Opportunity cost?? Risk free rate of return? Doesn't real estate always appreciate? The seminar I attended (only $4,500 I got a discount from $5,000) said to buy with no money down and/or to finance the down payment with credit cards - this guys using CASH to buy them outright - what a maroon as Bugs Bunny used to say.
What he seems to be saying is that the properties he's bought are selling, but more slowly than he would like. Yet his prices haven't fallen. So he says.
And that about sums up my observations lately - houses taking a really long time to sell, but I don't see prices dropping enough to be "affordable" yet. The desperate sellers are dropping their prices, but most sellers seem to be able to sit. Kinda like the spider that seems to sit forever to catch that fly.
Did this guy seriously say he's been good at buying investments but not at selling them?
At least by paying cash he's only paying taxes etc and not interest. Apparently he's bad at selling so you really don't know what kind of interest charges he was looking at. Ok that's still a crappy defense, but I tried.
This is what many people said during the last big bear market (collapse of the internet bubble)--'I have not sold my positions, so I don't have losses, (even though the balance on my account is lower).'
This kind of denial leads to large losses in investments. This kind of denial is even easier on RE investments, since you don't see the red numbers listed on a page of positions.
By the way, the home builders have been way oversold, so it's not surprising that they are up today. But I wonder what Citi's rationale was for upgrading several, including DHI, PHM, and RYL? These were upgraded from "neutral to buy.
Bill Gross, manager of the world's biggest bond fund, said falling home prices will be the main driver of U.S. monetary policy for ``several years,'' and repeated his forecast the Federal Reserve will lower the federal funds rate to at least 3.75 percent in the coming year.
While the rate cuts may occur this year, it's more likely they will be delayed by mixed signals about the economy, Gross wrote in a report published on the Web site of his firm, Pacific Investment Management Co. The Fed on Sept. 18 lowered its target for the overnight lending rate between banks for the first time since June 2003, to 4.75 percent from 5.25 percent.
``The downward path of home prices, however, will dominate Fed policy over the next several years as will the lingering unwind of related financial structures and derivatives that have yet to be discovered by the public, and marked to market'' by their holders, Gross wrote.
Well his profits are dropping with a longer holding period -- if he thinks about profit per year. If he flips and makes 10% in zix months, that's 20%/ year, and if he if flips in two years, it's 5%/yr. And as someone state above, the longer he holds, the more charges he incurs for maintenance, taxes, and insurance among other things....
--
Denial is a common emotion among speculators. Getting in always easy but getting out with profits never is. Once at a loss the wishful thinking takes over. Speculation is more insidious part of the gambling tendencies that people have.
my wife is a real estate agent. She does very well. Never made a cold call. All referral business. One reason why is she would never make a statement like this because you aren't doing a very good job of helping out your clients if you are getting them into money losing scenarios.
Brad Rozansky, a real estate agent in Bethesda, Md., cautioned against thinking that buying and selling foreclosures is an easy way to make a living. I have plenty of customers who have lost $20,000, $30,000 or $40,000 on a house, he said.
--
"And everyone wonders why I have always said that a house is the worst possible investment."
You are half right. The home one lives in is NOT an investment just as the car one drives and the furniture one uses.
Only born-and-bred dopes could be made to believe that home is an investment. Americans have been victimized by propaganda that makes Nazis look tame in comparison. The financial media, controlled by bankers and financiers, is the most destructive part of the great American Propaganda Machine. The chickens are coming home to roost as the housing unravels. But dont ask Mr. Market why he is in such good mood.
He's paying cash? "And on your right, we have a fool with a large pile of money. They're rapidly parting ways as we speak." Actually, if the credit market completely disintegrates (and what we had this summer was just a big shudder) that will be a way to make big money. If nobody can get a loan, how low would prices fall? A long ways down I'd wager.
If someonone is buying foreclosures to rehab, then the cost of carry, multiplied by the time held (from purchase to sale, including work time on the rehab), is an expense.
