Pay Attention if You're in the Real Estate Market.

[Tiger M.]

I had a lengthy conversation with Phillip Dwyer today and Catherine Austin Fitts,http://solari.com/blog/, former assistant Secretary of HUD under Bush 1, we decided I should open a discussion with BP for input. I am going to make a long discussion short, I promise, cause we talked forever.
Back Ground
Venture Capital(VC) funds(think Blackstone Group, $200B managed types) are moving into SFH rental http://tradewindvegas.wordpress.com/2012/11/22/blackstone-group-lp-eyes-sf-rentals-in-vegas/, we all know this by now and I think there are dots to connect. They just bought 10,000 homes for $1.5B from Fannie Mae.

Now Congress is planning a gutting of the mortgage interest deduction, increased capital gains rates and ordinary tax rates, among other changes. This becomes a disincentive to SFR investors. Multiple property loans are becoming harder to get every day with tougher underwriting guidelines, even for wealthy buyers. There is also discussion of privatizing Soc. Sec.

The Concern
If we use Vegas as an example, there are 50-60,000 properties(The Shadow Inventory) that have NOD's filed and not moved forward to Trustee Sale. Call this wholesale stockpiling. Sometime in the near future, banks move to trustee sale taking the homes back and then dispose of the homes to Fannie and Freddie after collecting MTG insurance. Fannie/Freddie bulk sale out to VC. Avoiding main street investors like us. Following me? VC rents the homes, increase value and sell off retail to REIT's and Pension Plans(maybe even Soc. Sec.) as an exit. Blackstone was in Vegas last week and asked a small builder to construct 200 SF homes, they will finance to construction and provide the take out sale. They will then rent the homes for a couple years.

VC takes control of the single family rental market, flips out for huge profits and retirement funds become SFR investments.

The Question

I know this sounds like some ****-eyed conspiracy theory, but what is most important to us is what? Is it time to go all in, leverage buying anything we can get our hands on? Or are the rental rates going to be drivten down by the wall streeters because they can sell at lower returns and still make huge profits?

Your Thoughts
What do you all think? Is there really this kind of plan being enacted? Where else are these moves being made?

[Tiger M.]

I also posted this as a blog and @Glen Espinosa just commented there that this topic has come up in his circle 3 times in the past week with concerns for future rehabbing product.

[Phillip Dwyer]

I've read a few articles now that have discussed the hedge funds and pension funds coming in buying up thousands of properties. I wonder how efficient they can be buying thousands of properties across several markets.

[Robert Steele]

Real estate expert Fabian Calvo says there's more to the story about rising prices in the housing market than what's reported by the mainstream media.

Calvo charges, "There's a tremendous amount of manipulation . . . Yes, prices have gone up 3%. I see it, but it's because the inventory has been suppressed on purpose by big players . . . not foreclosing on properties." Calvo should know because he runs a company called TheNoteHouse.us. It buys and sells $100 million annually in distressed debt and real estate.

Calvo says, "Over 20 million houses, on any given night in America, are completely sitting vacant."

According to Calvo, the economy is being helped by "shadow stimulus." It's coming from millions of underwater homeowners who have stopped making mortgage payments. Calvo says, "Money that would have been otherwise allocated towards a housing payment is going into consumer spending."

The Fed is also propping up housing by suppressing interest rates. Calvo says the fragile real estate market would crash if rates rose just a little, and he adds, "That's why you're going to see low interest rates . . . through 2015 or until there's some kind of dollar or bond crisis."

http://www.youtube.com/watch?v=uMpaaGr6YBs

[Robert Steele]

Great post Tiger M. I have been trying to peel back the layers of this thing and the implications of it for months now. I first caught wind of this early this year when a neighbor got involved in buying up these SFR for a VC he was working for.

Is it time to go all in, leverage buying anything we can get our hands on? Or are the rental rates going to be drivten down by the wall streeters because they can sell at lower returns and still make huge profits?

What does it say about our zero interest rate world when VC's see nice juicy yields in SFR. Of course, I want those yields too - that is why I am in this landlord business.

But like any good thing - too much of it can kill; and we know how much these wall street types love to squeeze as much money out of a good thing as they possibly can. Do too many VC's get into the game and spoil it for everyone else? Maybe. I would not risk leveraging up to the hilt and then find out.

The increase in rental supply from the VC's should begin to balance the market at least. I imagine this will put a damper on the rising rents we've seen this yeart. While my biggest fear is that the oversupply and drive rents down I don't think the VC's will drive the rents down across the board. Not unless they find an army of great property managers somewhere. I am guessing that these SFR will probably not be particularly well managed. In any event there will hopefully always be a market for the discerning tenant and if not; I can always start a property management business. If you can't beat em, join em ;)

What do you all think? Is there really this kind of plan being enacted?

Yes.

Where else are these moves being made?

See the previous link I posted.

[Tiger M.]

Robert Steele the post by Bruce Norris yesterday fills in the gaps fairly well for the So. Cal. market and address's how the shark skin suits (VC) could influence the rental rates in their chosen markets. Here is a link to the video he posted,http://www.investorsworkshops.com/videos get comfy because its 2 hours. It is time for us in Vegas to hold again. We ceased flip/disposition sales like this in 1999 and put everything into rental portfolios. I have been watching and discussing the land sales and builders trend and how it influences SFR in Vegas here, http://tradewindvegas.wordpress.com

[Tiger M.]

Here is an update on the Blackstone saga

http://www.zerohedge.com/news/2013-03-14/landlord-blackstone-rushes-capitalize-housing-bubble-launching-first-ever-reo-rent-s