Coping: With Private Equity Funds as Landlords

Several emails came in – and interestingly, on both sides of the comments in yesterday’s column about VC money pouring into foreclosed and market-beaten homes.

Maryland Jim offers this:

“Hi George, Maybe the PE (pvt. equity – g) firms know something we don’t, namely, that all those dollars the Fed has been printing are about to come home to roost, and set off an inflationary chain reaction. In which case, people holding real assets, instead of financial “assets” (if such things really do exist), will be a little ahead of the game. Or it could be a case of “monkey see, monkey do.” Which is actually a libel on monkeys when you think about it, since many people seem to be working quite hard to do the stupidest thing they can come up with. I haven’t broke even yet, but still willing to throw my two cents into the pot. ”

LOL…then there’s “Monopoly Mark” our Bay area real estate professional:

‘”George, I take issue with Reader Rick. First, private equity firms buying up homes to fix up and rent out is a great investment.

In most areas of the country now, we are seeing increases in home values. The reason? Demand is being driven with qualified buyers…not the artificial, anyone with a pulse buyers we experienced from 2002-2006. During that time, a near majority of individuals and families could buy a home on a “stated” income, with no money down”.. Of course, it all came crashing down when they realized that they actually had to make mortgage payments.

Today, every buyer is thoroughly vetted financially and as a result a statistically insignificant amount of these homes will ever be in default and bought back from the bank..keeping inventory at bay. Housing across the nation, barring any natural or man-made disasters, should increase by the historical 3-5% every year.

Add rents to that equation and the profit picture gets brighter…the goal of most landlords is to get a 4-6% cap rate on rental property…In areas like Vegas, Arizona and California’s Central Valley, landlords are seeing 8-10% cap rates. When and if the rental market does stagnate, the landlords still get the tax advantages of depreciation, rental losses, repair and casualty losses to write off that offset any decreases in margin. Investment property is a win-win for most landlords.

As far as reader Ricks question about if there will be enough people to sell to when the PE firms decide to put them on the market…Is he serious? Right now, there are 4 buyers to every home on the market..which is why you are seeing multiple offers on every home listed, and that is driving up prices. As long as banks don’t get soft on mortgage underwriting guidelines, that won’t change for a while…

The reason I like private equity firms buying up inventory is that they ARE in the business of making money and they WILL control the inventory release and will not get into a situation where they will compromise their own investments.

Contrary to reader Ricks comments, there is a huge shortage of rental homes and homes is the key word here…Many families that just don’t have the credit or down payments necessary to buy a home due to much more stringent mortgage rules are seeking single family homes to rent to raise their families…They are usually upgrading from apartments and condos.

The demand is incredible actually. Every once in a while I will get a call from a family that is moving, but doesn’t want to sell yet and wants to take advantage of the robust rental market. For every ad I run for a rental, I get 30-40 inquiries…and lately, it has resulted in a bidding war for these homes, driving up the rents another couple of hundred dollars.

Here is an example of how profitable rentals are out there…A colleague of mine bought two 3 bed/ 2 bath homes in Stockton for $80,000 a piece…paid cash. He put about $12,500 a piece or $25,000 total to update and landscape the properties…So his total investment was $92,500 a piece or $185,000 total. He rents each house out for $1100 a piece….the going rate in Stockton right now (about a third of the average Bay Area rents) .

Maintenance, taxes, and miscellaneous expenses run $3000 per unit a year. That brings his cap rate at about 11%. That beats the stock market. The values in Stockton have stabilized and because of investors flooding the market, have started to climb a tiny bit. “

Reader Les up in North Dakota is skeptical about whether housing is really a “clean” marketplace:

“George, Could these companies (eg Blackstone) be working with the Federal Gov and Federal reserve to manipulate housing statistics before the election? Or, vacuum up these properties and launder them in an effort to recycle a chunk of the fraudulent mortgage activity around the country? Rhetorical question BTW, just wondering what your thoughts are. Otherwise, it doesn’t make sense to me. Blackstone has to know there won’t be a profit at the end of this mad, blank check, buying. So, what is it?’

It, reader Les, is above our paygrades. First you need a Navy….

And then there was this from reader Kurt who is wondering if the top is in for VC/PE REO (e.i.e.i.o):

“George - Hope this finds you well. Interesting that today you posted about the rental issue based on a letter from Rick, when at about the same time he was writing you, this article was appearing.

