Thoughts on CNBC Article About Blackrock?

Question

http://www.cnbc.com/id/101276543

Checkout the comments on this article. Anyone agree or have a difference in opinion?

"Harry Dent says it's a bad deal. Large investment firms bought large amounts of housing the last three years. Now, they aren't getting the rent they want and they see property values declining in the near future. The large firms are selling shares on a bad product and making money and letting the little guy take the loss when the next housing bubble bursts. It's criminal fraud if you ask me. Don't get into buying shares on rental property from large firms, it's a dirty rotten deal."

"As a local appraiser, I could not agree more with what you have said. The real estate market is currently inflated once again because of investors/companies like Blackstone. They have bought at the top of the market for the past year and have invested their capital into remodeling these homes. Now their fear is that another bubble is about to burst and they want to pass off their losses to others."

Just curious what others thought about this. Personally I think real estate is a great investment for buy and hold strategy but their comments sound similar to what the big investment companies did to investors in 2008.

Matt Theriault · Answer

Harry Dent by no means has the public's best interest at heart. He's a salesman. He spends a great deal of time being interviewed by anyone that will have him in order to build his authority with the intent he'll eventually convince you to buy whatever he's selling that week. Everyone here at BP is here for the right reason. Real estate provides the highest return/lowest risk ratio of any investment available. It will never be worth zero. It will always have value. Buy real estate for cash flow and wait for it to appreciate. It will, eventually. And even if it doesn't, so what… you cash flow. If that formula fails, it means we'll all have much bigger fish to fry. Stay the course.

Chris Martin · Answer

I don't see much transparency with Blackstone. Show me an S-11 and I can comment. There isn't one that I can find. And I don't have big $$M to join a Reg-D... if I did, I wouldn't put it with them for this scheme. AH4R at least has a plan and is executing it. They are a REIT so they won't be doing some of the goofball stuff others who are apparently trying to find their identity are doing. Personally, I wouldn't put a dime in their common, though, simply because I don't get it. They buy property in Raleigh at $169K a pop and rent them out... in a REIT... with subpar margins and limits on disposal capabilities. There may be a play on the preferred dividend paying shares... but all these companies are loosing a lot of money right now. And they bought with CASH. Just imagine when they introduce leverage. All this stuff is starting to look like junk. I think these people are realizing they screwed up.

Ben Leybovich · Answer

Success of a REI is a function of management. The way these portfolios were structured - there's no way. Property values are bound to fall in neighborhoods where they have substantive presence. As such, they are not making the money on rents, and they won't make the CAP Gains they thought they would, and now looking for ways out. Keep in mind, they bought so many SFR specifically because the intent was to make the market - this is going to fail in my opinion...

Nicolas Gonzalez · Answer

In my market they are driving prices dangerously close to bubble-level. Its great for the flippers who are selling them houses, but had made it harder for the smaller investors. When they stop buying, prices should dip locally, I'd expect that trend to present itself elsewhere too.

Matt Theriault · Answer

@Justin R., it's hard to believe the market has peaked or is headed for another big downturn when in most parts of the country you can still buy well below replacement costs. And you're SOOOOOOO right, if the market does happen to dip again... buy more :-)

Justin R. · Answer

Thanks for your replies everyone. @Matt Theriault I think you make a great point. It would be unfortunate to buy real estate right before a big downturn in prices, but for a buy and hold play its not a huge loss necessarily. Similar to buying stocks in 2007, if you waited it out you would be up by now. The advantage here is if you buy real estate at the top of the market, you can continue to collect monthly rent payments while you wait for the market to rebound. The downside of course is that you have to pay higher expenses, and assume you can keep it rented. If the housing market were to see a correction, that would probably just represent another buying opportunity. I am not interested in investing in any REIT or investment that blackrock is selling, more so interested in people's thoughts that the housing market has peaked again.

Xing Zhu · Answer

The liquidity collapse is always more difficult for bigger fish. For example, many small fish had enormous return as a result of the last housing market crash. According to Futures Magazine, many small funds had the best year in 2008.

James Sinclair · Answer

I think you have to know your market to invest in real estate. I don't see on the surface where this financing would be a problem if it was something you wanted to do anyway. If your property evaluations were bad it might provide a second opinion to keep you out of the deal.