
Want a House Like This? Prepare for a Bidding War with Investors - auxym
https://www.nytimes.com/interactive/2019/06/20/business/economy/starter-homes-investors.html
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echelon
Everything on the Beltline is gold.

Atlanta is very car-centric, but the Beltline corridor that surrounds the city
is a pedestrian / cyclist heaven. Atlanta is already one of the greenest
cities in the world - there are so many trees you'd be hard pressed to find a
comparison. The Beltline exemplifies this - there's a park every single mile
you walk. Businesses, restaurants, bars, and residences have sprung up along
the entire track. Each bend has a bit of the flavor of its neighborhood.
Entire weekends can be spent on the Beltline.

They're expanding trails out and into the suburbs. The Palasades, a hilly
oasis by the Chattahoochee river. The Silver Comet bike trail even goes all
the way to Alabama.

The Beltline has reinvigorated the entire city of Atlanta and captivated the
minds of urban planners around the world.

If I had the capital, I would be buying so many homes here.

~~~
powvans
I think it goes to show how starved most American's are for public space. I'm
all for the Beltline and looking forward to it being completed in my own
neighborhood, but you could also look at it and see it as a simple sidewalk.
People come from far and wide to enjoy this amazing sidewalk where you can
stroll and patronize businesses without cars harrying you. Imagine being able
to walk with your children without the constant fear that you will all be run
over at any moment!

I love the Beltline and all that it's doing for my little corner of Atlanta,
but I can't help but feel bittersweet about it. One of the major negatives
besides gentrification is that it does increase car traffic. The neighborhoods
are becoming denser and the new folks are still bringing their cars. Lots of
people drive in from far lung suburbs to enjoy the Beltline and that creates
more traffic too. Hopefully the model will be reproduced in more places.

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Kaotique
The dream of owning a house, owning a car, owning land is disappearing with
more and more lease contracts, investors scooping up everything with large
sums of money.

Our society is fastly moving towards a feudal system. It will not take long
until everything is owned by rich overlords.

~~~
eli_gottlieb
And this is why everyone my age jokes about eating the rich.

(Ha ha, only serious!)

~~~
whatshisface
What should these rich people do? Quit buying houses? Sit on their money? Buy
yachts instead? You could argue that buying and renting out houses directly
helps the proletariat, because it lowers rent.

~~~
Junk_Collector
Ideally they would invest in the production of something new rather than
trying to corner a limited market to engage in literal rent-seeking. I'm not
anti-real estate investment by any means and own a few properties of my own
but I think it has all gotten a bit silly and needs a cold shower.

~~~
whatshisface
If they buy houses and prices go up, doesn't that incentivize building?

~~~
owyn
Not necessarily. It seems to incentivize more buying. If real estate prices
keep going up and actually building anything new is too much work why bother?

~~~
whatshisface
> _actually building anything new is too much work why bother_

If prices rise above the cost of building a house, you could make money by
paying someone else to build a house, no work required.

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thatfrenchguy
> Angel Oak announced it had completed a $90 million securitization of similar
> fix-and-flip loans — meaning it had packaged the loans and sold slices of
> them to other investors

Sounds like another effect of the way-too-low interest rates, and an
interesting crisis to come.

~~~
instaheat
fix-and-flip loans have extremely short terms meaning of course they have to
be refinanced/paid off typically within a year. This represents relatively low
risk but also yielding minimal returns.

It's an interesting securitization to be sure, but I don't know about this
doom and gloom crisis scenario you are speaking about.

Long term buy and hold type loans meant for investors are typically based the
on debt service coverage ratio meaning the tenant's rents need to cover the
mortgage payment by a certain %. These are hovering around ~%8 which usually
makes for a pretty thin margin on a cash flow basis. As with any investment,
if you are banking on appreciation and that is all you've got, I'd worry.
Perhaps not so much so in the booming area this article references - UNLESS
funding dries up for all the hot commodities coming in.

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pickle-wizard
I bought my house in Austin 4 years ago.

I was looking toward to the low end of the market around the 140K to 150K
price point. I found that I kept getting outbid by the investors. They would
come in and offer a cash deal and a closing in 7 days. I just couldn't compete
with a 30 day closing and a financing contingency.

I ended up having to up my range to 200K. Once I did that I wasn't competing
with the investors. Which over 30 years I guess spending the extra 50K isn't
that big of a deal. I still ended up buying below my means. However I know
several who that would price them out of the market.

~~~
tvanantwerp
I've lived in Northern Virginia, and I've seen all-cash bidding wars for
houses worth north of a million. I'm glad you were able to get to a price
point where you weren't competing with flippers. Where I am, I can't see
myself ever reaching the point where I can make an accepted bid on anything.

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1123581321
It sounds like individual buyers could use a service that purchases homes in
cash for them and then handles financing. I also wonder if a wholesale buying
club would be viable in these markets.

~~~
jedimastert
I thought that was the idea behind the current bank-mortgage-realtor system?

~~~
1123581321
It is, but closing a mortgage is more time-consuming than the buyer handing
over a check and requires some delay. There is also a chance that a mortgage
sale won’t close.

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instaheat
I may be biased (I'm a Real Estate Investor) but Investors aren't the vultures
that some people make them out to be. We are putting beautiful homes back out
on the market. Sure, this is pricing out people who would have been keen on
making improvements over time instead of realizing payments on this all at
once - but the end result is if people are willing to pay, there will continue
to be a market.

