shalab Posted January 21, 2011 Share Posted January 21, 2011 Many here have large sums of money under management. I wanted to pose this question - how many are looking at buying properties in the U.S for bargain prices? There are many things one can do with such a property - e.g: renting or re-selling after fixing up etc. Link to comment Share on other sites More sharing options...
Guest Posted January 21, 2011 Share Posted January 21, 2011 I thought this was interesting. http://valuehunter.files.wordpress.com/2010/12/pershing-sq-pres-11-3-10.pdf pershing powerpoint on buying homes. Link to comment Share on other sites More sharing options...
alertmeipp Posted January 21, 2011 Share Posted January 21, 2011 i would be interested... but living in Canada means my mortgage will be more expensive than US local. If there some sort of funds that would do the investment for us.. i don't mind paying some fee. Link to comment Share on other sites More sharing options...
beerbaron Posted January 22, 2011 Share Posted January 22, 2011 I might be interested too depending on the structure, I'm from Canada so for me owning US RE is a pain in the bum. BeerBaron Link to comment Share on other sites More sharing options...
nodnub Posted January 22, 2011 Share Posted January 22, 2011 are there any Canadians here with any experience investing in US residential real estate? I would love to have some feedback with someone who has done this before: 1) Were you able to get a $US mortgage in the States? 2) Did your credit rating in Canada give you any positive standing when it came time to apply for credit in the US? or did you have to pay much higher rates? 3) Did you invest at the bottom end or mid-market in terms of housing quality. 4) What did you pay for property management? (10% of rent?) 5) Did you run into any unforeseen issues? Link to comment Share on other sites More sharing options...
SharperDingaan Posted January 22, 2011 Share Posted January 22, 2011 Not an endorsement, but look at the vulture funds buying distressed debt http://www.tavistock.com/index.aspx?id=13 http://www.thefreelibrary.com/RoundPoint+Financial+Group+Names+Steve+Bashmakov+as+Chief+Financial...-a0239825740 Then ask why is the US better than a similar investment in the Europeans. ie: Portugal, Italy, Ireland, Greece, & Spain ? SD Link to comment Share on other sites More sharing options...
alertmeipp Posted January 22, 2011 Share Posted January 22, 2011 crap, another exam from SD. ;D Link to comment Share on other sites More sharing options...
Myth465 Posted January 22, 2011 Share Posted January 22, 2011 This one is not so bad. I would pick the US because im American, Canadians are basially American too ;D. The issue is housing is too much work. With that said a nice vacation home in Spain or Greece sounds nice. Link to comment Share on other sites More sharing options...
Guest broxburnboy Posted January 22, 2011 Share Posted January 22, 2011 In order for a residence to become an income property (i.e. an investment) you would need an available renter, capable of paying all the operating costs and interest on a mortgage. The purchase price would have to be adjusted down as you require a margin of safety for..increased taxes (or decreasing level of public services), the inevitability of higher interest rates, downward pressure of rents in an overbuilt community, cost push expenses (inflation). I'm sure there are localities where these conditions are met, but generally it doesn't look like a good proposition..yet. If it were there already would be a recovery in residential housing. Link to comment Share on other sites More sharing options...
mpauls Posted January 23, 2011 Share Posted January 23, 2011 I thought this was interesting. http://valuehunter.files.wordpress.com/2010/12/pershing-sq-pres-11-3-10.pdf pershing powerpoint on buying homes. I Joke (mostly). Pershing Square IV Link to comment Share on other sites More sharing options...
gokou3 Posted January 23, 2011 Share Posted January 23, 2011 I am also interested in investing in US RE. My chief concern is what happens when interest rate starts its inevitable ascent (this is the one parameter where I have no control over). My plan is to finance any investment properties with a 30-yr fixed-rate mortgage. This way, interest rate hikes won't increase mortgage payments. In addition, higher mortgage payments would mean more potential buyers will remain as renters, so that's a positive as those renters are usually better renters (vs. those who are "permanent renters" if you will). On the other hand, less purchase demand may result in lower prices, resulting in (unrealized / paper) losses. Also, investors may start to demand a higher rental yield, which again pushes prices down. Has anyone done any research for the high-interest-rate 80s what happens to RE prices? Link to comment Share on other sites More sharing options...
beerbaron Posted January 23, 2011 Share Posted January 23, 2011 All asset prices are invertly correlated to interest rates (see Buffet speech in 99, California, he explains it much better then I could) BeerBaron Link to comment Share on other sites More sharing options...
SharperDingaan Posted January 23, 2011 Share Posted January 23, 2011 The answer to the exam is that some of these funds have been picking up mortgages, in volume, at 15c on the $ :o with the european mortgages at maybe 20-25c. If you're going to stay with them for 3-5 yrs it will be pretty hard to lose, even with Roundpoint not being the greatest vehicle. Point is that beyond direct ownership, & indirect ownership via the REIT, there is the 'vulture' fund. Obviously not for everybody, but they do have some attractions. SD Link to comment Share on other sites More sharing options...
ericd1 Posted January 23, 2011 Share Posted January 23, 2011 Ok I'll bite - are their any public vultures? Link to comment Share on other sites More sharing options...
