CR - was it like this in previous RE downturns? Say in California back in the early 90s? Are we on the same course or 'ahead of plan'? I ask because I'm guessing its worse because of the increase in securitization (and resulting constraints on loan modification).
::::
Also did you read the link from the SF Chronicle 'jim' posted on the previous comment thread?
Bill and Elaine Nolan paid top dollar when they bought their Tiburon house a few years ago at the height of real estate frenzy. Now, of course, the market is cooling rapidly.
So Bill Nolan, who deals with money all day long as a partner in an investment management firm, wanted to diversify. He turned to a startup based on a new concept: Let homeowners tap their equity without taking on debt.
Nolan contracted with Rex & Co. to receive $100,000 cash in exchange for a 10 percent stake of the home's future appreciation. When the Nolans sell their home, they'll pay Rex the $100,000 plus 10 percent of their home's appreciation above its current value of $2 million.
Unbelievable... they have no equity now to withdraw so instead they engineer a way to get at FUTURE appreciation... so does that mean we'll need a new acronym... FEW as in Future Equity Withdrawn?
Wow - every time I think it couldn't get weirder, I'm proven completely wrong again.
dryfly, that is an amazing story: i can't say for sure without seeing the actual agreement who is stupider, bill nolan or rex, but i wouldn't let either one of them near any of my money.
Back in 2003 or so I read about Ventura hiring a new City Manager and helping him buy his house. The house was $715K and the city put up a huge DP for them. In exchange, the city got to split any gains from later sale.
Dryfly, is it just me that has the feeling that the SF Chronicle article was "ordered" (by the joint enterprise Rex/Nolan)?
Isabel- I wondered the same thing... I know manufacturers who pay industry rags to write articles about their companies and usually do NOT disclose its 'advertising'.
Regardless, those articles are usually somewhat factual... at least in that the reporters actually report the he said/she said correctly though may gloss over the background fundamentals.
In this case - this story - does it matter if the SFC was paid to cover it? Its still completely crazy even if Nolan/Rex think its a great deal & want it covered? I would hope they are alone in this opinion - but as I said above, I've been wrong before when underestimating the stupidity of this RE mania. Way wrong.
Plus - I guess its not much different than 'borrowing' up to 125% of your home's value with the expectation you'll have appreciation to cover it. Except here the lender wants 'a piece' of that appreciation in lieu of interest.
Dryfly, I think the Nolans are just selling an "at the money call" on their house. This 1970's financial engineering has been used by corporations for decades. If it can help home owners keep their homes out of foreclosure, isn't it a net positive?
If it can help home owners keep their homes out of foreclosure, isn't it a net positive?
LOL. Trader - they don't anticipate foreclosure (though maybe they should)... they say in the article they want 'diversification'... you know maybe diversify into transportations... say a new beamer to go with Mom's SUV.
To get back on CRs theme (lenders owning more homes)... I wonder what the fine print of the Nolan/Rex agreement states should the home foreclose? Will Nolan owe Rex a deficiency for the 100K or will Rex share in Nolan's 'loss'?
1,751 homes for sell are REO, so subtract from the 8,200 plus number on realtytrac.com and that leaves 6,449 homes that are bank owned, but not listed on MLS.
CR - was it like this in previous RE downturns? Say in California back in the early 90s? Are we on the same course or 'ahead of plan'? I ask because I'm guessing its worse because of the increase in securitization (and resulting constraints on loan modification).
The bid difference is amount of skin in the game for the 80's and early 90's homeowner. For example I bought and sold a home in 89 ( in SV) put 30% down in April of 89. By April of 90 the home value had dropped at least 20% and did not recover in price until 97-98.
Today you have a signifcant group of both refi's and new home buyers with basically no room for a decline in value.
"Regardless, those articles are usually somewhat factual..."
Yes, of course, it must be factual. But it sounded to me as if someone was advertising a new, cool product. Trader walt, though, says the product is not new. But the marks are...
Yal - in that table you posted, they don't report REO or SS prior to the current period... does your source have input on those prior to the current period? or are those two columns total accumulated REO & SS?
Yes, of course, it must be factual. But it sounded to me as if someone was advertising a new, cool product.
And actually, I'm not 100% sure it is 'factual'... its media after all.
