Big corporations are buying up homes and “eroding the American dream of homeownership

[Yuri]

Originally Posted by hauntedheadnc

What about them? Corporations are buying up tens of thousands of units. Also, at least in this area, even if those units aren't getting bought by investors, they aren't being built as actual housing anyway. They're being built spefically to serve as short-term rental units for tourists. The situation isn't bad in Greenville yet, but the historic, in-town, "charming" neighborhoods in Asheville are hollowing out.

I was asking about the US as a whole. I understand that in a touristic city like Asheville things are more complex.

Down here things are completely different as there are no big companies operating with real estate, only individual investors and even people that own 100, 200 units, they don't own a whole building. Instead, units are scattered all over a city. With a much more pulverized market, it's impossible to manipulate rent prices.

Home ownership rates are above 70%, but it seems the 2022 Census will bring a number below that. More and more people living alone and rents are more common in those arrangements.

[jmecklenborg]

The US REITs don't own anywhere close to enough units to monopolize any single market and charge whatever they want. A big reason why big money got into buying homes and apartment buildings 5~ years ago is that their analytics people determined that most renters could afford to pay much higher rent.

Zillow offers free rental property management software and it suggests appropriate rent for your unit or home. When you use their software, your property's data feeds into their system, meaning they actually know what a lot of people are charging and paying for rent in every zip code in the United States.

In the past, there was no way to know this without paying a research firm to call landlords or tenants and do a survey. Even if you did that, the data you gathered would be incorrect, since the person answering the phone might not actually know the precise rent or they'd obscure it for whatever reason, plus it's very unlikely that they'd get the specs of the property right (they might say it's one bedroom when it's one or three), and no way can they accurately share the square footage.

[jmecklenborg]

Here is Zillow's rent estimate for the house I currently rent for $1,200:


So as you can see I'm one of the handful of places in the area charging below market, and so bringing down the average.

[Yuri]

What’s the ratio between residential rent and the real estate price in the US, in general? Down here it’s between 0.2%-0.5% month (500k apartment goes for 2,000/month) depending on the place.

[jmecklenborg]

Originally Posted by Yuri

What’s the ratio between residential rent and the real estate price in the US, in general? Down here it’s between 0.2%-0.5% month (500k apartment goes for 2,000/month) depending on the place.

An investor generally aims for a 10% capitalization rate, however, some people have different definitions for cap rate. One pseudo-standard is to only assume 10 months of revenue per house/unit.

So if you pay $250,000 for a single-family home, to earn 10% you need to rent it for roughly $2,500/mo.

In the cheaper markets, it is (or rather was) possible to get 10%, for example $1,500/mo for a $150,000 home.

But in expensive cities like Los Angeles, where many homes are priced over $1 million, you're probably not going to be able to get 10%. Instead, you justify the investment in anticipation of appreciation. The huge risk, of course, is the property going down in value.

[Yuri]

Originally Posted by jmecklenborg

An investor generally aims for a 10% capitalization rate, however, some people have different definitions for cap rate. One pseudo-standard is to only assume 10 months of revenue per house/unit.

So if you pay $250,000 for a single-family home, to earn 10% you need to rent it for roughly $2,500/mo.

In the cheaper markets, it is (or rather was) possible to get 10%, for example $1,500/mo for a $150,000 home.

But in expensive cities like Los Angeles, where many homes are priced over $1 million, you're probably not going to be able to get 10%. Instead, you justify the investment in anticipation of appreciation. The huge risk, of course, is the property going down in value.

I see. It seems rent is a very good business up there, specially as your bonds are paying 4.5%/year now. Ours are at 13.75%, 8 pts above inflation.

In Brazil, with taxes (income and real estate), administration comissions (usually 10%), you're expected to lose 3-4 months. Only in the hottest markets, like central and desirable apartments in big-ish cities you might expect to make more than 0.5% a month and only marginally.

