Real Estate Crash thread

[Foggy_Goggles]

So, in order to make 10% annual return on a $500k house over 10years, excluding pesky things like maintenance, utilities, taxes and insurance, you'd have to sell it for $1.2million just so ya'll know the math the are arguing in favor of.

I'm not saying the insitutional investors aren't purchasing an alarming amount of SFHs and that that is concerning, I'm saying that you have basicially invented a business model out of thin air and when I ask you about how it would work, you've got nothing either in your own word and or sources.

Its a fucking problem. But understanding the problem isn't helped by just making shit up.

So, for example, is you showed he a zip code or region in metro Houston who institutional investors had have been buying up property, either MLS or not, and were witholding some from the rental inventory so they could raise the rents through scarcity, I'd be listening.

But that not what you said, you basically said something like, pay over market borrowed, leave them vacant for 10 years, they sell because it will offer a good inflation adjusted return. You know with decent credit, you can do that today! There are people in this thread that can help you with that.

[MontuckyFried]

The amount of commercial RE that has happily sat empty for years tells me that similar principles can be applied to SFH.

YUP!!! That's precisely what's up. Ever wonder why commercial RE can sit vacant for years on end while refusing to budge on lease rates? Well there ya have it.

What the peons here don't seem to understand is that by keeping properties vacant, investment firms can (A) manipulate the market by artificial scarcity, and (B) offset capital gains by actualizing their "passive losses" upon the next transaction by way of lack of rental income over the years. With increasing rental rates (by their own hands) they can seriously maximize these offsets!

People like FG and others here are thinking like brokeys and can't even remotely begin to comprehend the squirrely games that billionaires and their legions of accountants and lawyers play. How did George Carlin put it? "It's a big club, and you ain't in it!"

[Foggy_Goggles]

Look buddy, maybe tone down the rhetoric. Perhaps part of the reason I don't understand it is because you can't explain it.

I'm not claiming to has the answers but I'm also not the smartest guy in the room, you are.

All you've done is toss out assumptions like they are fact, and opine on financial concepts and strategies that I'm not sure you understand.

To summarize

Me: how does that work?

You: fuck off dummy!



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[skaredshtles]

Look buddy, maybe tone down the rhetoric. Perhaps part of the reason I don't understand it is because you can't explain it.

I'm not claiming to has the answers but I'm also not the smartest guy in the room, you are.

All you've done is toss out assumptions like they are fact, and opine on financial concepts and strategies that I'm not sure you understand.

To summarize

Me: how does that work?

You: fuck off dummy!

I mean... that's how it works with MF.

[climberevan]

Me: how does that work?

You: fuck off dummy!

This is a remarkably popular debate style. It serves as further evidence that our education system has failed many of us.

[singlesline]

Yeah, I'm not buying the institutional investors sitting on empty houses story...

I'm sure it does happen for various reasons, but it is not a large scale portion of the housing market because

A) the institutional buyer thing is generally overstated. The housing market is huge and these big players aren't actually buying that much property (especially after zillow's attempt exploded in their face). Some numbers I've seen thrown around include all business/non-individual buyers, but that's clearly not right--plenty of people buy homes through trusts/LLCs for personal use, small time landlords buy a huge share of properties, AirBNB host LLCs, larger-scale corporate landlords whose business plan is to rent or AirBNB properties, Chinese trying to stash money, etc...but the actual Blackstone-style institutional buyers are doing fairly targeted buying and are small relative to total sales.
B) When you own that many properties, the rents on them are not "marginal" cash flows. Not renting those properties out is a HUGE opportunity cost. Sure, each property may rent for $2k/mo, but when you own thousands of properties you are quickly talking about tens to hundreds of millions a year in rent payments. You don't give up that kind of money. If the homes are in hot markets, they should be easy to rent out to "prime" tenants (non-smoking families with no dogs and high credit scores)...and if they aren't in hot markets, then why would you think price appreciation will outperform other assets?

And like...here's the website for the Blackstone-spinoff buying lots of homes. I see thousands of homes for rent. Maybe they are holding back some homes based on condition/local market, but they are clearly attempting to rent the stuff they own.

