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Posted

How much of this (if any) can be attributed to the tightening of lending standards post 2009? It's pretty generally accepted that renting costs more than owning, albeit with less risk if the market tanks. But to own, one generally needs capital and financial discipline to qualify for a mortgage. With tighter standards, fewer people can qualify. But that doesn't mean the demand for homes to live in has gone down. Which leaves renting. And to rent, somebody else has to own it. Looking at the graph posted on page one, it seems like the trend really started taking off post financial crisis. Which is exactly what one should expect following a tightening of lending standards. 

Posted (edited)
7 hours ago, Rex Kramer said:

I understand that. I did use 2.75%, as it was pretty much a low, but have been careful to say “rates” and not “mortgage rates”. Up until about 18 months ago, entities had been able to probably accumulate massive portfolios at about a 5-6% cost of capital, and that was probably significantly lower if they were borrowing off of margin or some capital call facility. I do think there have been wealthy individuals / family offices that ultimately obtained first lien conforming or jumbo mortgages at lower rates. I know a guy in New York who owns about 75 homes I’d say specifically in Austin through a family LLC. I’ll ask him how he’s financed these purchases, but I do know they’re all lowly levered (relative to most other homeowners). Like probably not more than 50% LTV even at time of purchase. 

I deal with large investors often and have been in partnerships with 200+ single families at one point in time, but I don’t deal with institutional investors. Most of the time there is somewhere around a 2% minimum spread difference between owner financed using the mortgage market and investor financed using the bank side financing. There was definitely a run up in non institutional investors that we deal with purchasing when rates were lower because they could buy in the high 4’s / low 5’s on rates. That’s probably closer to an 8-9 today.

That 2.75% rate should have expanded ownership opportunities, but instead inflation and supply issues offset the benefit.

Edited by Brew
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Posted
5 hours ago, LCHorn said:

I’m stealing this from the Hidden Forces podcast, but if we take one industry, let’s say automobile for familiarity, and posit that electric car demand is a huge disrupter that allows new entrants an easier path to market entry than 10 years ago (when they would be competing instead with firms that have up to 100 year head starts), then we should see more new firms than we are.  Instead it’s mostly just Tesla and a smattering of rival firms that are far smaller.  
 

The auto industry is a terrible example of fund backed investment opportunities. The runway is too long for a typical PE type fund that is looking to return capital to investors in under 3 years. It might work for an institutional fund but the ability to make money operationally there is still a huge question mark. It comes down to whether you can get public interest behind you to cash out on a public offering which is a massive gamble.

There is significantly more money in that space than ever before. We get emails daily from funds looking to make investments that are startups, known funds, and everything in between. I think I’ve talked to 10+ family offices in the last few months that are all 9-10 figure family offices making investments. There is too much money concentrated at the top of the system, so when you are competing with them on single family housing it’s a losing proposition.

Posted
1 minute ago, Rex Kramer said:

You’re talking about commercial bank debt, and not mortgages, correct?

Yes, commercial bank debt. You can only hold a few mortgages. Technically, you can go to 10 I believe, but most people don’t qualify because the qualifications don’t change so every additional one makes the spread to qualify get more narrow. If everything is paid for, you can mortgage a few properties to provide buying opportunity, but you’re not getting to 75 (or even 25) without using bank side financing if you are financing.

Posted
47 minutes ago, Brew said:

Yes, commercial bank debt. You can only hold a few mortgages. Technically, you can go to 10 I believe, but most people don’t qualify because the qualifications don’t change so every additional one makes the spread to qualify get more narrow. If everything is paid for, you can mortgage a few properties to provide buying opportunity, but you’re not getting to 75 (or even 25) without using bank side financing if you are financing.

The logistics of it also become insane.  We did a GSE loan for a guy in 2021 (several actually) that owned over 90 houses free and clear and the documentation burden was insane.  There’s no way we made money on them if we actually looked at the hours of labor involved.  

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Posted (edited)
11 hours ago, Rex Kramer said:

Your last sentence doesn’t explain anything pertinent to the article. Fort Worth has no vacation home market. 

