patrick.net

something similar happened in the 90's after the S&L crash.

large investors got sweetheart deals on bulk purchases of REO and then all of a sudden prices started to go up again.

individual investors will face heavy competitions from investment firms and eventually cash out.

Mark D says

individual investors will face heavy competitions from investment firms and eventually cash out.

and once the firms control the entire market they can name their own price.

robertoaribas says

I am in contract to buy my most expensive rental home so far of the entire soon to be 14 of them, and it is under $150,000. Till now, the most I have spent on a rental purchase is $87,000.

I thought that most of the properties there were fairly new. Why the high conversion costs?

robertoaribas says

I am in contract to buy my most expensive rental home so far of the entire soon to be 14 of them, and it is under $150,000

That's a high buy-in price for a rental, to me. But I don't know your market and the market rental rates either.

robertoaribas says

Till now, the most I have spent on a rental purchase is $87,000.

That amount, do you have to do anything to the property to make it rentable? Is that a low price, or mid, high?

I was trying to get a feel for your market and the types of house available. I have this image or thought that most of the available house out there are fairly new. Not a bad number ratio, but it sounds as things are moving along there finally.

We buy and do a full structural rehab, but the houses are 50-60 years old and dirt cheap, and most importantly in the right public school district with two very good private schools within a couple of miles, one catholic, and the other non-religous. We like to put value into the property and then recoup some of the tenants savings in a higher rent structure, which is right at your rates. Basically it depends on the size and layout of the house because of the mechanicals.

This is another of those threads where people need to quantify what area they are speaking of.

In my micro market(downtown LA), two new buildings opening at once..will do the following:

-Set their initial rents at about $250-300/mo below market

-Adjust the entire market down around roughly $150/mo.

The first new building(Chester Williams bldg) to open in a couple years just opened and while its nearly full only a few months after opening, it's had a ripple effect and basically stopped the rent increase that have been common in the past year and a half or so. In fact, several buildings now have unfilled vacancies this month whereas they had been 100% occupied most of the year.

I'll note that one owner has about 15-20% of the DTLA market(Barry Shy). But you cannot fix rents at a rate that the market will not bear. People need a place to live, but they don't have to live in your place. FWIW, Mr. Shy's rents are on the competitive side.

It’s very easy to steal tenants from old buildings to new ones by offering same rent, better features and first month free. Consequently the older one have to drop rent.

Well S.F and Berkeley you have rent control too.

Mark D says

The bulk foreclosure sale is a pilot program

This pilot program is already tanking for the reasons you just outlined.

These groups pay too much, have high property managment expense, then sell at the first sign they will be allowed to.

The numbers work on paper, but the reality is different.

As some one said, it's been tried before.

REpro says

It’s very easy to steal tenants from old buildings to new ones by offering same rent, better features and first month free. Consequently the older one have to drop rent.

Exactly my point.

More rentals on the market can in fact affect overall rents. What it depends on is where these "bulk sales" are occuring. If its only a couple per micro market, then theres gonna be no effect. If its 10-20 per micro market, theres going to be a decline in overall rental prices.

This is true even if the population in the micro market increases so long as there are more rentals available than people to fill them at whatever the equilibrium price point is.

If you speak to people who were landlords in LA in the mid 90's , by and large they will tell you that things were not good at that time. Even though home ownership declined at the time, there were simply more units available for rent than there were people who could afford them. That was post the last housing crash.

This time around, its a bit different. I believe its different at the moment for two reasons:

-A lot of people are living rent free in their homes. These homes are not measured at the moment because they have mortgages that are not being paid, but the banks will make no effort whatsoever to pursue payment or NOD. So they are just kinda in limbo and the mortgage holders have no reason to move or pay anything.

-A percentage of homes are simply kept empty, off the market. This is certainly shown in Zillows new feature where homes are foreclosed on but not on MLS. If even half those SFR and condos were put on the rental market, rents would drop significantly.

In other words, there is the same excess of inventory that existed after the early 90's housing market crash, but this time around inventory is being maintained as unavailable. This is keeping rents(amoungst other things) at an artificially inflated amount.

Depending on how many of these housing units are sold in bulk, its going to impact the rental market, as well as the housing re-sale market. I do agree that just this one sale will not impact things much, if at all. But the notion that "price fixing" will occur is ridiculous. Its been repeatedly proven here that you can't raise rents higher than the market will bear. Even with the current "shadow inventory" being withheld from the market, rents have a ceiling.

