"It’s like a doubling up. The homeowner goes to buy the next home, move up or move down. And because mortgages are so cheap, it’s a really good time to keep the first one as a rental unit. And so each year I go to buy a next one and I keep my first one. And so that’s one big phenomenon. And all of a sudden I’m a real estate investor. And at the same time, institutional money’s been cheap. There’s a lot of news about the big private equity funds buying up homes, but it’s actually the individuals who are driving most of it. So in the last decade we’ve taken 8 million homes out of the resale cycle and moved them into the investment rental part of the pool. And that’s, you know, 9% of all the single family homes."
This tells me that home seekers should be making offers to landlords rather than wasting their time making cold offers for people's primary residence. I bet a lot of those small time landlords are nervous about cash flow, and you could find one that's ready to get out.
> "There’s a lot of news about the big private equity funds buying up homes, but it’s actually the individuals who are driving most of it."
I realize there are a lot of "house flipper" shows on reality TV, but I don't buy this. I'm not receiving 20-30 phone calls and texts per week from "individuals" wanting to buy my house. I'm getting those calls from sophisticated commercial operations, who mask their phone numbers to include the same area code and first three digits as my own, etc.
Individuals aren't putting up "We buy houses! Guaranteed offer!" billboards every few hundred feet in my city.
I don't think that banks will even give individuals an endless series of mortgages. You can't declare rental income as "income" to qualify for mortgage loans.
I think there needs to be a strong fiscal disincentive against owning houses for investment. Houses need to be lived in, preferably by the owner. I'm all for a punitive tax on empty houses or houses with ridiculously high rent.
This is definitely wrong in my city. Everytime something reasonable comes up for sales it sells in a couple hours and is back on the market in couple months with some cheap renovations for a ridiculous amount.
They buyer/seller is almost always listed as an individual and not a corporation.
> You can't declare rental income as "income" to qualify for mortgage loans.
You absolutely can. I did that. Bank was happy to consider money i make from renting out one of my houses as income when qualifying me for a mortgage for another.
You can absolutely use rental income as income, the main thing is you generally need 1-2 years of experience running rentals. You can even use theoretical income from renting out a new purchase in some cases.
>You can't declare rental income as "income" to qualify for mortgage loans.
You can, but [typically] not until you have a solid history (a few years) of that rental income and it will be lender dependent. You also can't typically use future/potential income from a property to qualify for a mortgage for THAT property but you could for a business loan. That business loan will have a much higher interest rate and likely require you to put up other collateral or personal guarantee.
Most or all of these type of landlords that I’ve spoken to strongly disliked to actively hated being a landlord. It’s very counter the “get wealthy slowly” narrative of being a landlord. Of course the financial aspects are true though they don’t mention them. This is in a location where good renters are a dime a dozen and building new units is pretty much impossible.
Being a halfway decent landlord is a miserable pain in the ass unless you live or work very close to your rental property. And even then, it's pretty easy to see several months income go up in smoke with even a modest renovation or repair.
The income is nice, but it's anything but "passive" unless your rents are so high that you can afford to pay a management company, and/or you are comfortable being a slumlord.
Well yes, they all complain about being a landlord. However as you say, they never discuss the money side of things--just the hassle. Most landlords in a very bad year will break even, but in an average year will be in the positive. And of course you shouldn't even be looking at rental income in the short term--you should be looking at it as an asset that someone else pays for entirely and maybe slops a little extra cash to you in the short term and THEN when you're older and they've paid for your asset as a revenue generator. I've been looking at buying a rental even though the prices are insane right now simply as a source of reoccurring revenue when my wife and I are older and the loan has been paid off.
I've done the same (bought a house, kept the old one for rental) and used an agency as a middle man. They take care of collecting rent, and the day to day business if, say, a plumber needs to be called (I just have to sign off on it). This at a 6% fee of the monthly rent is quite worth it to avoid any hassle. The rent income also fully covers the mortgage of the new house so basically my living costs are for free.
I think the trick to "we buy homes" or whatever is they buy way under market. My neighbor sold for something like 150k, they fixed the place up and resold it for a little over 500k. Landlords aren't going to go that low.
I'm guessing they put in 100k or more go remodel. 290k wouldn't surprise me. They are still making a lot money, but they are also taking that risk. There is far more of it going on than should be, but people who need to move in a hurry might like it. The better such companies that have existed for years without the advertising have good working relationships with contractors and thus get both a better deal and faster service than you could: the contractors know who brings in busines. They also know which contractors are actually good as opposed to scams.