There are 15 pages of results on Airbnb for homes with at least 2 bed rooms that are available to rent for a weekend in the month of August. It's like this everywhere. Even in tiny little towns out in the sticks, you can find a place on Airbnb.

https://www.airbnb.com/s/Fort-Worth--Texas--United-States/homes?tab_id=home_tab&refinement_paths[]=%2Fhomes&monthly_start_date=2024-07-01&monthly_length=3&monthly_end_date=2024-10-01&price_filter_input_type=0&channel=EXPLORE&query=Fort Worth%2C TX&place_id=ChIJrQfILRJuToYRvaxp3fiLr6Q&date_picker_type=flexible_dates&flexible_trip_lengths[]=weekend_trip&flexible_trip_dates[]=august&source=structured_search_input_header&search_type=filter_change&search_mode=regular_search&price_filter_num_nights=2&room_types[]=Entire home%2Fapt&min_bedrooms=2

The truth here, like most things, is somewhere in the middle of everyone arguing. Small investors buying run down homes and fixing them up to rent or sell does add value to the system. Not everyone is a blood-sucking vulture like Blackrock just looking to maximize shareholder value however possible. I do think that massive corporations buying up portfolios of SFHs is a big problem that is going to continue to cause all kinds of issues.

As long as they don't look to the US Govt to socialize their losses when the inevitable correction comes.... 

 

Edited by The Royal We
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Posted
Just now, The Royal We said:

As long as they don't look to the US Govt to socialize their losses when the inevitable correction comes.... 

 

Don't worry; they will

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Posted
52 minutes ago, safe sex said:

Were you under the impression I was saying that security deposits don't exist?

Let him cook he's dropping that deep insider knowledge. And totally not trying to do a weird flex.

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Posted
31 minutes ago, Rex Kramer said:

Explain how this would work

You need an explanation as to whether they might ask for a capital injection if their businesses are facing failure?   I mean, I guess you're right to be dubious as we've never seen any other industry do this before with success.

 

Posted
19 hours ago, Rex Kramer said:

Yeah. But it’s not a vacation home market, and Airbnb isn’t going to drive skewing numbers to 26%.

Maybe not 26% in a place like Fort Worth, but I think it’s pretty well established that Airbnb drives up housing prices and makes entry into home ownership more expensive.

I don’t have time to dig into it right now, but I seem to remember Hawaii having a major problem with this in the past few years to the point they were considering restricting Airbnb, VRBO, etc. Obviously the OP is about Fort Worth and not Hawaii, but I think there’s a reasonable discussion to be had about Airbnb and its contribution to the difficulty of home ownership in many areas.

Posted
2 hours ago, Neonmoon said:

We have a supply problem. 
 

Nothing more. 

Clearly an issue, now go into the reasons we have a supply problem. You know things like corporate ownership on an expanding scale, rising interest rate environment driving people to stay in their houses, changing tax policy, hell even the current political environment resulting in a shift in where people are living, etc.

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Posted
21 minutes ago, Brew said:

Clearly an issue, now go into the reasons we have a supply problem. You know things like corporate ownership on an expanding scale, rising interest rate environment driving people to stay in their houses, changing tax policy, hell even the current political environment resulting in a shift in where people are living, etc.

The main reasons are (1) local zoning regulations that have obstructed growth for decades followed by (2) periodic market downturns over that period that have adversely affected the economics of home building. Corporate investment is a symptom of supply shortage, not a cause. It is literally the investment thesis of these ventures. And on a national scale, corporate investment is irrelevant-something like 3% of homes. As I mentioned, it is certainly a major factor in some markets (metro Atlanta has been about 25% of purchases over the last few years IIRC), but in the Bay Area where I live - ground zero of the housing crisis - it is basically nonexistent. 

Posted (edited)

We had a supply problem with lower rates... its is going to get worse now.

Although it is ultimately a local issue, nationally, we have a zoning issue. Zoning/entitlement needs to be changes/altered to allow for denser housing development nationwide.  Every developer in the world would rather put down three (3) cheaper units as opposed to one more expensive unit. It's simple a matter of buyer pool and mitigating risk.  Driving down the cost and the hurdles to build more units will ultimately lead to more units, which will drive down the cost (flatten the rate of increase).

More housing units need to be built, and allowing for more density ultimately drives down the costs for development, while supplying the units the system needs.

 

^^^ What that guy up there said.