~~~
Spooky23
It’s more about the ridiculously favorable tax treatment which is the subsidy
that makes your business possible.

~~~
instaheat
I assure you tax treatment/subsidies are not what make my business possible.
The retail prices (comps) for the neighborhood the product exists in, drives
profits. Yes a house is just a product (other than my own home)

You have to live in a house for two years before you can avoid capital gains
tax. Otherwise, as an Investor, I am paying capital gains unless I do a 1031
exchange (meaning I am just delaying the inevitable)

~~~
cronix
Yes, but you can pass those houses onto your children (and they can pass to
theirs, etc.), and keep avoiding taxes until it actually sells (that's when
there actually is a gain). So, just never sell it and keep it in the family
and never pay capital gains.

~~~
human20190310
That's a lot of capital to keep locked up in an investment that doesn't pay
off until one or more generations later.

~~~
cronix
They're bringing in a nice cash flow with tenants, and appreciating. You just
put 30% down, so not much "tied up"

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JohnJamesRambo
I can’t even afford NY Times to read the damn article.

~~~
godelmachine
This was my last free article :D

You can afford a free VPN or Firefox Focus or ignonito mode :) One is these
should work :P

------
BeetleB
The article is pretty light on details, and doesn't do a good job of
separating out the different categories of real estate investing. It's easy
for the reader to confuse one category with another.

Turnkey investing - where companies have worked it all out for you and you
merely deal with the cash end of it - is usually not profitable for the
investor. If you hang out around RE investors, they'll caution you on how it
seems very alluring because you don't need much knowledge and someone else is
managing everything else. But these companies need to make a profit, and so
you'll get less of the pie - and they have every incentive to make a deal look
better than it is.

The exception is in up and coming neighborhoods.

The article mentions this, but doesn't go into detail: Many of the houses
being sold were never on the market. Aggressive marketers contact existing
owners and ask if they want to sell, and some small percentage of owners will
agree (need cash quickly, etc). Had this not happened, the houses would still
not be available as the owner did not intend to put them on the market. It's
like complaining that I am screwing up the used car market by asking people if
they want to sell their car.

When someone makes $40K+ on a flip, it's almost always the case that the house
was in a bad enough shape that a bank wouldn't finance it. So once again, had
they not bought and flipped the house, none of the people profiled in the
article would have been able to buy it anyway (nor would they want to, being
in bad shape and all). They're not stealing houses to make a good profit. They
are making it easier for people to buy that house, while they make a profit.
It's not a zero sum game.

Almost all flippers hope to sell at market price, and probably at least half
list the house at slightly below market price as they need to sell fast. Why?
Because most flippers are not using much of their own money. They'll get a
hard money loan at, say, 10 or 12% interest to buy the property, and possibly
also to fund the repair. Every month they have the house is costing them big
bucks. They aim to fix and sell fast to minimize their interest payments. So
it's not a case that they are aiming to inflate housing prices. Quite the
contrary, it often works out better for them to sell it quicker at a slightly
lower than market price.

Now when it comes to investors sweeping up houses and renting them - yeah,
that could be a long term problem.

But really: As someone who has an idea on how real estate investing works, my
criticism is that one can read this whole article and still not have much of
an idea.

~~~
subpixel
> Now when it comes to investors sweeping up houses and renting them - yeah,
> that could be a long term problem.

"Fix & Rent" is where the market is headed, for two reasons:

1\. the market for single-family fix-and-flip projects is compressing, meaning
the profit margin is getting slimmer.

2\. the data points to younger people preferring to rent. my own opinion is
that it points to them not being able to afford to buy, but regardless: house
rentals is a big market, much bigger than many expected.

my take is that the main drawback is that within a certain price range this is
bound to drive prices up, making it harder for normal people to purchase a
home. and nearly impossible for normal people to find a deal.

~~~
BeetleB
Without any strong opinions on the matter (I am not a RE investor), I do find
it weird that all the blame is going to the investors when, as you pointed
out, the reality is that the market prefers to rent vs own. Should we not
"blame" younger people who prefer to rent as much we blame investors? If
"normal" people are having trouble purchasing a home, isn't it because a lot
more people prefer to rent?

Personally, though, I don't believe that younger people preferring to rent is
making that big an impact. That's something you see in only a few cities in
the US, and most investors who are trying to make money via rentals actively
avoid those cities (saturated market).

~~~
subpixel
My point is that 'prefer to rent' is inaccurate. 'In no position to buy' is
probably more precise.

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quxbar
This doesn't look like another housing bubble AT ALL.

~~~
maxxxxx
It depends. If the investors have the money and no crazy loans it just means
that the lower price range is not available for the individual buyer anymore.

------
TSiege
Build. More. Places. To. Live.

~~~
Loughla
Move. Somewhere. Else.

I'm not trying to be hateful, but those are both very real solutions.

~~~
human20190310
Or move in next door, tear down the house, build a 4-unit, and rent out three
of them.

If the influence of NIMBY really was limited to the BY (backyard) these issues
would be moot. The frustration is that owners are attempting to control land
that they did not purchase.

~~~
BeetleB
>Or move in next door, tear down the house, build a 4-unit, and rent out three
of them.

Depends on zoning laws. In my state, this was not allowed until legislation
came about this year allowing it. You could not have a multifamily property in
a single family residential neighborhood - not even a duplex.

~~~
human20190310
I'm beginning to think this issue might self-correct.

As more properties end up being owned by investors, the voting power of owners
(as a category) is commensurately lower, since a single investor usually owns
multiple properties, yet gets only one vote.

As the number of renters increases, they can support zoning changes that add
supply and reduce their costs.

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csours
I bought a house like this in Austin. I paid a $15,000 premium to beat a cash
offer. My real estate agent was incredulous.

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dmix
Interesting... NYTimes used a play button instead of autoplaying the top video
graphic. IIRC they used to autoplay in their more advanced media articles.

I'm curious if the graphics team has some UX insight into this.