[jmecklenborg]

Originally Posted by Yuri

I see. It seems rent is a very good business up there, specially as your bonds are paying 4.5%/year now. Ours are at 13.75%, 8 pts above inflation.

U.S. interest rates sunk to nearly 0% during the 2008-09 housing collapse, and stayed there until 2022. Much of the institutional interest in housing was motivated by the need for a bond-like investment.

If you had cash, you were able to feast on homes and apartments for several years. By 2017, big money had oversaturated the coastal markets and moved to the interior. That's when prices started ticking upward nationwide, but it was still pretty easy to achieve a 10% return.

That's over at this point, and if interest rates continue to rise, bonds will become more attractive and institutional investors will pull a bit back from housing.

[dchan]

Originally Posted by jmecklenborg

An investor generally aims for a 10% capitalization rate, however, some people have different definitions for cap rate. One pseudo-standard is to only assume 10 months of revenue per house/unit.

So if you pay $250,000 for a single-family home, to earn 10% you need to rent it for roughly $2,500/mo.

In the cheaper markets, it is (or rather was) possible to get 10%, for example $1,500/mo for a $150,000 home.

But in expensive cities like Los Angeles, where many homes are priced over $1 million, you're probably not going to be able to get 10%. Instead, you justify the investment in anticipation of appreciation. The huge risk, of course, is the property going down in value.

When I was doing property searches for the real estate developer I worked for 7 years ago, a decent cap rate in an average NYC neighborhood was closer to 5%. I did a rough calculation by dividing the asking price by the building's annual total rent revenue. Not sure if that's the correct way to calculate cap rate.

[suburbanite]

Originally Posted by dchan

When I was doing property searches for the real estate developer I worked for 7 years ago, a decent cap rate in an average NYC neighborhood was closer to 5%. I did a rough calculation by dividing the asking price by the building's annual total rent revenue. Not sure if that's the correct way to calculate cap rate.

Cap rates are measured on Net Operating Income (NOI), essentially taking into account all of the expenses apart from capital items and financing costs. If you were getting a 5% rate on revenue, the actual cap rate was probably <3%.

[dchan]

Originally Posted by suburbanite

Cap rates are measured on Net Operating Income (NOI), essentially taking into account all of the expenses apart from capital items and financing costs. If you were getting a 5% rate on revenue, the actual cap rate was probably <3%.

It's been several years, so it might have been the NOI that I was dividing by. Either way, it was well, well below 10%.

[jmecklenborg]

Originally Posted by dchan

When I was doing property searches for the real estate developer I worked for 7 years ago, a decent cap rate in an average NYC neighborhood was closer to 5%. I did a rough calculation by dividing the asking price by the building's annual total rent revenue. Not sure if that's the correct way to calculate cap rate.

The cap rates have always been higher in second and third-tier markets. That's why institutional money flooded the Midwest for the first time ever in the late 2010s. Jared Kushner (yeah, that guy) bought a 50-unit building in the neighborhood I grew up in.

You could still buy a four-family in my city for $120,000 as recently as 2017, so $30,000 per unit. I worked with a guy whose brother-in-law bought a four-family in Detroit back around 2010 for $800. Two houses on the street where I was renting back then were auctioned out of foreclosure, one for $12,000 and another for $20,000. Those things are both worth around $200,000 now.

I just talked to a guy today who is having to move out of a rented 1-bedroom trailer because the landlord is raising the rent from $1,200 to $1,500. There was a whole push around 2017 to buy trailer parks because the cap rates were ridiculous and now those people are raising the rates to dizzying heights.

Meanwhile, I know another guy who is renting a bedroom in a 2-bedroom trailer on somebody's land in Kentucky for $200. So there are still dirt-cheap places out there if you're willing to put some miles on the vehicle or live next to a rehab place.

[TWAK]

Originally Posted by jmecklenborg

An investor generally aims for a 10% capitalization rate, however, some people have different definitions for cap rate. One pseudo-standard is to only assume 10 months of revenue per house/unit.

So if you pay $250,000 for a single-family home, to earn 10% you need to rent it for roughly $2,500/mo.

