I started a business and went to my fairly extensive network of reasonably high-net worth friends and family to invest. I was constantly running into this problem of expected returns from the alternative of real estate.
My other company makes commercial real estate loans to small business. Almost all of these borrowers show at least one rental property on the personal financial statement.
Throughout the history of economic man, owning real estate that returns rental income has been a key source of wealth. I am reading about the Roman empire where wealth and political power of a person were often connected to the real estate holdings of the person.
I remember years ago looking at homes to purchase with my wife when my relator started going on about the equity we would realize from the neighborhood demand. I fired him on the spot and told him that he is not an investment advisor, his only job was to help us find a home that met the needs of our family.
However, I absolutely agree that things have gotten out of hand.
We need capital to flow to reindustrialize the country... for private equity to spur innovation, entrepreneurialism and enterprise... activities that benefit many and not just support selfish returns on investment like real estate.
Thank about it this way... instead of Blackrock buying up all the existing housing inventory, Blackrock should be investing in new housing development projects.
Not only is the trend for big capital snatching up rental properties driving up rents above the rate of inflation, but it is also preventing capital from going where it is most needed.
I'm confused. You accuse these REITs of "hoarding"...but to what purpose? Every day they "hoard" these houses is a day they're losing money better invested elsewhere.
Now of course it's true that if most of these houses are being sold to wealthy and in some cases offshore purchasers, that might hurt some prospective purchasers in this country. But--and here's the part I don't quite get--isn't this just a wholesale version of brokers who specialize in this kind of sale? I mean...if I'm a real-estate broker who wants to make his money by identifying and selling high-value properties to people from abroad who have more money than sense...how is that different than what you describe here?
Don't misunderstand me...I'm not saying you're wrong. I'm just saying I don't really understand why the dynamic you describe is any different from business-as-usual.
Well, real-estate brokers make their money off of selling homes from Party A to Part B.
These corporations and REITs primarily make their money off of buying the a single family home and renting it out. The general goal when you rent out a home is to make roughly enough to pay for the home every 10 years. It could be a little more or a little less, but that's a ballpark figure.
As a general rule, I don't even consider buying a home to live in or just hold to necessarily even be an investment, because yes, it will likely go up, but in most cases it won't necessarily beat the costs of the maintenance by very much (There are exceptions. Here in Myrtle Beach, we see people in NYC & Jersey who bought a home, sold it for a large profit and the bought a much nicer home here and had money left over -- but that isn't how it works for most people).
So, when I talk about them stockpiling homes, I mean homes to rent.
OK, I see now. But I'm still confused as to what makes this a Bad Thing.
When I lived in the National Capital Region, people most commonly rented an apartment when they first moved to the area--I certainly did, as did many of my peer group--and then once you'd accumulated enough to make a down payment, you'd buy.
So my first two years, I lived in a rental property whose "landlord" was a real-estate firm, not an individual. And pretty much everybody I knew who was in the same situation did so as well and thought it quite normal.
So...how is that OK for apartments but not for single-family homes? I feel there's some nuance I'm missing... :-(
"When I lived in the National Capital Region, people most commonly rented an apartment when they first moved to the area--I certainly did, as did many of my peer group--and then once you'd accumulated enough to make a down payment, you'd buy....So...how is that OK for apartments but not for single-family homes? I feel there's some nuance I'm missing... :-("
So, here's the nuance -- you're going to save up for a down payment and then what? You buy a house?
Well, if houses are orders of magnitude more expensive, in large part because big corporations and REITS are buying all the existing inventory to rent, you're NOT going to be buying a house because the down payment you will need will be too large and the house will cost too much. As noted, that's not the only factor, but we're already seeing that and every indication is that it's going to get orders of magnitude worse.
Well, I guess I see what you're saying. Since I'm hardly a subject-matter expert, I'll leave it there, and we'll see how it all plays out.
I do think you're viewing the issue through a rather narrow focus: I mean, even in my day there was quite a difference between living in DC, living in the nearby suburbs--Arlington and Alexandria--and living further out e.g. Loudon or Prince William.
And to some degree it will depend on how much you need to put down: for my first apartment I only had to put down five percent (!), though the actual mortgage was quite costly owing to the fact we were still in the Carter-era interest-rate era, the Reagan policies having not yet kicked in.
But even that could be fixed once interest rates came down from their eye-watering double-digit levels...
Question: I would imagine that the parents of today's workplace entrants might be willing to help out their kids. Certainly I heard some of that from my peers when they were retiring and their kids were buying. Do you think that will have a helpful effect owing to making it easier for the new generation to buy, or will it actually drive up prices owing to the larger amount of capital chasing the same amount of housing stock?