I suspect that as is often the case, by the time these trends become apparent to a large number of people – to the point they are being talked about, and everybody and his brother gets into them – the trend is already heading for it’s downside. ….bubble, bubble… ”

Tough call…is PE/VC money smart or dumb? More tomorrow in “Hold ‘Em or Fold “Em” for Peoplenomics subscribers.

We’re All Going…Going… Nuts!

Wyoming John has come down with a bad case of common sense which I hope he gets treatment for:

“George, Some time ago I read somewhere that at the coming of the end times the world would go mad. I think that Clif even alluded to that in one of his newsletters. When I look around at what is going on today in the world I can’t help thinking we have arrived.”

Awe, come on! What was the first hint? Politics, leaky nukes, economic system that can’t cope with automation, failing eco-system, breakdown of personal values, gropes in airports, HATE in advertising…continuously evaporating money….surely it couldn’t be based on any of these…

Scoring TSA

Another reader, Tony) has piped in on the fellow who was denied boarding an airliner in Hawaii, after flying there from the mainland on his way to visit his military wife on duty tour in Okinawa. Kicked off some neuron firing:

“Dear George, I was stranded in Hawai’i once, for 17 years. My father moved our family there after WWII.

It could have been worse it could have been Missouri.

As a youth I read everything that I could find about Pearl Harbor. I concluded, a half century ago, that the attack on Pearl Harbor could have been prevented. There is a piece on Washington Blog stating the same conclusion. What is new is the language I didn’t know then: “false flag”.

The “New Trend” I alluded to is people waking up to false flag operations. There is more and more postings on the ‘net about false flags.

The most interesting one is by Jesse Ventura, a man, despite his Neanderthal persona is a very bright guy. He made the case that all of America’s wars have begun with false flag operations – enough to send me back to my history books. “Waking up” that is the key phrase. Alex Jones, on Infowars, has an interesting piece on zombies. Now why have “zombies” invaded our info space? Why is there a zombie meme floating around out there?

What is the characteristic of the the zombie? They are not fully awake. I thought back to the last time I was not fully awake, and hit myself upside the head hard enough to really hurt. I had been asking myself: was 9-11 a terrorist attack or a false flag operation?

Oh, oh, I get it! False flag: attack on symbolic targets. Pentagon, repaired in six weeks. World Trade Center: old building, pre-wired for demolition, asbestos filled, fully insured, slated for demotion in a decade or two — no real loss. The only loss here is the the tragic loss of life and health of first-responders.

Real terrorists would have gone after nuclear power plants, particularly the one at Indian Point, that could have turned New York City into a radioactive ghost town. The difference between spectacle and permanent damage.

Did you see where Dr Jill Stein, the Green Party candidate for president, was arrested for the dastardly deed of trying trying to break into the presidential debates, and hand-cuffed to a chair for eight hours?

We are not in America any more, Toto.”

You know, here’s another reader who would agree, Tony:

“HEY george I was just at an international airport somewhere in the USA and tried to get through TSA security to get to board my international flight. The TSA has a list of acceptable ID’s and a driver license is one of them.

They do NOT say there are different standards for domestic and international flights. They refused to let me through with my drivers license and demanded my PASSPORT. So now we need a passport to leave the country.

The TSA has no right to demand this as it should only be required to ENTER the country and then only demanded by immigrations customs. There job is presumably security only.

I am not the only one who has encountered this issue. Google this. “

Sorry to say, whether this is “constitutional” or not, it’s the way life rolls, so you have to deal with it. I don’t mind someone reminding me when I leave the country that I need a passport to get it.

What I seriously DO MIND was the bullshit of letting Saudis fly while Americans were force-grounded after 9/11. I’m still forsted about that one. Worse: With a nominally “republican” in office. Which means being an American doesn’t matter as much as being oil royalty…but I guess that’s no surprise, now, is it?

You’ve got time to make your mind up, but as I’ve said often, Gary Johnson is my vote this time since both the major parties are corporate-owned PR firms masquerading as representing the American public.

Around the Ranch: Planes, Pizza, & Dreams

Tomorrow morning, I will likely post Saturday’s Peoplenomics a bit earlier than usual so Elaine and I can pop up to Ellijay, Georgia Sunday, with a stop Saturday night in either Greeville, MS or Tunica, MS along the way.