I believe there actually is an agreement of some type regarding a loan by Rex collateralized against Nolan's future HPA & SFC probably reported that 'fact' correctly... but who is to say what that agreement really entails?
All I can say is I've read enough to know I can't imagine myself doing anything like that.
Yal: I have been following REO's up here in Sonoma for the past 6 months.
Notice that they hit market quickly after title transfer and generally close to 1st loan amounts.
Better to get the property on the market now because they generally are the lowest priced and will move in this market. I think the problem in other area's like Sac, Central Valley is that the overall market inventory is unusally high.
"So if they end up selling their home at a loss, they owe the $100,000 plus the price differential (in this case, a negative #)?"
WOW instant negative equity. Get a 125% loan, borrow another 100K against future appreciation and you can be a quarter million under water before you even move in.
I'm with dryfly on this one.
I have to wonder which part of Rex's anatomy that Nolan had to threaten to stick with an icepick, in order to qualify for this 'loan'.
"I think the problem in other area's like Sac, Central Valley is that the overall market inventory is unusally high."
And they're still building new homes, even with "for sale" signs everywhere. I've been driving the backroads of Stanislaus County this weekend on family business, and new homes are still going up everywhere you might expect and some places you wouldn't. A new home in Hughson, anyone?
I'm with dryfly on this one.
I have to wonder which part of Rex's anatomy that Nolan had to threaten to stick with an icepick, in order to qualify for this 'loan'.
ed in texas
I think you will find them in active in the Reverse Mortgage market and in very upscale properties with high equity ratio's.
NEVER have investors been more eager to put up money to be lent to poor corporate credits. That fact, in part a result of financial alchemy that allows those who put up the cash to think they have investment-grade investments, helps to explain the boom in leveraged buyouts.
and
As June ended, the leveraged loan market began to look a little nervous, as some deals were postponed, and spreads the difference in what the market charged on such loans relative to the rates banks themselves pay rose slightly, although they remained at historically low levels.
Words like "never" and "historically" makes me think: it's different this time around....
"But based on the falls in subprime mortgage indexes, price declines this year may have wiped out some $20 billion in value on the $135 billion in CDOs created using the riskier portions of subprime mortgage bonds since 2003."
If CDO market is only 135 billions then it's a drop in bucket compare to the US financial markets. This year alone M&A and private equity deals total 1.4 trillions.
Even if CDO are maarked down to zero, it's only 5-7% of the total market. No wonder DOW is continuing it's rip-roaring rally.
If Nolan thinks house prices will decline, he can get 100k from Rex and invest it elsewhere for a positive return. If the house actually has declined in value after the 5 year period, he won't have to pay back the full 100k to Rex (scenario #2 at the bottom of the article), and he'll have returns from his other investment.
Seems like a bad time for Rex to be getting into this business, but I don't see Nolan as being dumb.
"Lender-owned Homes?" Oh good. I was wondering when the loan officers, bank presidents and stockholders were going to suffer pay cuts, firings, bonus eliminations and stock declines. If those things are not happening I would suggest that these properties are in fact depositer and government owned.
Of the $158 Billion newly issued in this quarter, 83% were cash-flow or hybrid.
59% of all newly issued CDOs were supported by structured finance collateral (see footnote 13). Most of remaining 41% was supported by high yield loans (i.e., junk) or investment grade bonds.
OK.....I just finished Mauldin's weekly piece and it is good. I would really love to know what CR, Tanta, and other experts on this blog think as well.
If Nolan thinks house prices will decline, he can get 100k from Rex and invest it elsewhere for a positive return.
Rephrase that and it is closer to correct...
If Nolan thinks house prices will decline, he can get 100k from Rex and invest it elsewhere for a POSSIBLE positive return.
Sure, he could buy treasuries or CDs - pretty sure they have a positive return... otherwise his mileage might vary. Of course the debt would still be there regardless of the outcome of his 'other investments'.
Maybe a smarter option for Nolan would be to cut back on expenses and try SAVING & investing that instead. Novel concept that would be - might start a fad.
But looks like Nolan wants his money for nothing and his chicks for free. Well risk follows reward... sometimes you get reward, sometimes you get risk. Life's a bitch that way.
As for whether Rex is stupid or not (my prejudice is that he is)... I'd reserve judgment until I read the fine print on the agreement. Depends on what else in Nolan's universe he's tied his star to.