When Zillow was trying to do algorithmic buying, they didn't rent the properties, but their goal was to flip in 3-6 months. Basically buy at a discount by being able to offer cash with fast close/no contingencies, make some repairs, do some staging, and then sell at a profit. On the sell side they have the opposite advantage--they can sit on the market longer and they can be far more flexible than normal sellers when it comes to closing time, contingencies, financing, etc. And presumably they could do it all internally and save on having to pay out sellers agent (and maybe buyer's agent) commissions. Of course that didn't work out for them and some of those homes sat empty longer than they intended, but they stopped buying more homes years ago at this point.

So I'm just not seeing how these buyers are impacting the markets most of us are looking at--especially since they mostly targeted generic suburban subdivisions where there where lots of comps and listings to wade through, not little mountain towns where the algorithms break down (and where a housing shortages/wealthy cash buyers make it hard for them to pick up properties at a discount).

[Art Shirk]

Institutional investors are buying up tons of houses and leaving them vacant. That’s a fact, so there must be a reason.

And the reason is that they found a safe way to get a better return than a money market account without having to deal with generating an entire property management company out of thin air, fuck with maintenance, unlawful detainers, added insurance, etc. It’s all a hedge so some houses are stinkers and the winners, which are more prevalent in this market, carry the pooled investment.

I mean I get it. If I owned 300 houses, I’d do the work to get rent cash flow. If I was a Chinese conglomerate, I’d park it and call it a day without the added stress and visibility into my business.

It’s just an investment vehicle.


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[Bunion 2020]

A possible answer.

[singlesline]

I don't know about the math on investments, but when it comes to renting, here's an interesting piece about how thanks to software algorithms (thanks, tech bro dickheads), apartment management companies have learned that they can actually make MORE money through increasing vacancies and increasing rent prices. Something previously unthinkable in markets before:

Rent Going Up? One Company’s Algorithm Could Be Why.
https://www.propublica.org/article/y...-realpage-rent

We're doomed.

This isn't at all related to the idea of keeping houses empty long-term.

This is about landlords strategically moving from 97-98% occupancy rates to 94-96% occupancy rates because waiting for the right tenant willing to pay 5-10% more rent is better than than getting 2-4% less vacant months but at a lower rent.

But 94-96% occupancy is still...mostly occupied? We're talking 1-2 weeks a year of additional vacancy per unit per year.

I don't doubt that the Blackstone-type institutions are using YieldStar or similar algorithms to maximize profit, but at most you are talking months of vacancy, not years.

Similarly, residential leases are very different from commercial...it makes perverse sense to keep commercial units vacant when their leases involve custom buildout, multi-year contracts, etc. Greedy landlords don't want a mom+pop taco shop that might fail when they could wait and pick up a Starbucks that will pay excess rent and will stay in their lease for decades.

Residential leases are comparatively easy: short term, property is presented as-is, and only the absolute worst tenants can cost you MORE than they paid in rent (since the comparison here is to owning the property for years with ZERO income on it). A profit maximizing institutional purchaser isn't going to leave that money on the table. Not to mention that vacant homes incur additional costs because you have to pay people to monitor them, maintain the yard, etc.

[californiagrown]

Institutional investors are buying up tons of houses and leaving them vacant. That’s a fact, so there must be a reason.

And the reason is that they found a safe way to get a better return than a money market account without having to deal with generating an entire property management company out of thin air, fuck with maintenance, unlawful detainers, added insurance, etc. It’s all a hedge so some houses are stinkers and the winners, which are more prevalent in this market, carry the pooled investment.

I mean I get it. If I owned 300 houses, I’d do the work to get rent cash flow. If I was a Chinese conglomerate, I’d park it and call it a day without the added stress and visibility into my business.

It’s just an investment vehicle.


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I understand what you are saying. And i would agree what you say is likely if it was a chinese conglomerate simply banking wealth someplace stable in a necessarily discrete manner.