If the buyer is able to sell, but the holding time is longer than anticipated (or than it used to be), as long as the sale price covers expenses and generates profits, there's no problem.
If you ever really did the math on foreclosure investing, you would know that holding costs are one of the smallest expenses, well behind purchase price and rehab costs.
Perhaps he's one of those "seat of the pants" investors who doesn't understand and doesn't care about the economist's views. All he knows is he buys something, holds it for a while, and sells for more than he started with. If he's paying cash he's pretty conservative (a more energetic investor would leverage into more properties) and that's not bad. If he's finding the right buying opportunity, (from my own perspective) I'd say the discounts are in the 50% range. My active imagination says that this is money that he doesn't need to live on, but since he's retired he's playing with something he kind of understands: property.
The 25k$ in improvements (on a 40k$ house!!!) was probably made with the sweat of his own brow. It's imputed income and, if he can sell after holding the house as his residence for two years, tax free. If he had done the same work as an employee, that income is ordinary income and subject to withholding.
This is what real-estate investing used to look like-- and it is a fairly low risk proposition.
"If you ever really did the math on foreclosure investing, you would know that holding costs are one of the smallest expenses, well behind purchase price and rehab costs."
Oooops. I just read the article. The guy is not quite all there. I thought he had done the improvements, but apparently he's estimating what needs to be done and he's hoping to sell to someone who will have the work done. I, too, am befuddled by what he thinks the profit is.
This is off-topic, but for comparison to where you stand on Gretchen, what do you think of Semour Hersh's reporting?
It very frequently bugs the shit out of me. In fact, Hersh is very often right, but we can't find that out until years later after his unnamed sources crawl out from behind the curtain. Until then, we have to take it on Hersh's credibility. Which has suffered from time to time--the Camelot book was of course a disaster.
But Hersh is a political reporter and I try not to write about politics. If he ever dabbles in mortgages or housing or general business reporting, I'll be happy to clean his clock for him when he needs it.
JT, hold onto your ass with both hands and stop laughing, or be considered a maroon. Oh, never mind, I already consider you that.
Buy a $200,000 home with 20% down at 8% APR to fix it up, and consider that you may need $15,000 of rehab. Principal and interest are only $1,174 monthly, compared to rehab of $15K and cash down of $40K. Insurance and taxes are generally only a couple of percent of purchase price annually, say $300 or so in this case.
Holding longer than anticipated CAN eat into profits, but holding costs (as mentioned in my comment) are a minor concern relative to the other costs involved.
Perhaps you should attempt to educate yourself, before you continue to make others aware of your lack of insight.
The investor who says "I had to hold longer than I thought, but I'm still profitable," or similar, makes perfect sense to anyone who has a clue about how RE investing works.
When all this hype and fear-mongering dies down, what will replace the profit center of demagoguery?
Tanta, will you then go back to your old job of "risk management"? Unfortunately, the world requires that some risk be taken on so that business carries on and the people remain employed. I don't want to see people "risk managed" into the unemployment line, do you?
I wish you were Angelo Mozilo in 2003 and 2004. Maybe you could have saved us all from our foolishness and been crowned the Queen...
Does the phrase "leaning against the wind" mean anything to you? A famous quote from a Fed Chairman from days past. Can we chill on the demagogue stuff and get real? It may not be as profitable for you, but you may get a perspective that you do not yet see.
That "real estate investor" has his head up his rear and he is not alone.
What happened to closing costs, mortgage payments, taxes, etc.?
And everyone wonders why I have always said that a house is the worst possible investment.
While we're over in NYT land, we should also check out Krugman's editorial:
Enron's Second Coming?.
It's about CFC and he quotes Gretchen a couple times.
Opportunity cost?? Risk free rate of return? Doesn't real estate always appreciate? The seminar I attended (only $4,500 I got a discount from $5,000) said to buy with no money down and/or to finance the down payment with credit cards - this guys using CASH to buy them outright - what a maroon as Bugs Bunny used to say.