"Maybe a smarter option for Nolan would be to cut back on expenses and try SAVING & investing that instead. Novel concept that would be - might start a fad.
But looks like Nolan wants his money for nothing and his chicks for free."
How so? The article quotes him as saying:
"It was an interesting opportunity to take some cash out of the house and hedge against any decline in home value," said Bill Nolan, who plans to invest the money in his business. "It was a way to hedge against the (real estate) market being flat or not performing as well as the equity market; to pull money and put it into something else I felt had a reasonable chance of outperforming the real estate market."
Paranoid he doesn't have cash in the house - that's the point of the article. He bought at the peak and is borrowing against future appreciation - future cash in the house - if he gets it. Its a straight up gamble with borrowed money.
And it is a 'borrow'... a turd by any other name would smell as bad.
I have a neighbor, 82 years trying to sell his house, FSBO, for $539K and owes nothing and wants to move closer to his kids in Oregon.
He could rent out his house today for say $1200 month, take 300K from RexandCO and be in pretty good shape to do what the hell he wants to without any additional payments or taxes. So the RexandCO could be a sweet arrangement for certain segments of the housing population.
Ron on the other hand your neighbor could just sell the house at a lower price - not have to hassle with renters, taxes, or any of it. Since he owns it outright he isn't really gonna lose anything (just not make as much).
At 82 he's not going to 'be around' for a lot more appreciation and his kids would have to sell the damned thing anyway. Maybe a little 'take your winnings & run' is in order here?
Now if he wanted to continue to LIVE in the house & can't support it on fixed income - then maybe Rex has a place. But if your neighbor owns it outright, he has other options too, no? Better ones I'd guess.
Sometimes I think people are too smart by half - especially after they listen to the pitches made by financial services salesman.
If he bought at the peak and house prices are going to go down, and you insist that he is borrowing, then he borrowed at a negative interest rate.
The bottom of the article, which describes a hypothetical situation where an owner takes out 100k on a 750k house:
"Scenario 2: After five years, the house sells for $675,000; it has lost $75,000 in equity. Rex "owns" half of that, or a negative $37,500. The homeowner pays Rex $63,500 -- the original amount minus Rex's loss."
If there is strong house price appreciation, the owner is worse off than if he didn't take it, if there is flat or negative growth, then he is better off.
dryfly:
My point was that its an option that's all, selling a house in Sonoma right now is a big problem, not much moving, renting out means getting a managment service to do the heavy lifting, companies like RexandCO sound strange and odd to me but it probably has a place and time for the right person. Also the story in the Chron on Friday highlighted a family living in one of the most expensive locations in the Bay area. Also the Chron likes to highlight interesting emerging venture capital funded companies, its part of the culture around here so no need to pay them to write the story, lots of local interest in such activities.
Well, if it is a plant, as I suspect (the whole deal is made to sound way too cool), it's not just "it's all". It's another pitch to sell to the masses a product that might be appropriate in some VERY specific circumstances. Just like interest-only ARMs. A couple of months ago I saw my conservative Belgian bank advertise those for the first time, and when I showed my surprise my banker said "But we always had them, for the high end." NOT for those clients that cannot pay interest AND capital.
Well, if it is a plant, as I suspect (the whole deal is made to sound way too cool), it's not just "it's all
I don't think this is for the masses!
The Advertising pitch is always focused on the end market, in this case the the family comes from a very wealthy part of town and works in IB, if as you suggest it was a pitch to the masses then someone out in Sac or Central Valley living a a stucco single story ranch style home making 36K a year, driving a truck would have been the story's focus.
Yal..I saw the same piece a few days back (investors bailing on European REITS), but would like to point out that the article addresses only the UK. The Spanish re market is soft, but only on the residential side (primarily vacation-type homes). In most of the Eurozone, REITS are a relatively new phenomena.
"Nolan contracted with Rex & Co. to receive $100,000 cash in exchange for a 10 percent stake of the home's future appreciation. When the Nolans sell their home, they'll pay Rex the $100,000 plus 10 percent of their home's appreciation above its current value of $2 million"
Sounds like mortgage debt restructuring to me-similar to corporate debt restructuring--nobody goes bankrupt nowdays-just restructure the debt with more debt...Oh Minksy was so correct..
