New breed of real estate investors in California

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mathwhiz
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New breed of real estate investors in California

Post by mathwhiz »

http://www.calculatedriskblog.com/2009/ ... -rent.html
In 2004 the "investors" (really speculators) were betting on appreciation. The current breed of investor is buying for cash flow.
Sacramento County couple Oscar Vargas and Gladys Flores ... bought five houses last year priced between $50,000 and $100,000.

"We buy the repos, and the prices are about what it was 15 years ago," Flores said. "We fix what's wrong with them. We spend a little money and put in new carpets and remodel. We do it ourselves and rent them."

The plan is to hold them for several years to see gains, she said. Flores said it's the same drill as the 1990s downturn. Then, the pair bought houses low and sold them high during the boom that followed. They now own and manage 15 rental homes, she said.
haberd
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Post by haberd »

New breed? Sound like the same old breed to me.
Not that there is anything wrong with that if it doesn't get out of hand again - somebody has to provide rental units - and the DIY approach is the only way to go for a couple.
manuvns
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Post by manuvns »

Finding a decent home priced between $50,000 and $100,000 is hard and rare . Good only for lucky few .
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Rick Ferri
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Post by Rick Ferri »

It makes good sense considering the market for rentals have increased. The people who let their house go in foreclosure have to live someplace. They cannot buy a house for a few years, so they must rent.

Rick
tim1999
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Post by tim1999 »

Speaking as a former small-time landlord, I don't think I'd rent to someone who was recently foreclosed on. If they couldn't pay their mortgage, I have no reason to believe they could pay the rent, even if it is a lower amount. People who have been foreclosed on often are unemployed, and often have big credit card debt, gambling problems, huge medical/childcare expenses, etc. which would all get in the way of paying rent on time and in full.

Rick Ferri wrote:It makes good sense considering the market for rentals have increased. The people who let their house go in foreclosure have to live someplace. They cannot buy a house for a few years, so they must rent.

Rick
PatrickS
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Post by PatrickS »

Cherokee8215 wrote:Speaking as a former small-time landlord, I don't think I'd rent to someone who was recently foreclosed on. If they couldn't pay their mortgage, I have no reason to believe they could pay the rent, even if it is a lower amount. People who have been foreclosed on often are unemployed, and often have big credit card debt, gambling problems, huge medical/childcare expenses, etc. which would all get in the way of paying rent on time and in full.
I know someone who's going to be foreclosed on. He's more than capable of continuing to make the payments, but he says he was far enough underwater on his downtown San Diego condo that the value to be gained by walking away was worth more to him than his credit rating. Non-recourse loans mean you can lose no more than the property if you walk away. These type loans should be made a thing of the past.
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Rick Ferri
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Post by Rick Ferri »

Cherokee8215 wrote:People who have been foreclosed on often are unemployed, and often have big credit card debt, gambling problems, huge medical/childcare expenses, etc. which would all get in the way of paying rent on time and in full.
This is a different type of housing market. Many people who are foreclosed on are not unemployed. They have the ability to pay their mortgage and all their bills, but choose not to. They are walking away from homes that are underwater.

Rick Ferri
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JMacDonald
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Post by JMacDonald »

PatrickS wrote: I know someone who's going to be foreclosed on. He's more than capable of continuing to make the payments, but he says he was far enough underwater on his downtown San Diego condo that the value to be gained by walking away was worth more to him than his credit rating. Non-recourse loans mean you can lose no more than the property if you walk away. These type loans should be made a thing of the past.
Hi,
I don't see the reasoning of this guy. He must have intended to sell and didn't do it before the downturn. My condo when I first bought it went up in value for the first three years about 50%. Then in the early 90s, the value of the condo went down about 50% over a number of years. All of this was meaningless to me because I wasn't going to sell anyway. Now, after all of these years, the value of my condo is worth twice what I paid for it; and the mortgage is about half of what I would have to pay for rent.
Best Wishes, | Joe
bozo
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Post by bozo »

Rick Ferri wrote:
Cherokee8215 wrote:People who have been foreclosed on often are unemployed, and often have big credit card debt, gambling problems, huge medical/childcare expenses, etc. which would all get in the way of paying rent on time and in full.
This is a different type of housing market. Many people who are foreclosed on are not unemployed. They have the ability to pay their mortgage and all their bills, but choose not to. They are walking away from homes that are underwater.