I started a business and went to my fairly extensive network of reasonably high-net worth friends and family to invest. I was constantly running into this problem of expected returns from the alternative of real estate.
My other company makes commercial real estate loans to small business. Almost all of these borrowers show at least one rental property on the personal financial statement.
Throughout the history of economic man, owning real estate that returns rental income has been a key source of wealth. I am reading about the Roman empire where wealth and political power of a person were often connected to the real estate holdings of the person.
I remember years ago looking at homes to purchase with my wife when my relator started going on about the equity we would realize from the neighborhood demand. I fired him on the spot and told him that he is not an investment advisor, his only job was to help us find a home that met the needs of our family.
However, I absolutely agree that things have gotten out of hand.
We need capital to flow to reindustrialize the country... for private equity to spur innovation, entrepreneurialism and enterprise... activities that benefit many and not just support selfish returns on investment like real estate.
Thank about it this way... instead of Blackrock buying up all the existing housing inventory, Blackrock should be investing in new housing development projects.
Not only is the trend for big capital snatching up rental properties driving up rents above the rate of inflation, but it is also preventing capital from going where it is most needed.
I'm confused. You accuse these REITs of "hoarding"...but to what purpose? Every day they "hoard" these houses is a day they're losing money better invested elsewhere.
Now of course it's true that if most of these houses are being sold to wealthy and in some cases offshore purchasers, that might hurt some prospective purchasers in this country. But--and here's the part I don't quite get--isn't this just a wholesale version of brokers who specialize in this kind of sale? I mean...if I'm a real-estate broker who wants to make his money by identifying and selling high-value properties to people from abroad who have more money than sense...how is that different than what you describe here?
Don't misunderstand me...I'm not saying you're wrong. I'm just saying I don't really understand why the dynamic you describe is any different from business-as-usual.
Well, real-estate brokers make their money off of selling homes from Party A to Part B.
These corporations and REITs primarily make their money off of buying the a single family home and renting it out. The general goal when you rent out a home is to make roughly enough to pay for the home every 10 years. It could be a little more or a little less, but that's a ballpark figure.
As a general rule, I don't even consider buying a home to live in or just hold to necessarily even be an investment, because yes, it will likely go up, but in most cases it won't necessarily beat the costs of the maintenance by very much (There are exceptions. Here in Myrtle Beach, we see people in NYC & Jersey who bought a home, sold it for a large profit and the bought a much nicer home here and had money left over -- but that isn't how it works for most people).
So, when I talk about them stockpiling homes, I mean homes to rent.
OK, I see now. But I'm still confused as to what makes this a Bad Thing.
When I lived in the National Capital Region, people most commonly rented an apartment when they first moved to the area--I certainly did, as did many of my peer group--and then once you'd accumulated enough to make a down payment, you'd buy.
So my first two years, I lived in a rental property whose "landlord" was a real-estate firm, not an individual. And pretty much everybody I knew who was in the same situation did so as well and thought it quite normal.
So...how is that OK for apartments but not for single-family homes? I feel there's some nuance I'm missing... :-(
"When I lived in the National Capital Region, people most commonly rented an apartment when they first moved to the area--I certainly did, as did many of my peer group--and then once you'd accumulated enough to make a down payment, you'd buy....So...how is that OK for apartments but not for single-family homes? I feel there's some nuance I'm missing... :-("
So, here's the nuance -- you're going to save up for a down payment and then what? You buy a house?
Well, if houses are orders of magnitude more expensive, in large part because big corporations and REITS are buying all the existing inventory to rent, you're NOT going to be buying a house because the down payment you will need will be too large and the house will cost too much. As noted, that's not the only factor, but we're already seeing that and every indication is that it's going to get orders of magnitude worse.
Well, I guess I see what you're saying. Since I'm hardly a subject-matter expert, I'll leave it there, and we'll see how it all plays out.
I do think you're viewing the issue through a rather narrow focus: I mean, even in my day there was quite a difference between living in DC, living in the nearby suburbs--Arlington and Alexandria--and living further out e.g. Loudon or Prince William.
And to some degree it will depend on how much you need to put down: for my first apartment I only had to put down five percent (!), though the actual mortgage was quite costly owing to the fact we were still in the Carter-era interest-rate era, the Reagan policies having not yet kicked in.
But even that could be fixed once interest rates came down from their eye-watering double-digit levels...
Question: I would imagine that the parents of today's workplace entrants might be willing to help out their kids. Certainly I heard some of that from my peers when they were retiring and their kids were buying. Do you think that will have a helpful effect owing to making it easier for the new generation to buy, or will it actually drive up prices owing to the larger amount of capital chasing the same amount of housing stock?