But the business doesn't support nearly the advertising that you see in normal markets. Call A qualified realtor with a dump house and they will call these people if your house is a hard sell. (If you know the fair value of your house you can avoid realtor fees selling direct )
Although the books are old and the author discredited, the "Rich Dad Poor Dad" real estate investment series still have a large number of people trying to follow the author's advice. They and similar "pop culture investors" are the prime landlords in over their heads that would be likely to sell. But be able to negotiate potential nonsense, as they are over their heads and tend not to be rational about their investment.
What is described here (buying a chain of properties year to year) is unlikely for most people. You can’t use rental income when calculating your debt to income ratio. Unless you have a massive income or an equally massive pile of cash, you are going to quickly run out of lenders willing to lend to you in your entirely over-levered position. Also, you have to stay in a home for a certain number of years for it to be considered a “primary residence” and therefor able to be mortgaged with a low down payment. Otherwise in each transaction you’ll have to come up with 25-30% down.
1. With a lease and/or two years of prior landlord experience you can use rental income both for existing and projected for new property.
2. For multi unit, if you’re owner occupied you qualify for FHA and therefore can put down as little as 3%
3. You only have to stay in your home for 6 months for refinance and 1 year for initial purchase. The guidelines are loose, and can relocate earlier depending.
That being said, it doesn’t really make sense since most properties in high cost of living areas don’t cash flow well to begin with.
> "You can’t use rental income when calculating your debt to income ratio."
Do you have a source for this claim? Based on personal friends who work in the lending / single family rental home space, I don't think that's correct. [0] [1]
> This tells me that home seekers should be making offers to landlords rather than wasting their time making cold offers for people's primary residence.
I don’t think so as landlords are locked into a 3% fixed mortgage and have a profitable income stream.
Unless there’s some life event that requires them to sell, landlords are less likely to sell than regular homeowners.
Housing is already very cheap in places no one wants to live in.
Housing is already affordable in the United States compared to other countries when you compare median house price to median income.
If you want to see where the United States is headed go look at London, Vancouver, Paris, etc.
As urbanization in the United States accelerates for many reasons, including climate change, I see house prices in desirable areas increasing even further.
>Housing is already affordable in the United States compared to other countries when you compare median house price to median income.
Ditto. As an European I envy how affordable real estate is in the US compared to Germany for example. My US boss at the time had bought a nice big house with a garden in the suburbs of the Dallas-FW area, way cheaper than something similar would have cost in the suburbs of Munich, where our office was.
Case in point, most of our US colleagues had big houses in Texas which they owned, while most of the Munich team lived in small apartments which they had to rent. Quality of life is nice in Munich, but the real estate market there is crazy compared how good the US has it.
>As an European I envy how affordable real estate is in the US compared to Germany for example
You're comparing apples to oranges. You're comparing one of the cheapest major cities in the US to one of the more expensive cities in Europe. According to Zillow the median home price in Dallas is just under $300,000 but the median home price in Seattle where I'm currently renting and trying to buy a home is 3 times that at $900,000. So please don't tell me how good I have it in the US with real estate. With how large and diversified the US is, a more fair comparison would be to compare Dallas real estate prices to say a city like Bucharest and compare Munich real estate prices to a major US city on the west coast (San Diego, Los Angeles, San Francisco, Portland, Seattle) or the northeast (DC, New York City, Boston).
Even if you do like for like the United States is much cheaper than Europe when comparing median income to median house price. Add in the highly subsidized mortgages and it’s a slam dunk in favor of the United States.
The housing crisis is a meme basically centered around 15 locales in the states.
>Housing is already very cheap in places no one wants to live in.
But this isn't a solution, it's a tautology. If people started moving there, they'd become expensive, too. The population level interpretation is that inflows should equal outflows everywhere, which is statistically impossible unless the government decides where you can live. Who wants that?
The increase in prices depends on the amount of demand relative to supply. If all the demand for land in coastal California was redirected to the land in rural Midwest/Northeast, there is so much supply that it would cause a much smaller increase in price.
And it very well maybe that there is no solution to the problem of people having to scrimp due to high real estate prices. People may inherently want to compete with each other and agglomerate into highly desirable areas.
No one said it’s a solution, I’m simply describing reality, as you’ve also concluded.
Also the rate of increase is not fixed. Areas with more propensity for development will see smaller price increases compared to areas with less propensity for development.
It’s more complicated than simply supply and demand, though it does reduce down to that in the end
I’m not seeing the contradiction between your link and what I stated. Your link says more people will go to cities, which will increase demand and subsequently prices. Which is also what I said
>Maybe make those places more attractive to live, to take the pressure off the high-demand places.
