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  • Investors buying homes by the dozen

    Investors buying homes by the dozen

    In some places homes are selling for $500 a pop

    Rebecca Cook / Reuters Investors are buying homes by the dozen in places such as Detroit, where the depressed housing market has homes going for $500 a pop in some cases.

    By Michelle Conlin

    updated 3/2/2012 9:08:31 AM ET

    When Vena Jones-Cox entered the foyer of the once-grand Colonial-style home in downtown Columbus, Ohio, she stepped onto a wood floor that was so moldy and mushy that it actually wiggled. As Cox proceeded down the basement stairs, they disappeared from underneath her.

    "I found myself lying on the floor," says Jones-Cox, 45. "Staring at a dead rat, by the way."
    The house tour from hell didn't stop her from making an offer on the place. While she was at it, she bid on some other houses, too. Forty nine houses, actually.
    She's paying $3,000 for each, a bit more than the cost of an Apple Mac Pro. "We're at a bottom," says Jones-Cox. "I mean, where else is there to go but up?"
    As the greatest real-estate fire sale in the history of the United States rages on, the bulk buy is the dead hot deal of the moment. In some of the most foreclosure-ravaged parts of the country, it is almost as if the housing market has become the new big box store, with investors wiping out whole shelves at a time.
    The idea is to arbitrage other people's misery. With the ranks of the rental class expected to swell, investors can buy houses at clearance sale prices, pour some money into repairs and then take advantage of the difference between their low cost of capital and the rent they receive. Often, they bank cash from day one.
    Hedge funds and private equity shops like McKinley Capital Partners started to quietly become landlords by buying up inventory last year. Now Main Street investors are following suit.
    "They aren't just buying one rental property," says Oak Park, Illinois realtor Kyra Pych. "This is a frenzy. They are loading up."
    Pych has five clients who are in the process of buying more than one condo in Forest Park. Illinois. Units that sold for $180,000 during the boom are now going for as little as $13,500. So instead of putting that money into a retirement account, her customers are putting the cash into homes and renting them out.
    In Detroit, the Midwest's aspiring Donald Trumps are buying bungalows for $500 each. In Atlanta, a group of Florida investors are in the process of buying the remaining 322 units in downtown Atlanta's swank, Art Deco Atlantic Residences, with room service and maids, near Atlantic Station. The prices start at $180,000.

    In California, Waypoint Homes, which has already purchased 1,000 single-family homes, got $250 million in funding in January from Menlo Park private equity firm GI Partners for more bulk buys.
    "The floodgates are starting to open," says John Burns, the founder of Irvine, California-based John Burns Real Estate Consulting. "There's billions of dollars of capital, of my clients alone, (looking) to invest in single-family rentals."
    Easier to buy
    Up to now, the business of buying foreclosed homes was often an old-fashioned affair. They were usually one off deals, and often involved an auction on the courthouse steps.

    But the recent news of Fannie Mae's pilot auction of a bulk sale of 2,500 homes was a signal to many housing experts that bulk buying is about to undergo a quantum change. The coming auctions will not only put mammoth amounts of inventory up for bid; they will also streamline and automate current procedures.
    Amherst Securities managing director Laurie Goodman, a major housing bear who expects further declines in home prices, believes such bulk sales are the key to cleaning out the foreclosure pipeline before any kind of housing recovery gains traction.

    It is not hard to see why U.S. housing is turning into the new value asset class of the moment. In an analysis of the 325 major metropolitan real estate markets across the globe, the U.S. was home to the top 24 most affordable markets, according to Demographia's 2012 International Housing Affordability Survey.
    No one can argue with the landlord's seductive math. There are bank accounts and bonds and annuities with their less-than-one-percent returns, and then, west of Boca Raton, there's the string of newly-renovated two-bedrooms overlooking the golf course, pool and cabana, along with all the people who have been foreclosed on who are now looking to rent.
    For $19,000 in cash, investors can pocket $300 a month, after taxes and homeowner association dues, on each, a 19 percent annual return that compares to the zombie yields from most savings accounts.
    In Charlotte, North Carolina, Cheryl and Bob Littlefield, who have five children, are already making the bulk buy work.
    Two years ago, the Littlefields inherited $200,000. They considered all of their investment options. Like a lot of people, they found the stock market to be a scary, bi-polar nerve frayer. Bonds and bank accounts offered nothing.
    Then there was the lovely little house for $16,000. After putting in a few grand, they cleared $600 a month, after taxes. It went so well they bought another house. And then another. Now they own eight and are in the midst of exploring financing to do a bulk deal for several more.

    "I know houses, I don't know stocks," says Cheryl Littlefield, who estimates rental income covers 40 percent of the family's expenses, the rest being covered by her husband's work as a contractor. "I don't know what to do if something goes wrong with Exxon Mobil. I know what to do if something goes wrong with a house."
    Can't buy, better rent
    The cruel irony known to every aspiring homeowner is that there has never been a better time to buy a house. It is cheaper to own - based on the monthly payments at the current interest rates of under four percent - than it is to rent in just about every market across the United States. In Phoenix, for example, it is 21 percent cheaper to own than it is to rent. In Minneapolis, it is 28 percent, according to Burns.

    But most who aspire to the property ladder are shut out of the homebuying opportunity. They have no access to credit. They are crushed by record-levels of student debt. A greater share than ever of their paycheck is already going to housing costs, according to Harvard University's Joint Center for Housing Studies.
    That's where bulk buying comes in to play.