Psst. Hey buddy have I got a deal for you...
What he seems to be saying is that the properties he's bought are selling, but more slowly than he would like. Yet his prices haven't fallen. So he says.
And that about sums up my observations lately - houses taking a really long time to sell, but I don't see prices dropping enough to be "affordable" yet. The desperate sellers are dropping their prices, but most sellers seem to be able to sit. Kinda like the spider that seems to sit forever to catch that fly.
Ah, his prices haven't fallen because he hasn't cut them enough to sell?
Just wait until we hear similar logic on the CFC REOs, for example.
Did this guy seriously say he's been good at buying investments but not at selling them?
At least by paying cash he's only paying taxes etc and not interest. Apparently he's bad at selling so you really don't know what kind of interest charges he was looking at. Ok that's still a crappy defense, but I tried.
This is what many people said during the last big bear market (collapse of the internet bubble)--'I have not sold my positions, so I don't have losses, (even though the balance on my account is lower).'
This kind of denial leads to large losses in investments. This kind of denial is even easier on RE investments, since you don't see the red numbers listed on a page of positions.
By the way, the home builders have been way oversold, so it's not surprising that they are up today. But I wonder what Citi's rationale was for upgrading several, including DHI, PHM, and RYL? These were upgraded from "neutral to buy.
Bill Gross, manager of the world's biggest bond fund, said falling home prices will be the main driver of U.S. monetary policy for ``several years,'' and repeated his forecast the Federal Reserve will lower the federal funds rate to at least 3.75 percent in the coming year.
While the rate cuts may occur this year, it's more likely they will be delayed by mixed signals about the economy, Gross wrote in a report published on the Web site of his firm, Pacific Investment Management Co. The Fed on Sept. 18 lowered its target for the overnight lending rate between banks for the first time since June 2003, to 4.75 percent from 5.25 percent.
``The downward path of home prices, however, will dominate Fed policy over the next several years as will the lingering unwind of related financial structures and derivatives that have yet to be discovered by the public, and marked to market'' by their holders, Gross wrote.
Pimco's Gross Says Housing Will Fixate Fed for Years (Update3) - Bloomberg.com
aahahah yeah was scratching my head at that one too
Well his profits are dropping with a longer holding period -- if he thinks about profit per year. If he flips and makes 10% in zix months, that's 20%/ year, and if he if flips in two years, it's 5%/yr. And as someone state above, the longer he holds, the more charges he incurs for maintenance, taxes, and insurance among other things....
--
Denial is a common emotion among speculators. Getting in always easy but getting out with profits never is. Once at a loss the wishful thinking takes over. Speculation is more insidious part of the gambling tendencies that people have.
Jas
my wife is a real estate agent. She does very well. Never made a cold call. All referral business. One reason why is she would never make a statement like this because you aren't doing a very good job of helping out your clients if you are getting them into money losing scenarios.
Brad Rozansky, a real estate agent in Bethesda, Md., cautioned against thinking that buying and selling foreclosures is an easy way to make a living. I have plenty of customers who have lost $20,000, $30,000 or $40,000 on a house, he said.
--
"And everyone wonders why I have always said that a house is the worst possible investment."
You are half right. The home one lives in is NOT an investment just as the car one drives and the furniture one uses.
Only born-and-bred dopes could be made to believe that home is an investment. Americans have been victimized by propaganda that makes Nazis look tame in comparison. The financial media, controlled by bankers and financiers, is the most destructive part of the great American Propaganda Machine. The chickens are coming home to roost as the housing unravels. But dont ask Mr. Market why he is in such good mood.
Jas
Isn't this article 2 years too early? I figure early 2009 might be a good time to start shopping for deals.
He's paying cash? "And on your right, we have a fool with a large pile of money. They're rapidly parting ways as we speak." Actually, if the credit market completely disintegrates (and what we had this summer was just a big shudder) that will be a way to make big money. If nobody can get a loan, how low would prices fall? A long ways down I'd wager.