How? This is a catch-22 that every run down city is trying to solve and can't. People don't move in because the places have no good jobs, investments, infrastructure, teachers and doctors, while the investments, jobs, doctors and teachers don't come there because there's nothing waiting for them there.
I've seen the same in Europe. Most good jobs, schools, doctors, etc, are all coming only in the big cities where all the talent is, and all the young talent is moving into the big cities, where all the good opportunities are. Catch-22.
What could small town north Dakota do to make you want to move there? Fargo is maybe large enough to offer enough city life to attract you, but what could small towns actually do?
A crash of 25% would take us back to..maybe summer 2020? A crash of 50% would take us back to...2015ish?
I don't think the Fed etc have the guts to allow a 80% drop, so that the 2 million dollar house would drop back to $400k, and become reachable for the majority of people
A house that's $2m today is that expensive because it's a highly desirable home, much more desirable than the vast majority of homes out there - probably in the top 5%. You can never make such homes reachable for the majority of people because there aren't enough of them - if there were, they wouldn't be $2m right now. 50%+ of people can never afford the top 5% of homes.
1) Do your parents own their home?
2) Could people with similar jobs/savings/backgrounds get a similar house today?
Usually the answer to 1 is yes, and the answer to 2 is no. 95% of homes are priced like the top 5% of homes. A million-dollar mansion used to be, well, a mansion. Now a million-dollar house is "a detached house within a 45 minutes driving distance to downtown".
That's only really true if you are talking about specific houses and locations, while keeping everything else unchanged.
In general, houses are just as desirable as they were a few years ago when they were half the price. All that has materially changed is the supply and cost of credit.
The same thing works on the downside: broad price falls are not due to mass desirability changes. They are due to credit becoming harder to get and more expensive to repay on a monthly basis.
Finance 101: asset prices move inverse to the discount rate.
It's funny that we talk about manufacturing "dying" while productivity is still very high. Meanwhile, the construction industry is actually foundering and we shrug. "Guess China is buying all the cement." Which cannot explain international disparities at all.
We can build small projects out of wood just fine. But those smaller projects need to be supported by larger projects: airports, hospitals, roads. Our existing concrete (literally) infrastructure is overburdened, which drives voter demand for restrictions on move-ins. Stop moving to Atlanta, stop moving to Austin, stop moving to Sussex County, Delaware.
We shouldn't be overwhelmed every time a city grows. Wonks blame the voters, voters blame the wonks, a bridge in Pittsburgh falls into a river.
The history of many cities shows periods of rapid growth far exceeding Austin over the last decade. San Francisco's population grew by >20% every decade from 1850 to 1930. There is no general rule that says growing cities must be so expensive. It's a phenomenon in the US, right now, not everywhere, all the time.
The notion of "normal" is dubious. For a decade preceding 2008, minimal verification of income or employment was required to buy a home (prices soared). Thereafter, the pendulum swung mightily in the other direction (having tried to purchase a home as a contractor, I can attest). Then the pandemic accelerated the migration to the suburbs for young families (prices soared).
If there are as many over-levered real-estate investors as the article suggests, a market downturn will yield foreclosures, and PE firms will feast once again.
There is no "normal." Only past, present, and future.
A house is a decaying pile of materials in need of constant maintenance. People want to own their own, because it is cheaper than paying someone else to maintain their decaying pile of materials, with management and profit overhead.
Until people get over the idea that a depreciating, decaying pile of material is anything other than the lowest cost way to store your stuff and stay out of the elements, the market will remain irrational.
Only someone insane, or looking for a bigger fool, would count a house as an investment.
A house is a decaying pile of materials in need of constant maintenance.
Well, maybe your house is.
But in the general case -- it's that and "location, location, location" of course. On top of finite (in some markets highly constricted) supply. Plus, some are ... beautiful, well-designed, well-built, and/or historic (never to be made again). And finally, for very rich people, they have added functionality as value stores (particularly when favorable tax conditions come into play).
The factors taken together explain why houses and apartments are not only not completely insane as investments -- but in fact can be quite lucrative investments.
Color me unimpressed with the arguments laid down here. It boils down to low rates and looking at the recent past when rates were low. And let’s point out rates have been 0-.25% for a long time now.
Want to convince me? Pull in a Case-Schiller index comparison and some more technical, market level characteristic analysis.
What would be interesting is figuring out price/interest rate sensitivities for buyers of homes in this market. Does investment leave the market if rates make other asset classes more viable? Probably. At what point?
Edit-or tell me that the Fed can’t possibly raises rates for $goodReasons.