I haven’t bored you with the virtues of flying a 46-year old $20,000 airplane for a while, but there’s been activity on that front, despite it seeming at times that I’ve been SuperGlued to my chair.

As you may remember, we added vortex generators, a new top-end on the engine, new prop, new glass, an iFly 220 GPS, ADSB weather, and just this week we finished up the major trim/rigging tuning installing “vortelators” on the prop.

The vortelators (about $100 at Aircraft Spruce) operate on the same principle as the MicroAero VG’s on the wings, except instead of cleaning up airflow at near stall speeds, the ones on the prop claim to clean up turbulance at the root of the prop.

I also have nothing but good things to say about a new product called “Slick Air” which actually added two miles an hour to the old beast.

The plane now hits “book” numbers, but we’re not stopping there. A couple of new aerodynamic hubcaps from LoPresti may add a bit.

But the real improvement in speed (5-6 MPH) will come Monday, or so, from Hammerhead Aeronautical (in Ellijay, GA) installing a straight rudder cap and update of the rotating red beacon (which is losing crispness) to a new ultra-low drag LED strobe-type unit. At the moment, the top of the rudder has this slightly smoothed one-pound coffee can affair…when we get done with it Monday or Tuesday, it will be rapier-clean. I’m guessing 15-20-square inches of frontal area will be removed.

As long as we’re there, we’ll have them adjust any rigging/alignment issues as they have time. The bonus in this is that they have a courtesy car (a Ford Explorer, I hear) so we will have wheels and that means a chance to see local falls, state parks, and check out the color changes if they’re starting yet.

If everything goes well, we should be back at the rancby by Wednesday or Thursday. Panama, meantime will be holding down the fort…which the cats look forward to because he feeds them more generously than we do.

—

It may seem like a sensely waste of effort, tuning an old airplane, but it’s not. Every hobby has its “secret sauce” and getting an airplane to beat book numbers gives me the same kind of pleasure as seeing the jib on our sailboat (back in the days of living aboard) break crisply along the whole length of the jib when tacking.

That’s another example of ‘little things’ of a hobby that offer huge payouts. In the boat, the simple moving of the jib-car (a turning pulley where the jib sheet comes aboard and thence back to the cockpit) can add half a mile an hour (or more) to boat speed.

The same thing is true in airplanes. Lots of little things: Moving weight (like the O2 tank) to the cargo area, the VG’s, being manic about trim tab adjustments, and dropping frontal area at every opportunity. From 110 MPH average on our trip to 130′ish now is almost a 20 percent improvement in speed or mileage (choose one).

—

Seeing early fall colors in Georgia is only part of the second cup dream. The Southeast chapter of the Beech Aero Club is having a Bahamas “out island fly-in” in a few weeks. While that’s out of budget and out of communications too long, I’m half-planning on it next year. I don’t know if you’ve ever seen the Bahamas from a small plane, but I’ve flown all the way from Florida down to Puerto Plata (Dominican Republic) in small planes (commercial, just small) and it’s almost magical.

Little airports of islands tourists don’t get to often, some rum punch and conch chowder...a couple of patties, too….mmmmm.

Now that we’ve crossed the country a couple of times, I’m starting to think about an adventure down into the Caribbean. Maybe a ways off but definitely on the “dream about” list.

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But practical comes first…so off to projects this morning but first a piping hot pizza for breakfast. Pizza may not seem like a proper breakfast, but low sugar, a decent amount of added mozarella…what’s not to love?

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We’ll end this week’s musings with one of my great secrets of relationships: MFMB: Which means “matching food means matching breath.”

It’s in my Secrets of Life book right next to “He who eats garlic alone, tends to stay that way.”

Hopefully Elaine will have a slice of pizza for breakfast, too.

Write when you break even…

George Ure (email comments to george@ure.net)

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Turkey’s Tetrazzini and Middle East Stew

I deliberately didn’t put some of the contents of this week’s report out on the public side of my writing (UrbanSurvival) for reasons than will become apparent in a moment. But, before we deglaze the pan, so to speak, a run through some of the morning’s headlines is in order and our weekly look at the charts to see what my trading indicator is saying about the period immediately ahead.

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Safer Computing: Getting Your Cookies Off

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“Live on $10,000″ A Year

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