Take out a loan to make your current payment and hope to hell for some appreciation otherwise you can walk away from it all and you would have lived "free" because 100,000 can make serveral years house payment.
I imagine this is a fairly dead post at this point, but the Chronicle story outlines a process whereby the homeowner is essentially selling a call option on his house value. (not exactly...but close).
It is a good play in a bear market (or expected bear market) since he gets the premium up front.
Say the homeowner keeps the premium in TIPS - he can get a guaranteed no-risk return for as long as he likes on money he wouldn't ordinarily have.
If/when the house depreciates by $100,000, he can sell the house/exercise the option & walk away with the TIPS returns (or the hedge fund returns, or the BMW!)
Now it is time to determine when the banks will need to get them off their books at any cost.
CR - was it like this in previous RE downturns? Say in California back in the early 90s? Are we on the same course or 'ahead of plan'? I ask because I'm guessing its worse because of the increase in securitization (and resulting constraints on loan modification).
::::
Also did you read the link from the SF Chronicle 'jim' posted on the previous comment thread?
A new way to tap equity without going into debt - Homeowners can sell a share of future appreciation
Bill and Elaine Nolan paid top dollar when they bought their Tiburon house a few years ago at the height of real estate frenzy. Now, of course, the market is cooling rapidly.
So Bill Nolan, who deals with money all day long as a partner in an investment management firm, wanted to diversify. He turned to a startup based on a new concept: Let homeowners tap their equity without taking on debt.
Nolan contracted with Rex & Co. to receive $100,000 cash in exchange for a 10 percent stake of the home's future appreciation. When the Nolans sell their home, they'll pay Rex the $100,000 plus 10 percent of their home's appreciation above its current value of $2 million.
Unbelievable... they have no equity now to withdraw so instead they engineer a way to get at FUTURE appreciation... so does that mean we'll need a new acronym... FEW as in Future Equity Withdrawn?
Wow - every time I think it couldn't get weirder, I'm proven completely wrong again.
dryfly, that is an amazing story: i can't say for sure without seeing the actual agreement who is stupider, bill nolan or rex, but i wouldn't let either one of them near any of my money.
Back in 2003 or so I read about Ventura hiring a new City Manager and helping him buy his house. The house was $715K and the city put up a huge DP for them. In exchange, the city got to split any gains from later sale.
Boy are so many people in for a rude awakening.
What's the point of this?
Lenders need homes too.
Investors are baling out of Europe CRE REITs: Commercial property cracks start to show - Telegraph
Dryfly, is it just me that has the feeling that the SF Chronicle article was "ordered" (by the joint enterprise Rex/Nolan)?
The deal sounds like debt to me since the 100,000 principal must be paid back. The interest that ends up being paid will depend on the appreciation.
Nothern Trust breaks down payroll numbers-
http://mediaserver.fxstreet.com/Reports/c9c6414b-2317-4ebc-8734-4b6d7f422fef/fda57a51-5c87-4033-892f-cffebaa90bac.pdf
bk filings soar-
South Bend Tribune: Indiana bankruptcy filings soar by 70%
amazing-
- NY Times
Hey rex and co,
I have some deep OTM spu puts...
Can i get some equity extraction from you, please..?
Dryfly, is it just me that has the feeling that the SF Chronicle article was "ordered" (by the joint enterprise Rex/Nolan)?
Isabel- I wondered the same thing... I know manufacturers who pay industry rags to write articles about their companies and usually do NOT disclose its 'advertising'.
Regardless, those articles are usually somewhat factual... at least in that the reporters actually report the he said/she said correctly though may gloss over the background fundamentals.
In this case - this story - does it matter if the SFC was paid to cover it? Its still completely crazy even if Nolan/Rex think its a great deal & want it covered? I would hope they are alone in this opinion - but as I said above, I've been wrong before when underestimating the stupidity of this RE mania. Way wrong.
Plus - I guess its not much different than 'borrowing' up to 125% of your home's value with the expectation you'll have appreciation to cover it. Except here the lender wants 'a piece' of that appreciation in lieu of interest.
They are all nuts.
Dryfly, I think the Nolans are just selling an "at the money call" on their house. This 1970's financial engineering has been used by corporations for decades. If it can help home owners keep their homes out of foreclosure, isn't it a net positive?
If it can help home owners keep their homes out of foreclosure, isn't it a net positive?