Part of this phenomenon reached Portugal during the pandemic, some people from "big cities" went to the interior to buy houses for cheap to then either rent their houses in the city or the other one acquired.
Basically they removed a lot of houses from the market from locals, making them reach prohibitive prices completely off the reality of what locals can afford... where will they go?
What's the value added from the new-comers to those markets? They are not developing new houses, they aren't creating new jobs, and they shop mostly in big supermarkets.
Readit News
This tells me that home seekers should be making offers to landlords rather than wasting their time making cold offers for people's primary residence. I bet a lot of those small time landlords are nervous about cash flow, and you could find one that's ready to get out.
I realize there are a lot of "house flipper" shows on reality TV, but I don't buy this. I'm not receiving 20-30 phone calls and texts per week from "individuals" wanting to buy my house. I'm getting those calls from sophisticated commercial operations, who mask their phone numbers to include the same area code and first three digits as my own, etc.
Individuals aren't putting up "We buy houses! Guaranteed offer!" billboards every few hundred feet in my city.
I don't think that banks will even give individuals an endless series of mortgages. You can't declare rental income as "income" to qualify for mortgage loans.
You absolutely can, it is income after all.
All the banks care about is if the cost of the new mortgage is going to exceed your debt to income ratio.
They buyer/seller is almost always listed as an individual and not a corporation.
Depends. If you have a signed lease, some lenders will take some portion of that into account when considering lending you money.
They’ll def give an endless series of mortgages to an otherwise wealthy person who keeps paying them back by renting out the homes.
You absolutely can. I did that. Bank was happy to consider money i make from renting out one of my houses as income when qualifying me for a mortgage for another.
You can, but [typically] not until you have a solid history (a few years) of that rental income and it will be lender dependent. You also can't typically use future/potential income from a property to qualify for a mortgage for THAT property but you could for a business loan. That business loan will have a much higher interest rate and likely require you to put up other collateral or personal guarantee.
The income is nice, but it's anything but "passive" unless your rents are so high that you can afford to pay a management company, and/or you are comfortable being a slumlord.
But the business doesn't support nearly the advertising that you see in normal markets. Call A qualified realtor with a dump house and they will call these people if your house is a hard sell. (If you know the fair value of your house you can avoid realtor fees selling direct )
1. With a lease and/or two years of prior landlord experience you can use rental income both for existing and projected for new property.
2. For multi unit, if you’re owner occupied you qualify for FHA and therefore can put down as little as 3%
3. You only have to stay in your home for 6 months for refinance and 1 year for initial purchase. The guidelines are loose, and can relocate earlier depending.
That being said, it doesn’t really make sense since most properties in high cost of living areas don’t cash flow well to begin with.
Do you have a source for this claim? Based on personal friends who work in the lending / single family rental home space, I don't think that's correct. [0] [1]
[0]: https://www.valuepenguin.com/mortgages/claiming-rental-incom...
[1]: https://selling-guide.fanniemae.com/Selling-Guide/Originatio...
I don’t think so as landlords are locked into a 3% fixed mortgage and have a profitable income stream.
Unless there’s some life event that requires them to sell, landlords are less likely to sell than regular homeowners.
Housing is already affordable in the United States compared to other countries when you compare median house price to median income.
If you want to see where the United States is headed go look at London, Vancouver, Paris, etc.
As urbanization in the United States accelerates for many reasons, including climate change, I see house prices in desirable areas increasing even further.
Ditto. As an European I envy how affordable real estate is in the US compared to Germany for example. My US boss at the time had bought a nice big house with a garden in the suburbs of the Dallas-FW area, way cheaper than something similar would have cost in the suburbs of Munich, where our office was.
Case in point, most of our US colleagues had big houses in Texas which they owned, while most of the Munich team lived in small apartments which they had to rent. Quality of life is nice in Munich, but the real estate market there is crazy compared how good the US has it.
You're comparing apples to oranges. You're comparing one of the cheapest major cities in the US to one of the more expensive cities in Europe. According to Zillow the median home price in Dallas is just under $300,000 but the median home price in Seattle where I'm currently renting and trying to buy a home is 3 times that at $900,000. So please don't tell me how good I have it in the US with real estate. With how large and diversified the US is, a more fair comparison would be to compare Dallas real estate prices to say a city like Bucharest and compare Munich real estate prices to a major US city on the west coast (San Diego, Los Angeles, San Francisco, Portland, Seattle) or the northeast (DC, New York City, Boston).
The housing crisis is a meme basically centered around 15 locales in the states.
But this isn't a solution, it's a tautology. If people started moving there, they'd become expensive, too. The population level interpretation is that inflows should equal outflows everywhere, which is statistically impossible unless the government decides where you can live. Who wants that?
