Private equity groups going after foreclosures as rentals market

Seattle Times ^ | 14 April 2012 | Edward Robinson

[Lorianne]

Ken Major climbs the steps of a county courthouse in a San Francisco suburb with $500,000 in cashiers checks in one hand and a list of addresses in the other. Major is a buyer for Waypoint Real Estate Group, an Oakland-based investment firm that's scooping up foreclosed homes in California.

On this December afternoon, he joins a dozen house flippers as an auctioneer starts hawking the latest batch of defaulted properties to hit the market. Major bids on a three-bedroom house in Antioch, and after other buyers counter, he wins at $147,600.

"We got it," he mutters into a mobile-phone mike dangling from his ear. The house was valued at more than $400,000 in 2006.

Waypoint, a private-equity real-estate fund with $150 million in assets, is pioneering a new approach to making money from the housing crash. Since 2007, investors have been trolling the cratered suburbs stretching from California to Florida for cheap houses to flip. And firms such as PennyMac Mortgage Investment Trust have sought value in subprime-mortgage-backed securities.

Waypoint, which owns 1,100 houses and is buying five more a day, is betting that converting foreclosures into rentals is a better way to make a profit. Other firms, such as Landsmith in San Francisco, are cropping up and pursuing the same strategy in Arizona, California and Nevada.

[Larry Lucido]

The market works when you let it.

[bigbob]

Those with money have always done well during bad economic times, it’s called taking advantage of buying opportunities.

[Wuli]

It only took the Seattle Times a month (behind everyone else) to report this ‘news’. I imagine most of their readers with either Internet savy or WSJ, IBD or FinTimes subs have know about this for some time.

[PoloSec]

Seems to me these investors are buying into the lie, the economy is getting better. They can rent yes, but after increasing property taxes, increasing insurance costs, and maintenance all of which the owner is responsible for, there is not much cash flow left. Smart people know in this economy, the worst is yet to come, especially if the Zero remains in office. There won't be many people to rent to, if there are no jobs, and betting on increased equity over time, is a loser. Not too far hence we will see these investors in bankruptcy, in there effort for profit.

[FreedomNotSafety]

As rentals grow into a larger % of the housing markets the libs will soon enough screw over the owners of these properties especially since they are owned by evil corporations.

We will soon a whole host of new federal rules about rental housing. But the rental owners will be successful in getting guarantees and subsidies. Turning even larger swathes of the could try int section 8 he’ll.

[exblockhead]

A quick look at the math.

$147k loan @4.5% is $550/month. Property tax is based on 1% of sales price so that is $1470 per year. So the carrying cost is around $700/month, while the minimum rental is $1800/month. Looks like a win to me. And Prop 13 allows the property tax to only go up 2%/yr. The only unknown is whether it needs $10-20k of remodeling/repair before renting.

[familyop]

It will be interesting, with the bond collapses ahead and all.

[diogenes ghost]

"We will soon a whole host of new federal rules....."

And..."Turning even larger swathes of the could try int section 8 he'll."

Uhhhh, sure...whatever you say....

[PoloSec]

Having been an owner/investor in single family home rental property, in the past, I too used the “quick look at the math” method...but hey looks like you got all the angles covered, and it sounds like a win to you...Go For It!

[FreedomNotSafety]

“We will soon a whole host of new federal rules about rental housing. But the rental owners will be successful in getting guarantees and subsidies. Turning even larger swathes of the could try int section 8 he’ll.”

Try this using ten fingers instead of two thumbs...

We will soon have a whole host of new federal rules about rental housing. But the rental owners will be successful in getting guarantees and subsidies. Turning even larger swathes of the country into section 8 hell.

[LomanBill]

[The only unknown is whether it needs $10-20k of remodeling/repair before renting.]

And how often you’ll have to remodel/repair after having section-8 “renters” entittling themselves to whatever isn’t nailed down in the vacinity of “your” property.

Rentals KILL neighborhoods.