LOL. Trader - they don't anticipate foreclosure (though maybe they should)... they say in the article they want 'diversification'... you know maybe diversify into transportations... say a new beamer to go with Mom's SUV.
To get back on CRs theme (lenders owning more homes)... I wonder what the fine print of the Nolan/Rex agreement states should the home foreclose? Will Nolan owe Rex a deficiency for the 100K or will Rex share in Nolan's 'loss'?
It's crazy - that is all I can say.
So if they end up selling their home at a loss, they owe the $100,000 plus the price differential (in this case, a negative #)?
Anything to prop up a market that desperately needs to pull back a little, right?
Rex & Co. should throw in a new GM car (of course with rebate + cash back) - toss any ole accounting/reporting trick into the deal.
Sacrmanto area:
http://bp1.blogger.com/_AH-7FEF8zHE/Ro6gfmmzvTI/AAAAAAAAACU/scVEwX24N08/s1600-h/dist.jpg
ote that from the table above:
1,751 homes for sell are REO, so subtract from the 8,200 plus number on realtytrac.com and that leaves 6,449 homes that are bank owned, but not listed on MLS.
CR - was it like this in previous RE downturns? Say in California back in the early 90s? Are we on the same course or 'ahead of plan'? I ask because I'm guessing its worse because of the increase in securitization (and resulting constraints on loan modification).
The bid difference is amount of skin in the game for the 80's and early 90's homeowner. For example I bought and sold a home in 89 ( in SV) put 30% down in April of 89. By April of 90 the home value had dropped at least 20% and did not recover in price until 97-98.
Today you have a signifcant group of both refi's and new home buyers with basically no room for a decline in value.
"Regardless, those articles are usually somewhat factual..."
Yes, of course, it must be factual. But it sounded to me as if someone was advertising a new, cool product. Trader walt, though, says the product is not new. But the marks are...
Yal - in that table you posted, they don't report REO or SS prior to the current period... does your source have input on those prior to the current period? or are those two columns total accumulated REO & SS?
Yes, of course, it must be factual. But it sounded to me as if someone was advertising a new, cool product.
And actually, I'm not 100% sure it is 'factual'... its media after all.
I believe there actually is an agreement of some type regarding a loan by Rex collateralized against Nolan's future HPA & SFC probably reported that 'fact' correctly... but who is to say what that agreement really entails?
All I can say is I've read enough to know I can't imagine myself doing anything like that.
Yal: I have been following REO's up here in Sonoma for the past 6 months.
Notice that they hit market quickly after title transfer and generally close to 1st loan amounts.
Better to get the property on the market now because they generally are the lowest priced and will move in this market. I think the problem in other area's like Sac, Central Valley is that the overall market inventory is unusally high.
"So if they end up selling their home at a loss, they owe the $100,000 plus the price differential (in this case, a negative #)?"
WOW instant negative equity. Get a 125% loan, borrow another 100K against future appreciation and you can be a quarter million under water before you even move in.
Hey Yal-
Thanks for linking to our table, but linking to the actual post might answer some of the other questions:
Distressed Properties Update
I'm with dryfly on this one.
I have to wonder which part of Rex's anatomy that Nolan had to threaten to stick with an icepick, in order to qualify for this 'loan'.
"I think the problem in other area's like Sac, Central Valley is that the overall market inventory is unusally high."
And they're still building new homes, even with "for sale" signs everywhere. I've been driving the backroads of Stanislaus County this weekend on family business, and new homes are still going up everywhere you might expect and some places you wouldn't. A new home in Hughson, anyone?
I'm with dryfly on this one.
I have to wonder which part of Rex's anatomy that Nolan had to threaten to stick with an icepick, in order to qualify for this 'loan'.
ed in texas
I think you will find them in active in the Reverse Mortgage market and in very upscale properties with high equity ratio's.
risk capital: you should have posted the original article:
OFF THE CHARTS; A Rush to Supply Cash to Lend to Poor Corporate Credit Risks - NY Times
NEVER have investors been more eager to put up money to be lent to poor corporate credits. That fact, in part a result of financial alchemy that allows those who put up the cash to think they have investment-grade investments, helps to explain the boom in leveraged buyouts.
and
As June ended, the leveraged loan market began to look a little nervous, as some deals were postponed, and spreads the difference in what the market charged on such loans relative to the rates banks themselves pay rose slightly, although they remained at historically low levels.
