Second Biggest US Landlord, Owner of 20,000 Homes, Terminates 15% of Staff

Discussion in 'Economics' started by Banjo, Aug 26, 2013.

  1. Maybe not in SF, Los Angeles or Orange County. If you're willing to locate to the desert area of Cali, 500k will get you "a mansion."
     
    #11     Aug 31, 2013
  2. It is a mansion 2 bedrooms and 10 bathrooms,it was belonging to some actor I believe
     
    #12     Aug 31, 2013
  3. wrbtrader

    wrbtrader

    Hedge funds, private-equity firms and real estate investment trusts have raised more than $18 billion to purchase more than 100,000 rental houses in the past two years....

    Wow...here we go again. :(
     
    #13     Aug 31, 2013
  4. deucy28

    deucy28

    Without knowing this firm's mission, strategy, or otherwise getting down into their weeds, I don't have at this point the benefit to analyze it properly. But some basic remarks with respect to the headline material being reported.....

    As an investor of single family homes over a few decades and managing them myself carefully, thoughtfully and creatively to minimize the bad and optimize the potential, the whole effort has been worth it and very successful, though not perfect.

    (1) Just as a speculative judgment to use as a starting point, I can believe this firm's mission is credible and that its long term objectives are attainable, and as what I can imagine its foundation to be with which to work its mission and objectives, its premise is practical. I can only say this with the notion it is in business to acquire and manage rentals. Perhaps it is in a mix of single family and multi-family dwellings. The premise is that today is opportune to have a firm like this with the proper management and capital. Amazing winds are at its back. It's old news now, but some years ago it was obvious to me and my cronies that (1) house prices were relatively low (duh !); (2) financing was cheap and available to a strong buyer; (3) the huge shift from would-be buyers becoming renters was on and high probability this trend would be sustainable for many years to come. On this last point, I never had to have this going for me to be successful. In this firm's case, it is a bonus as are the other two points. [full disclosure here: I liquidated all my real estate except for two pieces before the financial crisis, not necessarily being a visionary of the imminent disaster, but of longer term concerns for the nation and for a personal, new style of living that required me to be away from my investments, not being able to manage them myself. However, had I not liquidated, it is this last point #3 that would have kept me stable as I see it occurring with my investor friends.]

    (2) Quarterly earnings. There are a few ways to shred my logic here, so I just make this a big generalization rather than a thesis: If someone gave me-- arguably an expert in the field-- a mountain of cash to buy up real estate, I would indeed want the capital working quickly, but nor recklessly. A lot nimbleness would be lost, though. I would need a lot of hired help, too. In deed, I could see having a lot of vacancies on my hand at any one time considering the huge number of immediate acquisitions that of course would be vacant even with prospective renters needing to be carefully screened, but they will be filled in due time. I don't see this firm losing its shirt because of some new macro trend starting wherein vacancies are rising. The only acceptable reason for having as much vacancy as they do possibly would be to get volume below-market price purchases that would have been a time sensitive opportunity to procure. (Banks unloading in volume to them with a discount ? Problem to some extent is picking up some pig properties in the lot.). I say "acceptable reason" because of the boost to the balance sheet with smart buys at the price of a loss on the quarterly P & L with bolus amount of vacancies.

    (3) I could easily rationalize the big employee cuts as the firm grows getting smarter, improving efficiencies. Close attention to the quarterly report should be explicit to this or some other acceptable reason. Property management traditionally is with local professionals on a commission basis with rent received. It is not a fixed cost that is always there as in when there are vacancies. I don't know how deep the author of the article got into the quarterly report.

    CONCLUSION: I am shooting at the hip with generalities, not knowing the first thing about the firm or its recent quarterly report as headlined. I am extrapolating it to be from what I know about property management in general and basic business principals. So much of real estate is common sense. When you get professional experience as needed at good value and which is plentiful, I suspect this firm will do well. Did the firm take a hit on its stock price ? If so, I would look as deeply into the weeds as possible about its management and its approach to sniff out a possibly good investment in its stock.

    Long term vision: What is your view of the state of the nation 5 years out.... 10 years out ? If it is from now to then a running debacle in afterburner mode, I would be careful about ANY long term fixed investment in this nation unless you are nimble. Buying stock in a company like this you can be more nimble than buying properties and managing them. But you had better be well tuned to the macro-economics of the nation and be just ahead of the news that could be injurious to your investment in the firm like this that is hitching its wagon to massive long term, fixed assets. An early bad scenario would be its assets (real estate) lose value, but it maintains decent non-vacancy figures. In a worse scenario, increasing renters can't pay their rents and the firm is at gun point required to decrease rent rates. Notwithstanding the fossil fuel boom ahead and its derivative effects of repatriating manufacturing and jobs, it is scenarios like this that were huge in their influence for me getting out of real estate and re-directing my capital to other more nimble ways to make income consistent with my life style change. But in the context I just laid out, everyone has to attend to their own personal view and circumstances.

    Post script: Slightly off the subject, but just as stock analysts can be negatively critical about ther "quality of earnings," I look with suspect at communities like Las Vegas that have had a visible bump up in year-over-year appreciation, arguably from funds coming in and sucking up inventory of unsold houses. Las Vegas has been sucking its own sand so badly for years that any little thing can move the needle, but when funds buy in volume, the appreciation will be a headliner. But funds can divest quickly in volume, perhaps as the scenarios I described above are seen coming over the horizon. This dynamic is not the typical owner occupied's slowly over the years seeing the scenario developing and selling out over those years. Nothing like losing a leg or two in your 3-legged stool to cut your knees of your personally owned real estate out from underneath you ! As the bill board said in the early 1970's on the interstate leaving Seattle, "Last one out, please turn out the lights."
     
    #14     Sep 8, 2013