We've been seeing this in Oakland for some time. The investors are coming in and buying large amounts of foreclosed homes and renting them out.
But they also tend to fix them up and the rents have gone up.
There aren't a lot of empty houses here. Foreclosured houses are mostly people who were living rent free. When the house is foreclosed they get kicked out and become renters. So there's no net increase in rental supply.

it's different if you're talking about places like Inland Empire where too many houses were built and bought by absentee landlord speculators. In those areas there are too many empty homes. Once previously empty houses come on the market as rentals rents will probably fall.

dodgerfanjohn says

A percentage of homes are simply kept empty, off the market. This is certainly shown in Zillows new feature where homes are foreclosed on but not on MLS. If even half those SFR and condos were put on the rental market, rents would drop significantly.

What percentage of homes fits this criteria? Foreclosed, vacant and not for sale?

In DTLA, Zillow shows me 8.

zesta says

dodgerfanjohn says

A percentage of homes are simply kept empty, off the market. This is certainly shown in Zillows new feature where homes are foreclosed on but not on MLS. If even half those SFR and condos were put on the rental market, rents would drop significantly.

What percentage of homes fits this criteria? Foreclosed, vacant and not for sale?

In DTLA, Zillow shows me 8.

It depends on the micro market.

For DTLA, the issue is condos where mortgage/HOA is not being paid, but no action including NOD is being taken.

After all, where did all those current sales and pending short sales at Eastern Columbia building pop out from?

Are people still paying their $500-600k mortgages on all those units at Market Lofts? Recent short sales have been in the $350-400k range. Are people really stupid enough to not strategically default under these circumstances?

I have a feeling most realtors and the banks around here prefer we were blind and stupid.

dodgerfanjohn says

Its been repeatedly proven here that you can't raise rents higher than the market will bear.

Here is interesting exercise:
Pick your micro economic: town/borough with homogeneous salary. Go to Zillow and click on gradually increasing sizes of the houses and estimated prices. Pay attention on estimated rent. You will see at some point that estimated rent do not go up regardless of how expensive house is or how big in sq./ft. That where rent ceiling is for this area.

REpro says

borough with homogeneous salary. Go to Zillow and click on gradually increasing sizes of the houses and estimated prices. Pay attention on estimated rent. You will see at some point that estimated rent do not go up regardless of how expensive house is or how big in sq./ft. That where rent ceiling is for this area

The final statement doesn't make any sense...ie it doesn't logically lead from the example you posted.

The reason is despite median or average income for the area, you'll have some sort of distribution of incomes with an unknown quantity of people 1 sigma out of normal, 2 sigmas out, etc on both sides.

Your example attempts to make the case that the rent ceiling for the area is the most a single person in that area can afford and that would be incorrect. Rent ceilings will vary for type of dwelling, average income, distribution of incomes from the average, etc.........

robertoaribas says

yes, the $150K buy is a high price... here is what I'm thinking with it:
1. It is a 3000 square foot single level home with a 3 car garage and a pool. Also, ALL flooring is nice tile, which is generally where you run up expenses as a landlord, changing carpet.
2. It is not the best rental. I think it will rent for $1300 a month, which is not nearly as good as anything else I'm buying... But good enough to get by.
3. No way in hell any builder ever builds anything even close to competitive in price to this, ever.

Roberto, point 3 is interesting. Even War/Darrell with his $60/ft can't beat this, his 3k ft house would be $180k.

There is a lot of talk about shadow inventory that is complete hooey. At one point there was something like 18 million housing units, and now I think it's like 7 million that gets quoted as being vacant, but it doesn't make any difference.

The big story was that apartment building permits were flat for the 10 years that builders threw up crap shacks and sold them for big money.

Well that home ownership rate is fine for the people who are stuck with houses, but the economy has changed.

There are more people who would rather rent, work, and save than those who want to be saddled with debt.

A house isn't a sure bet any more, and after prices receed after the election you'll see more people happy to move into newer apartment buildings, and ride out the economy.

Big builders have taken over the housing market here in Seattle. We see thousands of apartment buildings being finished, and lowering rents to attract renters. As the apartment rents go down the crap shacks are finding it harder to get quality renters.

Remember low life pays the most to live somewhere.

So what I see is that questionable areas are getting further run down, and newer buildings are eating the lunch of older buildings that don't keep up.

And the crap shacks are taking longer to rent, and the rates need to get in line with the condition.