Words like "never" and "historically" makes me think: it's different this time around....
wonder how true this is:
"When investors redeem, the leverage unwind is awful," he said. "They redeem when they see their statement. That happens over the next week or so."
Subprime risks come home to roost for hedge funds
| Reuters (see page 3)
but ...
"But based on the falls in subprime mortgage indexes, price declines this year may have wiped out some $20 billion in value on the $135 billion in CDOs created using the riskier portions of subprime mortgage bonds since 2003."
If CDO market is only 135 billions then it's a drop in bucket compare to the US financial markets. This year alone M&A and private equity deals total 1.4 trillions.
Even if CDO are maarked down to zero, it's only 5-7% of the total market. No wonder DOW is continuing it's rip-roaring rally.
I am confused.
more dats on the total CDo market:
http://www.sifma.org/research/pdf/CDO_Data0407.pdf
I don't understand this pdf. are the numbers in Billion, trillion - what is what is this doc. still confused.
M&A and LBO mania = market top. I was going to post a long winded explanation, but... not really neccesary.
If Nolan thinks house prices will decline, he can get 100k from Rex and invest it elsewhere for a positive return. If the house actually has declined in value after the 5 year period, he won't have to pay back the full 100k to Rex (scenario #2 at the bottom of the article), and he'll have returns from his other investment.
Seems like a bad time for Rex to be getting into this business, but I don't see Nolan as being dumb.
risk capital,
Here is one I know you will enjoy reading....
http://www.frontlinethoughts.com/pdf/mwo070607.pdf
"Lender-owned Homes?" Oh good. I was wondering when the loan officers, bank presidents and stockholders were going to suffer pay cuts, firings, bonus eliminations and stock declines. If those things are not happening I would suggest that these properties are in fact depositer and government owned.
Yal,
Outstanding find!
How I interperet it (just looking at 2007-Q1):
Of the $158 Billion newly issued in this quarter, 83% were cash-flow or hybrid.
59% of all newly issued CDOs were supported by structured finance collateral (see footnote 13). Most of remaining 41% was supported by high yield loans (i.e., junk) or investment grade bonds.
OK.....I just finished Mauldin's weekly piece and it is good. I would really love to know what CR, Tanta, and other experts on this blog think as well.
link a few posts above
Thnx
If Nolan thinks house prices will decline, he can get 100k from Rex and invest it elsewhere for a positive return.
Rephrase that and it is closer to correct...
If Nolan thinks house prices will decline, he can get 100k from Rex and invest it elsewhere for a POSSIBLE positive return.
Sure, he could buy treasuries or CDs - pretty sure they have a positive return... otherwise his mileage might vary. Of course the debt would still be there regardless of the outcome of his 'other investments'.
Maybe a smarter option for Nolan would be to cut back on expenses and try SAVING & investing that instead. Novel concept that would be - might start a fad.
But looks like Nolan wants his money for nothing and his chicks for free. Well risk follows reward... sometimes you get reward, sometimes you get risk. Life's a bitch that way.
As for whether Rex is stupid or not (my prejudice is that he is)... I'd reserve judgment until I read the fine print on the agreement. Depends on what else in Nolan's universe he's tied his star to.
"Maybe a smarter option for Nolan would be to cut back on expenses and try SAVING & investing that instead. Novel concept that would be - might start a fad.
But looks like Nolan wants his money for nothing and his chicks for free."
How so? The article quotes him as saying:
"It was an interesting opportunity to take some cash out of the house and hedge against any decline in home value," said Bill Nolan, who plans to invest the money in his business. "It was a way to hedge against the (real estate) market being flat or not performing as well as the equity market; to pull money and put it into something else I felt had a reasonable chance of outperforming the real estate market."
why is diversifying risk and hedging a bad idea?
Paranoid he doesn't have cash in the house - that's the point of the article. He bought at the peak and is borrowing against future appreciation - future cash in the house - if he gets it. Its a straight up gamble with borrowed money.
And it is a 'borrow'... a turd by any other name would smell as bad.
I have a neighbor, 82 years trying to sell his house, FSBO, for $539K and owes nothing and wants to move closer to his kids in Oregon.
