The cure is lower prices

Correct. I believe there's more than a few employees too.

 

I'm not talking about any market, I'm talking about the current market where house prices are 30-40% below their all time highs, these condos were going for $300K in 2007, so you actually believe the prices can drop way below that, say to 70% of their all time high, I'm willing to take that risk, because the prices dropped but the rents are the same, I know that because I purchased some of these in 2006, 2007 and 2008, when prices were at their all time highs, and have been renting them out ever since

my speculation is based on my belief that the USD is fucked, and that it will depreciate rapidly in the coming years, america is a country that has been paralyzed by it's own laws and bureaucracy, this country is going no where, there will be no more real innovations, no more breakthroughs, this is it for america, the country is in some form of standstill, america is the next UK, and the next bubble is the reemergence of the real estate bubble

 

Hows this for worst case....inflation goes rampant and more jobs get lost and a ton of people stop paying their rent. Then the renters stay in the condo for the maximum the law will allow. Meanwhile, condo fees are going up to $2000 per month because thats what it costs for a gardner now (as you have to pay much higher wages). HOA puts a lean on your property and that keeps adding up. In the meantime since there were so many investors out there hoping to do the same thing (buy and rent out) there is a ton of inventory and it takes average 3 to 6 months to rent it out. Dont forget that 20-30% of renters trash the apartment before they leave...50% if you had to evict them as "revenge" for making them leave.

So called investors have no idea how to buy real estate. Most pay too much for it. The guy said that the condos were 140k and that rent was $1,100. You should never pay more than 100 times the monthly rent when you buy a property and if there are HOA fees, you should subtract that before making your calculation. So if rent is $1100 minus (i think he wrote 200$ for condo fees) and he should not pay anymore than 90k for the place.

Most buyers get killed the first few years in real estate. When you make an offer...if you are not embarrased to make that offer, you are offering too much. If someone feels panic like they are not going to get the place they want to buy, they are offering too much. So many things can go wrong...so worst case isnt rent covers the costs...worst case is there is no rent.

FYI, vacancy rates are about 27% higher than they were a year ago...so for every 100 empty condos there were last year, this year there are 127 empty condos.

 

And are you cash flow positive on those units? I can't see how you could be considering rents remain flat at best, and you paid around 40% more for these units, and thus your debt load is presumably 40% greater as well.

 

actually at that time I did the same as I do now, take out 100K in mortgage and paid the rest, about 200K, in cash

 

good point, but I haven't had this problem before because my agent always checks the renters credit score and income level, never have rented out to someone who makes less than 80K a year and has anything but an A credit rating, but then there's no denying that it can happen in an inflationary environment, I guess I have to purchase more properties overseas, so I can kick out the renters whenever they stop paying their rent

 

The townhouse complex I live in has 6 units. 3 of these units have been vacant for 6 months. I haven't had a neighbor in almost forever. And this is with no inflation. Now imagine if inflation were to take off and all of a sudden the prices of rent doubled or quadrupled. If my landlord can't rent out townhouses in a stable rental environment, why would he have better luck when prices got out of control?

The problem with your rental price theory is that you're assuming that there is little flexibility in supply. People can start rooming together if prices were to rise too fast thus increasing the available supply of rental places very fast. Thus, if a rental owner really did have a "400%" profit margin with which to work with, and the supply was considerable, wait until your competitor decides that he really doesn't need to make 400% and thus drops the rental price. Now you needing tenants are going to need to drop your price to undercut your competition.

Supply and demand is always king. If there is really an opportunity to make an easy 400%, it won't last for very long.

 

as always, the highest offer isn't necessarily the best...better start saving up!

 

I think that there is a good chance of a rent deflation also. but what the hay, I was thinking this whole ball of wax would be in the basement of hell by now.

 

Did Mortgage Relief Program Make Housing Crisis Worse?
THE NEW YORK TIMES_|_January 02, 2010_|_11:46 AM EST
The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief.

Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences.

Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

Mr. Katari contends that banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books.

Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.

“Then the carpenters can go back to work,” Mr. Katari said. “The roofers can go back to work, and we start building housing again. If this drips out over the next few years, that whole sector of the economy isn’t going to recover.”

The Treasury Department publicly maintains that its program is on track.

“The program is meeting its intended goal of providing immediate relief to homeowners across the country,” a department spokeswoman, Meg Reilly, wrote in an e-mail message.

But behind the scenes, Treasury officials appear to have concluded that growing numbers of delinquent borrowers simply lack enough income to afford their homes and must be eased out.

In late November, with scant public disclosure, the Treasury Department started the Foreclosure Alternatives Program, through which it will encourage arrangements that result in distressed borrowers surrendering their homes.

The program will pay incentives to mortgage companies that allow homeowners to sell properties for less than they owe on their mortgages short sales, in real estate parlance. The government will also pay incentives to mortgage companies that allow delinquent borrowers to hand over their deeds in lieu of foreclosing.

Ms. Reilly, the Treasury spokeswoman, said the foreclosure alternatives program did not represent a new policy.

“We have said from the start that modifications will not be the solution for all homeowners and will not solve the housing crisis alone,” Ms. Reilly said by e-mail. “This has always been a multi-pronged effort.”

Whatever the merits of its plans, the administration has clearly failed to reverse the foreclosure crisis. In 2008, more than 1.7 million homes were “lost” through foreclosures, short sales or deeds in lieu of foreclosure, according to Moody’s Economy.com.

Last year, more than two million homes were lost, and Economy.com expects that this year’s number will swell to 2.4 million.

“I don’t think there’s any way for Treasury to tweak their plan, or to cajole, pressure or entice servicers to do more to address the crisis,” said Mark Zandi, chief economist at Moody’s Economy.com. “For some folks, it is doing more harm than good, because ultimately, at the end of the day, they are going back into the foreclosure morass.”

Mr. Zandi argues that the administration needs a new initiative that attacks a primary source of foreclosures: the roughly 15 million American homeowners who are underwater, meaning they owe the bank more than their home is worth.

Increasingly, such borrowers are inclined to walk away and accept foreclosure, rather than continuing to make payments on properties in which they own no equity.

A paper by researchers at the Amherst Securities Group suggests that being underwater “is a far more important predictor of defaults than unemployment.”

From its inception, the Obama plan has drawn criticism for failing to compel banks to write down the size of outstanding mortgage balances, which would restore equity for underwater borrowers, giving them greater incentive to make payments.

A vast majority of modifications merely decrease monthly payments by lowering the interest rate.

Mr. Zandi proposes that the Treasury Department push banks to write down some loan balances by reimbursing the companies for their losses.

He pointedly rejects the notion that government ought to get out of the way and let foreclosures work their way through the market, saying that course risks a surge of foreclosures and declining house prices that could pull the economy back into recession.

“We want to overwhelm this problem,” he said. “If we do go back into recession, it will be very difficult to get out.”

Under the current program, the government provides cash incentives to mortgage companies that lower monthly payments for borrowers facing hardships.

The Treasury Department set a goal of three to four million permanent loan modifications by 2012.

“That’s overly optimistic at this stage,” said Richard H. Neiman, the superintendent of banks for New York State and an appointee to the Congressional Oversight Panel, a body created to keep tabs on taxpayer bailout funds. “There’s a great deal of frustration and disappointment.”

As of mid-December, some 759,000 homeowners had received loan modifications on a trial basis typically lasting three to five months.

But only about 31,000 had received permanent modifications a step that requires borrowers to make timely trial payments and submit paperwork verifying their financial situation.