Rick Ferri
By the same logic, such folks might decide to just stop paying rent if it made "economic sense" for them to do so. If their credit is already shot, and they can squat in the apartment longer than two months (forfeiting deposit and last month's rent), might they not do so?

Bozo
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Rick Ferri
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Post by Rick Ferri »

The mortgage market has a loophole that allows a risk free put option to the banks, and a lot of people are taking it. I have to believe the people who walk away from a home only because they lost money will pay their rent until they qualify for a mortgage again. I know some of these people, and I believe they are credit worthy.
bozo
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Post by bozo »

Rick Ferri wrote:The mortgage market has a loophole that allows a risk free put option to the banks, and a lot of people are taking it. I have to believe the people who walk away from a home only because they lost money will pay their rent until they qualify for a mortgage again. I know some of these people, and I believe they are credit worthy.
California landlord-tenant law has a similar "put option" for renters. It's called ignoring a notice to pay or quit and fighting eviction.

In my humble opinion, a mortgage is a contract. I'm a bit of a dinosaur, but I still believe in the latin phrase: "pacta sunt servanda." Non-recourse loans are gamed. If somebody has gamed one contract, what makes you think they won't game the next one (yours, if you happen to be a landlord). I'm not saying that the folks you know aren't credit worthy. But the root of the word "credit" is "credo", i.e., trust. Are they trustworthy?

Bozo
aupanner
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Post by aupanner »

bozo wrote:California landlord-tenant law has a similar "put option" for renters. It's called ignoring a notice to pay or quit and fighting eviction.
You don't like it, but the banks wrote those contracts. They knew people could walk, but they wrote them just the same. Exercising one's legal (if not moral) right under a contract is different than your patently-illegal example above, which would result in eviction and forfeit of the security deposit to cover unpaid rent.

Any tenant could become a liability: is one who walked from a mortgage worse than bankruptcy or divorce? Those were both contracts as well.
bozo
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Post by bozo »

aupanner wrote:
bozo wrote:California landlord-tenant law has a similar "put option" for renters. It's called ignoring a notice to pay or quit and fighting eviction.
You don't like it, but the banks wrote those contracts. They knew people could walk, but they wrote them just the same. Exercising one's legal (if not moral) right under a contract is different than your patently-illegal example above, which would result in eviction and forfeit of the security deposit to cover unpaid rent.

Any tenant could become a liability: is one who walked from a mortgage worse than bankruptcy or divorce? Those were both contracts as well.
And landlords write leases. I'm not an apologist for the banking industry, far from it. A tenant exercising his or her right to fight eviction proceedings is really no different than an owner exercising his or her right to fall back on non-recourse, established pursuant to California Civil Code 580a and 580d. Both scenarios involve legal rights.

But both landlord-tenant law and CC 580 can be gamed. That is the point.

I, for one, would not want a "gamer" as a tenant.

Bozo

PS: I'm not paranoid. Read this primer for fighting eviction, especially the "Retaliation" affirmative defenses, which, of course, give a right to a jury trial.

http://povertylaw.pbwiki.com/eviction+defense
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mathwhiz
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Post by mathwhiz »

Speaking as a former small-time landlord, I don't think I'd rent to someone who was recently foreclosed on. If they couldn't pay their mortgage, I have no reason to believe they could pay the rent, even if it is a lower amount. People who have been foreclosed on often are unemployed, and often have big credit card debt, gambling problems, huge medical/childcare expenses, etc. which would all get in the way of paying rent on time and in full.
Would you rent to someone that was foreclosed on who would give you six months or the entire 12 months rent upfront?

With non-recourse loans, you can't easily make assumptions about someone's finances. If someone just wanted a quick flip and made a bad investment and is now underwater $200,000 or $300,000, the logical thing to do is to cut your losses and tell the bank to shove it.

Let's look at this example. Someone buys a house in CA for $750,000 at the height of the boom in 2005. They put 5% or $37,500 down with monthly payments of $4,000.

The house is now worth $450,000 and they are still on the hook for $48,000 a year in payments.

They can get the same house now renting for half as much.

It's very easy to see why this person would tell the bank to shove it.
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