But, for an american company doing nothing illegal i simply don't see the benefit of turning down HUGE guarantied returns from rental income that increases liquidity month after month. Turning down the opportunity for 50% greater profit month after month (with the ability to reinvest) just doesnt seem realistic for company focused on profits. The rental income, especially if reinvested, is a huge profit potential. Buying up a property management company to operate your rentals would be simple for an organization as large as blackrock. Buying houses and leaving them empty in this market would be like buying stock, and then actively turning down the dividend yield because you couldnt be bothered to collect it? I dont see the benefit of leaving the homes empty compared to renting them out for profit and cashflow?

[Foggy_Goggles]

Thanks Art for enunciating their strategy without spitting on yourself or telling me I was too dumb to understand it. I'm not sure I buy the "safe return > money market" part. But I also don't buy that landlording is "easy money" either.

[Art Shirk]

I don’t disagree that they are leaving money on the table but I think it’s just about mindset. A mindset that most bloated rich people have. It’s why fine art isn’t hung and car collections aren’t Turo’d. It’s not that it isn’t baffling but I do think it’s explainable.


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[Stikki]

American = real estate investor
Foreign = land investor, there just happens to be a home/building on the land

[goldenboy]

Institutional investors are buying up tons of houses and leaving them vacant. That’s a fact, so there must be a reason.


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I'm not going to say you're wrong, but I can't find anything, anywhere, saying that this actually happens at any scale for any length of time. Other than some websites dismissing it as some sort of urban legend... If you have some proof of this fact I'd love to see it, because I'm genuinely curious, not being dismissive.

[skaredshtles]

I'm not going to say you're wrong, but I can't find anything, anywhere, saying that this actually happens at any scale for any length of time. Other than some websites dismissing it as some sort of urban legend... If you have some proof of this fact I'd love to see it, because I'm genuinely curious, not being dismissive.

I too would be interested. Especially the claim that "institutional investors" are doing this. Generally institutional investors have clients/members that they answer to, who, I would think, would *not* be so keen on all that $$ being left on the table.

[Foggy_Goggles]

Buy and hold residential real-estate investing is really available to anyone with either the capital or the means to borrow.

But capital ain't free and the risk ain't zero. So color me in the doesn't make sense camp.

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[MontuckyFried]

You guys are right that I can't find any "hard evidence" either, so in the meantime, I guess I'll have to put my suspicions based on anecdotal, observational evidence in the conspiracy theory category until I can find any legit public data on it.

That said, where it DOES make some sense to leave a property vacant versus renting is if you have intentions of selling it within the next couple years due to how tenants can negatively effect selling prices if the potential buyers are wanting to live in it themselves. Tenants tend to get kinda cranky about their pad being put up for sell and often are a total PITA when it comes to showings and what not. When I've shopped for a home, I can't tell you how many times the realtors would try and set up a time with the tenants, and the places would be absolutely trashed 9 times out of 10 with weed smoke billowing out the second you open the door. They don't make it easy to photograph easy either of course.

I read somewhere that there can be an average reduction in sales prices (at least in the past) of something like a $20K+ average hit when tenants are there to muck things up. Also, when they have a lease, they're not going anywhere until the lease is up, leaving the home buyers (at least the ones who AREN'T investors) without a place until then. Thus, it actually can make some financial sense to leave a home vacant if your plan is to sell it.

[skaredshtles]

<snip>
That said, where it DOES make some sense to leave a property vacant versus renting is if you have intentions of selling it within the next couple years

Which also doesn't really make much sense, because there is all KINDS of risk associated with this sort of short-term investment.

Esp for any kind of institutional investor.

Maybe they're playing 5-D chess?

[Foggy_Goggles]

That's a bit of a softer message than your last response and I appreciate that.

If you want to make it conspiracy theory, that's on you. Property ownership is on public record and is scraped by bots constantly.

There is pretty of shit that goes on behind closed doors that dumb fucks like me can't even comprehend. Residential real estate transactions ain't one of them.