He could rent out his house today for say $1200 month, take 300K from RexandCO and be in pretty good shape to do what the hell he wants to without any additional payments or taxes. So the RexandCO could be a sweet arrangement for certain segments of the housing population.
Ron on the other hand your neighbor could just sell the house at a lower price - not have to hassle with renters, taxes, or any of it. Since he owns it outright he isn't really gonna lose anything (just not make as much).
At 82 he's not going to 'be around' for a lot more appreciation and his kids would have to sell the damned thing anyway. Maybe a little 'take your winnings & run' is in order here?
Now if he wanted to continue to LIVE in the house & can't support it on fixed income - then maybe Rex has a place. But if your neighbor owns it outright, he has other options too, no? Better ones I'd guess.
Sometimes I think people are too smart by half - especially after they listen to the pitches made by financial services salesman.
If he bought at the peak and house prices are going to go down, and you insist that he is borrowing, then he borrowed at a negative interest rate.
The bottom of the article, which describes a hypothetical situation where an owner takes out 100k on a 750k house:
"Scenario 2: After five years, the house sells for $675,000; it has lost $75,000 in equity. Rex "owns" half of that, or a negative $37,500. The homeowner pays Rex $63,500 -- the original amount minus Rex's loss."
If there is strong house price appreciation, the owner is worse off than if he didn't take it, if there is flat or negative growth, then he is better off.
No, Isabel is not the only one who suspects a plant in that SFGate story. Here's the part I think is just hammy:
So Bill Nolan, who deals with money all day long as a partner in an investment management firm,
They should stop trying to scam the pipples.
So, I wonder what No.Indiana bankruptcy filings were like in 2005 or 2004?
dryfly:
My point was that its an option that's all, selling a house in Sonoma right now is a big problem, not much moving, renting out means getting a managment service to do the heavy lifting, companies like RexandCO sound strange and odd to me but it probably has a place and time for the right person. Also the story in the Chron on Friday highlighted a family living in one of the most expensive locations in the Bay area. Also the Chron likes to highlight interesting emerging venture capital funded companies, its part of the culture around here so no need to pay them to write the story, lots of local interest in such activities.
"My point was that its an option that's all"
Well, if it is a plant, as I suspect (the whole deal is made to sound way too cool), it's not just "it's all". It's another pitch to sell to the masses a product that might be appropriate in some VERY specific circumstances. Just like interest-only ARMs. A couple of months ago I saw my conservative Belgian bank advertise those for the first time, and when I showed my surprise my banker said "But we always had them, for the high end." NOT for those clients that cannot pay interest AND capital.
Well, if it is a plant, as I suspect (the whole deal is made to sound way too cool), it's not just "it's all
I don't think this is for the masses!
The Advertising pitch is always focused on the end market, in this case the the family comes from a very wealthy part of town and works in IB, if as you suggest it was a pitch to the masses then someone out in Sac or Central Valley living a a stucco single story ranch style home making 36K a year, driving a truck would have been the story's focus.
Yal..I saw the same piece a few days back (investors bailing on European REITS), but would like to point out that the article addresses only the UK. The Spanish re market is soft, but only on the residential side (primarily vacation-type homes). In most of the Eurozone, REITS are a relatively new phenomena.
"Nolan contracted with Rex & Co. to receive $100,000 cash in exchange for a 10 percent stake of the home's future appreciation. When the Nolans sell their home, they'll pay Rex the $100,000 plus 10 percent of their home's appreciation above its current value of $2 million"
Sounds like mortgage debt restructuring to me-similar to corporate debt restructuring--nobody goes bankrupt nowdays-just restructure the debt with more debt...Oh Minksy was so correct..
Take out a loan to make your current payment and hope to hell for some appreciation otherwise you can walk away from it all and you would have lived "free" because 100,000 can make serveral years house payment.
I imagine this is a fairly dead post at this point, but the Chronicle story outlines a process whereby the homeowner is essentially selling a call option on his house value. (not exactly...but close).
It is a good play in a bear market (or expected bear market) since he gets the premium up front.
Say the homeowner keeps the premium in TIPS - he can get a guaranteed no-risk return for as long as he likes on money he wouldn't ordinarily have.
If/when the house depreciates by $100,000, he can sell the house/exercise the option & walk away with the TIPS returns (or the hedge fund returns, or the BMW!)