SharperDingaan Posted January 23, 2011 Share Posted January 23, 2011 The assertion is that rates increase because inflation increases. In the short term house values fall because the cap rate increases. Over the long term, the purchasing power of the house rises, & the mortgage falls, with the inflation rate. Why buy a 2nd house, or buy a REIT/vulture fund AT ALL? Simply increase your mortgage, invest in & roll short-term T-Bills, & short the housing index. Dont care when my house value falls as I dont intent to sell (I need it to live in), my T-Bills are maintaining their value & I have a cash gain when I close out the index short. When I repay the mortgage from my T-Bills I capture the inflation gain on my liability - & I leave my house untouched & worth significantly more than when I started. Elegant, no fuss, no unplugging toilets, no collecting rent, no finding tennants, etc. SD Link to comment Share on other sites More sharing options...
SharperDingaan Posted January 23, 2011 Share Posted January 23, 2011 Ok I'll bite - are their any public vultures? There are, but I'd prefer not to put the ticker symbols out. If you go this route you really need to do your own DD, & you'll very quickly get to the symbols once you start. SD Link to comment Share on other sites More sharing options...
alertmeipp Posted January 23, 2011 Share Posted January 23, 2011 The assertion is that rates increase because inflation increases. In the short term house values fall because the cap rate increases. Over the long term, the purchasing power of the house rises, & the mortgage falls, with the inflation rate. Why buy a 2nd house, or buy a REIT/vulture fund AT ALL? Simply increase your mortgage, invest in & roll short-term T-Bills, & short the housing index. Dont care when my house value falls as I dont intent to sell (I need it to live in), my T-Bills are maintaining their value & I have a cash gain when I close out the index short. When I repay the mortgage from my T-Bills I capture the inflation gain on my liability - & I leave my house untouched & worth significantly more than when I started. Elegant, no fuss, no unplugging toilets, no collecting rent, no finding tennants, etc. SD Shouldn't the house values go up if the the cap rate increases. When you said mortgage falls over the LT, you mean in relative to inflation rate? I don't see how ur increase mortgage, roll into short term T-bill will work in Canada where Mortgage rate is quite abit above T-bill rate... And I don't think there is CDN housing index to short .. if there is, I will do it. Link to comment Share on other sites More sharing options...
gokou3 Posted January 24, 2011 Share Posted January 24, 2011 Shouldn't the house values go up if the the cap rate increases. When you said mortgage falls over the LT, you mean in relative to inflation rate? I don't see how ur increase mortgage, roll into short term T-bill will work in Canada where Mortgage rate is quite abit above T-bill rate... And I don't think there is CDN housing index to short .. if there is, I will do it. cap rate = rent / house price, so if cap rate increase with constant rent, house price decreases. I believe there's the National Bank/Teranet housing index futures that trades OTC in Canada. Didn't dig too much into how it is actually traded as I presume it's more for the big boys (institutions) and I am not one. Link to comment Share on other sites More sharing options...
alertmeipp Posted January 24, 2011 Share Posted January 24, 2011 that's catch 22 then... cap rate can increase because of rent increase too.. and as rent increase... house price usually will increase as a result. Link to comment Share on other sites More sharing options...
gokou3 Posted January 24, 2011 Share Posted January 24, 2011 that's catch 22 then... cap rate can increase because of rent increase too.. and as rent increase... house price usually will increase as a result. The way I look at it, cap rate is the investment return demanded by the investor / market. If cap rate adjusts per market requirement (due to interest rate change for example), then rent and/or house price adjusts. Link to comment Share on other sites More sharing options...
SharperDingaan Posted January 24, 2011 Share Posted January 24, 2011 "Shouldn't the house values go up if the the cap rate increases. When you said mortgage falls over the LT, you mean in relative to inflation rate? I don't see how ur increase mortgage, roll into short term T-bill will work in Canada where Mortgage rate is quite abit above T-bill rate... And I don't think there is CDN housing index to short .. if there is, I will do it." Higher interest rate = higher capitalization rate. Future equivalent rental income is discounted at the higher interest rate which reduces the PV. Lower PV = lower house value. A house is a hard asset. A mortgage is a hard liability. Inflation increases the price of a hard asset, & reduces the purchasing power cost of hard liability - producing a PV saving on retirement. Yes there is negative cash carry but you miss the point. You will repay the mortgage with inflated $ producing a gain, & the cash is the required margin for the index short. The discussion is also in the US context - Schiller index. If you believe in your premise that there will be inflation, this should not be a problem. To go this route be very sure that you fully understand the application of DCF, what inflation does to hard & soft assets/liabilities, & how to get/maintain an effective hedge. Miss-understanding, could cost you your house. SD Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now