    Often, the buyers use the cash they would have otherwise put in a retirement account and put it in houses. People can also use their individual retirement account funds to invest in real estate for use as rental properties.
    There are no official statistics on the growth of the bulk buy. But no less than Warren Buffett recently said in a CNBC interview that he would like to "load up" on a couple of hundred thousand single-family homes because it is a "very attractive asset class now."
    Buffett said what held him back was that the business of being a landlord, of managing the homes, was "enormous."
    As it turns out, one no longer even needs to be handy thanks to a new cottage industry of companies that has grown up to manage virtually everything for a landlord, down to the art of hectoring the renter for the rent.
    Property management outfits have popped up all over the place, from the high-end down to online companies like gorenter.com, which charges as little as $25 a month.
    Bubble off the bubble?
    That is not to say buying houses in bulk does not pose steep risks. Morgan Stanley analyst Oliver Chang christened 2012 as the year of the landlord. But other analysts, like Bank of America's Michelle Meyer, expect house prices to fall another 7 percent through 2013.
    And if the European debt situation deteriorates, or some other economic variable jolts the economy into another recession, all these aspiring property moguls will find themselves with too many vacancies and too much leverage, especially if they have borrowed heavily to refurbish. In other words: another bubble in the making.

    That's not to mention the deals that, no matter how bullet proof they may seem at the time, can still blow up in your face. Just ask all those guys from Orange County, California, who bought in bulk during the boom. Instead of turning into real estate barons, they went bankrupt.
    Jones-Cox, she of the 50 homes, has been involved in real estate in Ohio since the late 1980s. She had never looked at bulk buying until last year.
    Before she bought her latest homes, she toured each one. She says the condition went from "bad" to "dreadful." "Some of them had no walls, no windows, no furnace, no wiring, no sink," she says.
    Her plan is to rehab each house for about $20,000 a piece.
    She has studied the housing stock in the neighborhood. She says most of it would fit right in with the Third World. She has also studied the demographics and how much people are currently paying for rent. All the math works in her favor, she says.
    She doesn't see how the play could go wrong.
    Then again, Jones-Cox concedes, she never thought she would ever be able to buy a house for $3,000, either.
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

  • #2
    But most who aspire to the property ladder are shut out of the homebuying opportunity. They have no access to credit. They are crushed by record-levels of student debt.
    Do those who walked away from their no-recourse loans get black-listed and also unable to purchase another home for a few years in the States?


    • #3
      Non recourse loans are, as the name suggests, non recourse. So that alone does not affect your credit. Usually it is the dozen credit cards and missed car payments that destroy their credit score.


      • #4
        I love this bit
        She doesn't see how the play could go wrong.

        LOLZ...famous last words..........history is littered with people standing in the middle of a complete and utter disaster with a dazed look on their face wondering how it all went so badly wrong



        • #5
          "They have no access to credit. They are crushed by record-levels of student debt. A greater share than ever of their paycheck is already going to housing costs, according to Harvard University's Joint Center for Housing Studies. "

          I'm glad that the issue of student debt isn't so major in Australia. Sure we have HECS, but it only applies when you reach a certain income. If I had a student debt of 30K or more, I'd struggle to get a house due to the monthly repayments for the student loan


          • #6
            It seems to me that investors are willing to scout as many properties in order to find ones cheaper than a new SUV. Investors really do enjoy buying foreclosed homes, because they can have them improved and will be able to make a nice turnaround profit on each one.


            • #7
              Investors aren’t just wanting one home, they may want a dozen.
              As the greatest real estate fire sale in the history of the United States rages on, the bulk buy is the dead hot deal of the moment,” Reuters News reports. “In some of the most foreclosure-ravaged parts of the country, it is almost as if the housing market has become the new big box store, with investors wiping out whole shelves at a time.
              Investors are look to cash in by snagging homes at rock-bottom prices and then renting them out. In many cases, they’re starting to make a profit instantly and are seeing higher returns than other investments nowadays.
              Last edited by Alliee; 19-12-2012, 02:03 AM.


              • #8
                sounds like something every serious investor should think of doing.But what are the risks of this bulk buying of foreclosure properties?
                Homes For Sale in USA I | Home Loans I | Home Renovation Tips


                • #9
                  typically up to 25% of any packet is full of sh*t that you can't rent or sell. So there has to be enough equity/profit in the good ones to make it worth while. Don't get all starry eyed over a cheap house, sometimes a free house can be very expensive!


                  • #10
                    Well said Damap!


                    • #11
                      Its partially because they have no businesses they can tax. Big cities bring more revenue in through the businesses they tax therefore the taxes are a cheaper. In the woods without the businesses they break the back of the homeowner instead.


                      • #12
                        Yes, real estate market is very good for investment and we should always consider this as a profitable business though there are ups and downs in every business and we need to survive by that. We are also in the same business and buying house in any condition without commission and still managed to get profit.


                        • #13
                          Shouldn't there be some sort of minimum "have to at least pretend to speak english" test for PT "-)??


                          • #14
                            Speaking from experience in the US market, anyone who buys property in Detroit is insane. Even if you buy that home for 500 dollars, you're going to owe double that every year just in taxes. Its very important to research the state you choose to invest in, the taxes and regulation very greatly.

                            The fear that I have is that the influx of hedge fund and large investor buying will destabilize neighborhoods long term. Property values are always higher when maintained by a responsible land lord.

                            Right now I have a package deal of 17 single family homes all rehabbed rented or rent ready, and a package of 14 mostly needing rehab in steady working class areas with property management in place.

                            Feel free to contact me for details of past or current projects.