Edited by Fico
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Posted
3 hours ago, Neonmoon said:

We have a supply problem. 
 

Nothing more. 

It's not just supply, but quantity supplied. I'm sure most of the national builders have financial analysts employed who calculate where Marginal Cost=Marginal Revenue. But there's also the issue of not being able to get enough labor to build the number of houses they can sell.

Posted
5 hours ago, wild_turkey said:

Maybe not 26% in a place like Fort Worth, but I think it’s pretty well established that Airbnb drives up housing prices and makes entry into home ownership more expensive.

I don’t have time to dig into it right now, but I seem to remember Hawaii having a major problem with this in the past few years to the point they were considering restricting Airbnb, VRBO, etc. Obviously the OP is about Fort Worth and not Hawaii, but I think there’s a reasonable discussion to be had about Airbnb and its contribution to the difficulty of home ownership in many areas.

There are many restrictions now in place especially Oahu and Maui.  Maui having had the restrictions a few years longer. There are still a few folks trying to get around the restrictions but for the most part the restrictions are working.  Now whether the desired effect of such restrictions are working is tbd.  But I don't think Hawaii has as much corp ownership as the rest of the country either.

Posted
25 minutes ago, Rex Kramer said:

My namesake is Robert Stack alone. And he was no mechanic. He was a former fighter pilot who will never forget Macho Grande. 

Your attempt at comedy to deflect from responding to my post is noted. 

Then please also note your obtuse comment didn't merit a reply, hence the weak attempt at comedy, but okay here's a response:   Sure, small and middling PE firms fail without fanfare. No one said they didn't.   I never wrote that any PE firm, even a large one, would actually be bailed out, which seems to be your misguided point of contention.  I merely laughed at the notion that they wouldn't try, and your lack of reading comprehension and irrational level of defensiveness on this subject took care of the rest.  I wasn't even engaging with you, and have no real interest in doing so moving forward.  If you don't think a PE firm the size of Bain Capital, The Carlyle Group (both clients of mine), or BlackRock wouldn't seek assistance were they facing insolvency, you're merely highlighting that you don't know what the fuck you're talking about. 

And while we're at it, I'll go ahead and point out that your earlier comment about TARP making money is complete bullshit, although commonly touted bullshit among investment bankers thanks to a false Treasury Dept. memo that still gets passed around, as TARP managed to net out about a $15B before you factor in inflation, but since, you know, inflation exists, the actual number is a loss of ~$24B.   But why get caught up on numbers, right?  Was TARP necessary?  I think so, but I'm also tired of listening to know-nothing mid-level investment bankers and low-level VPs at PE firms spewing similar rhetoric as you have in this thread.  You probably also think it was Andy who went to pieces when it was clearly Buddy.
 

Posted
3 minutes ago, shakahorn said:

There are many restrictions now in place especially Oahu and Maui.  Maui having had the restrictions a few years longer. There are still a few folks trying to get around the restrictions but for the most part the restrictions are working.  Now whether the desired effect of such restrictions are working is tbd.  But I don't think Hawaii has as much corp ownership as the rest of the country either.

Every short-term rental that gets turned into a long-term rental space for actual residents to live in is a win.  If they're sold to a resident/owner, even better.

Posted (edited)
37 minutes ago, shakahorn said:

There are many restrictions now in place especially Oahu and Maui.  Maui having had the restrictions a few years longer. There are still a few folks trying to get around the restrictions but for the most part the restrictions are working.  Now whether the desired effect of such restrictions are working is tbd.  But I don't think Hawaii has as much corp ownership as the rest of the country either.

Agreed the Air BNB issue needs to be solved at a local level.  A ban was put in place in Dallas although believe it is still be litigated last I heard.  I don't know whether likely inevitable regulation did it or it was the fact that the olds in my neighborhood probably called in every violation and otherwise made it miserable, but the one STR in my general area lasted about 18 months before they sold a few months ago.  Which is a good thing.  Because I'm 100% on board that STR's have absolutely zero business operating in residential neighborhoods.  Vacation destinations or condos etc. in a city are one thing but it's bullshit in a neighborhood.  I could probably make a lot more $$ on my rental (that is less than a mile away from my house) if I turned it into a STR but would never do that to the neighbors.

Edited by Skipper

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