In the cheaper markets, it is (or rather was) possible to get 10%, for example $1,500/mo for a $150,000 home.

But in expensive cities like Los Angeles, where many homes are priced over $1 million, you're probably not going to be able to get 10%. Instead, you justify the investment in anticipation of appreciation. The huge risk, of course, is the property going down in value.

One could afford a house for 250K with payments less than 2,500 a month...
Why rent? My place is of similar value and my mortgage (minus insurance and property taxes) is under 1k. Maybe rates are worse and the down payment?

[Yuri]

Originally Posted by TWAK

One could afford a house for 250K with payments less than 2,500 a month...
Why rent? My place is of similar value and my mortgage (minus insurance and property taxes) is under 1k. Maybe rates are worse and the down payment?

Down here, even with much higher interest rates, you get monthly (decreasing) installments around 1%. Even mine, that's not particularly long (12 years to go), are around 0.7%.

If rents are that high in the US (up to 1%), people definitely should finance their homes.

[jmecklenborg]

Originally Posted by TWAK

One could afford a house for 250K with payments less than 2,500 a month...
Why rent?

Because people have lousy credit and/or don't have the down payment and/or the steady work history necessary to qualify for a mortgage and/or they don't know if they're going to move out of town soon for a different job.

Also, sometimes people simply get used to their situation and rent for several years before they suddenly get the idea that they ought to buy. It's no different than couples who live together for 7-8 years before getting engaged. It's irrational to those on the outside of the situation.

[Steely Dan]

there's no objective answer for which is better.

there are pros and cons to both, and different life stages/preferences may tilt the scales one way or the other for any given individual.


owning: great for long-term stability in a community

renting: great for maximum flexibility and freedom

[KevinFromTexas]

Originally Posted by Wigs

many are on board/same page, HH, me, you, others.

Originally Posted by hauntedheadnc

You forgot the part about how this forces people to rent, and so many people are having to rent that it's driving up the average rent. Supply and demand. And, when the average rent in a city gets high enough, then you have major landlords such as the Hawthorn corporation which owns numerous apartment complexes all across Asheville, suddenly refusing any sort of governmental rent subsidies. They can refuse them, not have to deal with any sort of government oversight or paperwork, and just demand a tenant who can pay their rent outright. There was a story in the Asheville paper this week about a disabled veteran and his young daughter getting the boot from their Hawthorn apartment because of this.

The thrust of the gist here is that this is artificial inflation of the housing market and the rental market, and we should pay attention now before it all completely collapses, as this sort of thing always ends up doing.

Yeah, I was just speaking generally about greed. I think the ticket thing is unique in that there are individuals buying tickets and then turning around to sell them at a higher price, but there are companies doing that also. I've heard from musicians who aren't happy about it because it's making their music - their concerts - too expensive for some people to go to. My brother just paid a thousand bucks for him and his son to go see Metallica in Dallas this summer. It's a two day show and it was two tickets, but still, it's insane.

[chris08876]

This is what's wrong with RE these days. Look at that price increase.

People need to say no and not buy or entertain these prices.

[Shawn]

^---- That still looks undervalued to me. Newington is nice. Equivalent houses in similar MA towns are running at $600K+.

[Crawford]

The Hartford area has traditionally been pretty cheap for NE corridor standards, so as the coastal CT areas had a huge pandemic-era runup, the inland areas had a more recent spike, as demand pushed inland.

Also, this is asking price. Asking prices are irrelevent, recorded sales matter. And 445k for a decent house in a decent suburb in a very high wage area in one of the most expensive parts of the U.S. doesn't sound too bad these days. And CT has reasonable property taxes.

[chris08876]

^^^

Connecticut is very variable in their tax rates. Its not consistent and can be considered very high in some areas. The taxes are not reasonable at all, very high in fact. Some places have asinine mill rates.

Just in general with taxes, even NJ is lower than Connecticut (and that's hard to do!).

CT makes NJ look cheap!