And it very well maybe that there is no solution to the problem of people having to scrimp due to high real estate prices. People may inherently want to compete with each other and agglomerate into highly desirable areas.
Also the rate of increase is not fixed. Areas with more propensity for development will see smaller price increases compared to areas with less propensity for development.
It’s more complicated than simply supply and demand, though it does reduce down to that in the end
Studies actually show the exact opposite.
"Rapid urbanization is making people more vulnerable to the impacts of climate change, according to a new UN report" [0][1]
[0] https://unfccc.int/news/rapid-urbanization-increases-climate...
[1] https://unfccc.int/resource/docs/2017/sbsta/eng/inf03.pdf
Maybe make those places more attractive to live, to take the pressure off the high-demand places.
How? This is a catch-22 that every run down city is trying to solve and can't. People don't move in because the places have no good jobs, investments, infrastructure, teachers and doctors, while the investments, jobs, doctors and teachers don't come there because there's nothing waiting for them there.
I've seen the same in Europe. Most good jobs, schools, doctors, etc, are all coming only in the big cities where all the talent is, and all the young talent is moving into the big cities, where all the good opportunities are. Catch-22.
Deleted Comment
I don't think the Fed etc have the guts to allow a 80% drop, so that the 2 million dollar house would drop back to $400k, and become reachable for the majority of people
1) Do your parents own their home? 2) Could people with similar jobs/savings/backgrounds get a similar house today?
Usually the answer to 1 is yes, and the answer to 2 is no. 95% of homes are priced like the top 5% of homes. A million-dollar mansion used to be, well, a mansion. Now a million-dollar house is "a detached house within a 45 minutes driving distance to downtown".
In general, houses are just as desirable as they were a few years ago when they were half the price. All that has materially changed is the supply and cost of credit.
The same thing works on the downside: broad price falls are not due to mass desirability changes. They are due to credit becoming harder to get and more expensive to repay on a monthly basis.
Finance 101: asset prices move inverse to the discount rate.
https://www.vox.com/22534714/rail-roads-infrastructure-costs...
It's funny that we talk about manufacturing "dying" while productivity is still very high. Meanwhile, the construction industry is actually foundering and we shrug. "Guess China is buying all the cement." Which cannot explain international disparities at all.
We can build small projects out of wood just fine. But those smaller projects need to be supported by larger projects: airports, hospitals, roads. Our existing concrete (literally) infrastructure is overburdened, which drives voter demand for restrictions on move-ins. Stop moving to Atlanta, stop moving to Austin, stop moving to Sussex County, Delaware.
We shouldn't be overwhelmed every time a city grows. Wonks blame the voters, voters blame the wonks, a bridge in Pittsburgh falls into a river.
The history of many cities shows periods of rapid growth far exceeding Austin over the last decade. San Francisco's population grew by >20% every decade from 1850 to 1930. There is no general rule that says growing cities must be so expensive. It's a phenomenon in the US, right now, not everywhere, all the time.
If there are as many over-levered real-estate investors as the article suggests, a market downturn will yield foreclosures, and PE firms will feast once again.
There is no "normal." Only past, present, and future.
Until people get over the idea that a depreciating, decaying pile of material is anything other than the lowest cost way to store your stuff and stay out of the elements, the market will remain irrational.
Only someone insane, or looking for a bigger fool, would count a house as an investment.
Source: I'm a home owner.
Certain markets have been amazing from an appreciation point of view - for example, the Toronto area housing market has been on a 25 year bull run.
Well, maybe your house is.
But in the general case -- it's that and "location, location, location" of course. On top of finite (in some markets highly constricted) supply. Plus, some are ... beautiful, well-designed, well-built, and/or historic (never to be made again). And finally, for very rich people, they have added functionality as value stores (particularly when favorable tax conditions come into play).
The factors taken together explain why houses and apartments are not only not completely insane as investments -- but in fact can be quite lucrative investments.
Want to convince me? Pull in a Case-Schiller index comparison and some more technical, market level characteristic analysis.
What would be interesting is figuring out price/interest rate sensitivities for buyers of homes in this market. Does investment leave the market if rates make other asset classes more viable? Probably. At what point?
Edit-or tell me that the Fed can’t possibly raises rates for $goodReasons.
Basically they removed a lot of houses from the market from locals, making them reach prohibitive prices completely off the reality of what locals can afford... where will they go?
What's the value added from the new-comers to those markets? They are not developing new houses, they aren't creating new jobs, and they shop mostly in big supermarkets.