February 17, 2013

How do you tell the difference between the RBA and Not the RBA?

Answer: The RBA is being bought up by foreigners with suitcases full of cash going to individual sellers.  Not the Real Bay Area is being bought up by investors with envelopes full of cashiers checks going to banks.

Report: Investors buy nearly half of Oakland’s foreclosed homes

Real estate firms turning properties into rentals, becoming "massive landlords" in some neighborhoods, critics say

130216-investors-suitcaseby Aaron Glantz, Bay Citizen — June 28, 2012, 11:01 a.m.

The rental listing advertises a “gorgeous remodeled craftsman-style house” with three bedrooms, two bathrooms, a converted basement, a large deck and a backyard for $2,595 a month.

Eight months ago, this West Oakland home was owned and occupied by Theodros Shawl, a local chiropractor. Shawl bought the house in 2004, his first since emigrating from Ethiopia in 1990. Over the years, Shawl said, he rebuilt the home’s foundation and replaced its aging plumbing and electrical systems.

“I liked the fact that it was an older home, that I could repair and paint and fix there on the weekends. I was always at Home Depot,” said Shawl, 40. “I was living the American Dream.”

Last October, after being sidelined with a wrist injury, Shawl lost his home to foreclosure; in May, Bank of America sold it to a real estate investment firm, REO Homes 2 LLC, a company founded in 2010 by Bay Area businessman Neill Sullivan.

130216-investors-cashiersLest you think this is a trend only in the depressed parts of the Bay Area, we assure you that it isn’t.  Real Estate Investment Trusts are back, mostly because there doesn’t seem to be a lot of places to get reasonable returns these days.  A recent article in The New Republic covers the growing national trend of paying cash for foreclosures and turning them into rentals.  Needless to say, actual would-be buyers are finding themselves aced out of the bottom-feeding.

Your New Landlord Works on Wall Street

130216-investors-hedgeHedge funds are snatching up rental homes at an alarming rate

BY DAVID DAYEN, The New Republic, February 16, 2013

Housing analysts have been giddy for the past year about the comeback of their industry, whose collapse led to the Great Recession. Sure, 2012 was actually the third-worst year for housing ever—but it still beat 2010 and 2011. New and existing home sales, housing starts, and prices jumped in 2012, and experts expect an even stronger recovery for 2013.

It’s clear why people are so excited: Housing typically leads economic recoveries. As more people build equity in their homes, they feel more free to spend disposable income and increase economic activity, a phenomenon known as the “wealth effect.”  So a bullish outlook for housing would seemingly augur a long-awaited recovery to Main Street. But the more you look into it, the clearer it becomes that it’s not being driven by the typical American families who lost their homes in the economic crash. In fact, it’s being fueled by the banks and hedge funds whose speculation caused that crash in the first place.

If you’ve signed a lease in the past year, there’s a good chance your landlord wears a tailored suit and works on Wall Street. One of the hottest trends in the financial sector is known as “REO-to-rental.” Over the past couple years, hedge funds, private equity firms and the biggest banks have raised massive amounts of capital to buy distressed or foreclosed single-family homes, often in bulk, at bargain prices. Their strategy is to convert them to rental units for a while before reselling them when prices appreciate. The Wall Street firms are scooping up properties in the hardest-hit areas, promising high returns for the rental revenue streams—up to 10 percent annually —and starting bidding wars that have driven up some prices well above national averages. It’s the next Wall Street gold rush, with all the warning signs of a renewed speculative bubble.

Enjoy the Open Houses you’ll be making offers on but not buying because some sovereign wealth fund is outbidding you.

Comments (7) -- Posted by: madhaus @ 5:18 am

7 Responses to “How do you tell the difference between the RBA and Not the RBA?”

  1. Real Estater Says:

    With buyers scrambling to buy SFH’s and even condos right now, buyers need tips on how to overbid for houses. Check out the guide on Redfin.

    From my experience, the basic principles are quite straight-foward:
    1) Always bid at least 10% over
    2) No contingencies, that means no property contingency of any kind and no financing contingency
    3) Pre-qualification with 25% down payment minimum

    There is still no guarantee you’ll win, but your chances are dramatically improved.

    Note that paying with cash is not one of the suggested tactics. Another golden rule is that real estate should be leveraged.

  2. Real Estater Says:

    Interesting new development in Los Gatos. Anybody seen it?

  3. PK Says:

    RE, what about photo resumes? Should I send heart-wrenching stories and pictures of my kids and pets to the seller?

  4. SV Shopper Says:

    Good post RE. I recently turned my attention to condos, since single family homes seems to be a lost cause. Turns out the condos market is overheated. I’m now considering non-RBA. Went a an open house on the east bay, and there was a line to get in.

  5. Petsmart groomer Says:

    > I recently turned my attention to condos, since single family homes seems to be a lost cause.

    Dude, you’ve been looking for over 3 years and a half now. Soon you’ll be looking at trailer parks…

  6. madhaus Says:

    Dude, you’ve been looking for over 3 years and a half now. Soon you’ll be looking at trailer parks…

    Too late. You are now PRICED OUT FOREVER.

  7. nomadic Says:

    #2, yes it’s charming if you like zero lot lines. Keep your windows closed or you’ll jump when your neighbor’s phone rings.

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