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[Ted Striker]

Similarly, residential leases are very different from commercial...it makes perverse sense to keep commercial units vacant when their leases involve custom buildout, multi-year contracts, etc. Greedy landlords don't want a mom+pop taco shop that might fail when they could wait and pick up a Starbucks that will pay excess rent and will stay in their lease for decades.

Sometimes it's not just greed. When our company owned an office building, we had to conform to zoning meaning our ground floor anchor tenant had to be classified as light industrial. The TIs for that are super specific, so you don't want to lease it to someone who might go broke. And in our case, it couldn't be a super loud business due to offices directly above and residential next door.

[californiagrown]

That said, where it DOES make some sense to leave a property vacant versus renting is if you have intentions of selling it within the next couple years due to how tenants can negatively effect selling prices if the potential buyers are wanting to live in it themselves. Tenants tend to get kinda cranky about their pad being put up for sell and often are a total PITA when it comes to showings and what not. When I've shopped for a home, I can't tell you how many times the realtors would try and set up a time with the tenants, and the places would be absolutely trashed 9 times out of 10 with weed smoke billowing out the second you open the door. They don't make it easy to photograph easy either of course.

I read somewhere that there can be an average reduction in sales prices (at least in the past) of something like a $20K+ average hit when tenants are there to muck things up. Also, when they have a lease, they're not going anywhere until the lease is up, leaving the home buyers (at least the ones who AREN'T investors) without a place until then. Thus, it actually can make some financial sense to leave a home vacant if your plan is to sell it.

You just dont renew the lease with your tenants, they move out, you spend the next month cleaning, painting, reflooring, and then stage it. You lose about 1 months rent if you are lazily going about it. This really isnt rocket science and its a pretty turnkey industry devoted to slapping lipstick on a pig the month before a house goes on the market. If you just sat on the house for a few years to let it appreciate, you lost out on all the rental income (plus the ability to invest the profits), and you would still have to clean, paint, floor it so it looked new...mean while it didnt appreciate any more or less.

[BCMtnHound]

I wonder if some of the anecdotal institutional investing is related to a forecasting of increased densification in zoning bylaws in select locations and markets. Laws are just being passed here in BC that will force munis to update zoning in key communities and locations to help address the housing shortage. No idea how able the big investors can forecast such changes, or the risks involved, but the value of those impacted parcels will certainly increase if zoning allows SFD to 3 or more story multiplex housing. And renting a place you’ll have to evict tenants within 5yrs would definitely discourage the hassles of institutional renting. Just spitballing, no idea if similar laws and zoning changes are happening elsewhere south of the border.

[Flounder]

Some evidence of investors buying up property, at least in the Boston.

https://www.bostonglobe.com/2023/12/...g-real-estate/

The report revealed that investors play a much bigger role in shaping the region’s housing market than previously known, although Greater Boston has not seen the same level of billion-dollar corporations snatching up cheap single-family homes as other US cities.

Investors, who often either flipped homes for much higher prices within two years or jacked up rents by as much as 70 percent, were particularly active in some lower-income areas and gentrifying neighborhoods, the report said. Parts of East Boston and Lynn, for example, saw more than 40 percent of home sales go to investors.

[Dantheman]

I wonder if some of the anecdotal institutional investing is related to a forecasting of increased densification in zoning bylaws in select locations and markets. Laws are just being passed here in BC that will force munis to update zoning in key communities and locations to help address the housing shortage. No idea how able the big investors can forecast such changes, or the risks involved, but the value of those impacted parcels will certainly increase if zoning allows SFD to 3 or more story multiplex housing. And renting a place you’ll have to evict tenants within 5yrs would definitely discourage the hassles of institutional renting. Just spitballing, no idea if similar laws and zoning changes are happening elsewhere south of the border.

Can't be, numerous suburban Karens have assured me that increasing density reduces property values.

[XXX-er]

3 new lane way homes within a couple of blocks in the older residential area immediately next to commercial down town area near me, it seems to go OK in an older area where the housing is all different, it doesnt seem to reduce property values but I'm not sure how it would look in an area with new residential that was all the same style & vintage

the town has zoning byaws for laneway and one of them was built by a councilor