"No wonder I'm just a blogger."
Yep. No wonder.
If someonone is buying foreclosures to rehab, then the cost of carry, multiplied by the time held (from purchase to sale, including work time on the rehab), is an expense.
If the buyer is able to sell, but the holding time is longer than anticipated (or than it used to be), as long as the sale price covers expenses and generates profits, there's no problem.
If you ever really did the math on foreclosure investing, you would know that holding costs are one of the smallest expenses, well behind purchase price and rehab costs.
Perhaps he's one of those "seat of the pants" investors who doesn't understand and doesn't care about the economist's views. All he knows is he buys something, holds it for a while, and sells for more than he started with. If he's paying cash he's pretty conservative (a more energetic investor would leverage into more properties) and that's not bad. If he's finding the right buying opportunity, (from my own perspective) I'd say the discounts are in the 50% range. My active imagination says that this is money that he doesn't need to live on, but since he's retired he's playing with something he kind of understands: property.
Tanta:
This is off-topic, but for comparison to where you stand on Gretchen, what do you think of Semour Hersh's reporting?
Just curious.
Guys-- cut him some slack.
The 25k$ in improvements (on a 40k$ house!!!) was probably made with the sweat of his own brow. It's imputed income and, if he can sell after holding the house as his residence for two years, tax free. If he had done the same work as an employee, that income is ordinary income and subject to withholding.
This is what real-estate investing used to look like-- and it is a fairly low risk proposition.
"If you ever really did the math on foreclosure investing, you would know that holding costs are one of the smallest expenses, well behind purchase price and rehab costs."
Holding costs KILL your return.
Good luck with flipping REO.
ROTFLMFAO!
Oooops. I just read the article. The guy is not quite all there. I thought he had done the improvements, but apparently he's estimating what needs to be done and he's hoping to sell to someone who will have the work done. I, too, am befuddled by what he thinks the profit is.
This is off-topic, but for comparison to where you stand on Gretchen, what do you think of Semour Hersh's reporting?
It very frequently bugs the shit out of me. In fact, Hersh is very often right, but we can't find that out until years later after his unnamed sources crawl out from behind the curtain. Until then, we have to take it on Hersh's credibility. Which has suffered from time to time--the Camelot book was of course a disaster.
But Hersh is a political reporter and I try not to write about politics. If he ever dabbles in mortgages or housing or general business reporting, I'll be happy to clean his clock for him when he needs it.
JT, hold onto your ass with both hands and stop laughing, or be considered a maroon. Oh, never mind, I already consider you that.
Buy a $200,000 home with 20% down at 8% APR to fix it up, and consider that you may need $15,000 of rehab. Principal and interest are only $1,174 monthly, compared to rehab of $15K and cash down of $40K. Insurance and taxes are generally only a couple of percent of purchase price annually, say $300 or so in this case.
Holding longer than anticipated CAN eat into profits, but holding costs (as mentioned in my comment) are a minor concern relative to the other costs involved.
Perhaps you should attempt to educate yourself, before you continue to make others aware of your lack of insight.
The investor who says "I had to hold longer than I thought, but I'm still profitable," or similar, makes perfect sense to anyone who has a clue about how RE investing works.
When all this hype and fear-mongering dies down, what will replace the profit center of demagoguery?
Tanta, will you then go back to your old job of "risk management"? Unfortunately, the world requires that some risk be taken on so that business carries on and the people remain employed. I don't want to see people "risk managed" into the unemployment line, do you?
I wish you were Angelo Mozilo in 2003 and 2004. Maybe you could have saved us all from our foolishness and been crowned the Queen...
Does the phrase "leaning against the wind" mean anything to you? A famous quote from a Fed Chairman from days past. Can we chill on the demagogue stuff and get real? It may not be as profitable for you, but you may get a perspective that you do not yet see.