013-07-31/american-homes-4-re... [3] http://www.google.com/finance?q=sby http://www.google.com/finance?q=sby [4] http://www.google.com/finance?q=arpi http://www.google.com/finance?q=arpi [5] http://www.reuters.com/article/2013/06/05/us-colonyamericanhomes-ipo-idUSBRE95411O20130605 http://www.reuters.com/article/2013/06/05/us-colonyamericanh...

awjr 13y ago

Pension funds are restricted in the UK to only be able to invest in commercial properties. There seems to be a conflict of interest here, where banks can make it hard for normal people to buy residential property while there investment arm is able to easily buy. That is one very scary situation to be in.

chrisaycock 13y ago
> banks can make it hard for normal people to buy residential property while there investment arm is able to easily buy Under the Volcker rule, banks don't have an investment arm. That's why the article is about Blackstone and Colony, rather than Bank of America or Wells Fargo.