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how to profit from a bottom house price


finetrader
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I live in Montreal, Canada. Real estate here haven't go down during the recession, in fact it is probably 10-20% higher now than before the great recession. I've been thinking about profiting from the US housing market that could have bottommed out.

A way do to it would be to buy a condo or a house in the US and rent it, but I don't have the hability nor the interest of taking care of a house quite far from home.

 

I was thinking that maybe there exist a fund or a company that is listed on an exchange that do try to profit from US foreclosure houses.

 

thanks

 

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  • 11 months later...

As for lots - many of the homebuilders have an inventory to build on once conditions improve and In Texas, you have Stratus.  In California, you have HomeFed and Limoneria.  In Florida, you have Avoca.  As for land you have St. Joe, Consolidated Tacoma and Alico in FL, Tejon Ranch and Boswell in CA, Maui Pinapple and Land in HI, Griffin Land in CT, Texas Pacific Land in TX and Amrep in NM and CO.  A related class of assets is water right west of the Mississippi.  The major players there are Pico (CA, AZ, NV, CO) and Pure Cycle (CO).  So there are many ways to play the housing/lamd recovery.  BRP is probably the most diversified and liquid (mkt cap close to $1.0 billion) and the one that many institutional buyers will buy first.

 

Packer

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As for lots - many of the homebuilders have an inventory to build on once conditions improve and In Texas, you have Stratus.  In California, you have HomeFed and Limoneria.  In Florida, you have Avoca.  As for land you have St. Joe, Consolidated Tacoma and Alico in FL, Tejon Ranch and Boswell in CA, Maui Pinapple and Land in HI, Griffin Land in CT, Texas Pacific Land in TX and Amrep in NM and CO.  A related class of assets is water right west of the Mississippi.  The major players there are Pico (CA, AZ, NV, CO) and Pure Cycle (CO).  So there are many ways to play the housing/lamd recovery.  BRP is probably the most diversified and liquid (mkt cap close to $1.0 billion) and the one that many institutional buyers will buy first.

 

Packer

 

Thanks, for BRP -  I could see a scenario where US recovers while Canadian market starts going south.. I guess you can't have a needles that has 2 sharp ends.

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It is crazy illiquid and small, but, Sitestar is investing in distressed residential (there is a smidge of commercial) real estate at the moment... I was out in Virginia looking at the properties; some are pretty rough and some are pretty nice. In virtually all cases though, they seem to be buying them for less than they are worth. They don't seem to be using leverage on them either. They are renting some of them and have a lot of them for sale. A few look like they are just sitting there, waiting to be fixed up.

 

As I don't want to be accused of pumping up the stock, I will again say... it is super small. And by that, I mean, it's recently increased market cap is still well under $2 million dollars. They have a spread that you could drive a truck through. In the spirit of disclosure, while not a ton of money, I do own a decent percentage of the company. It certainly isn't a stock for everybody, but, if you like Paul Sonkin's style, it seems pretty legit.

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We took a look at it early last year & passed....

 

There are essentially 3 possible ways to play:

(1) Buy the best of the US new home builders as if they are not BK by now, they likely will not. You're buying their reputation, old boy connections, & market dominance - then sitting tight for +/- 5 years untill new build starts to recover. The best Cdn analogy is buying PD @ <4.50/share 3-4 yrs ago, shortly after they got a sweetheart financing from the Alberta government.

(2) Buy those buying the sub-prime debt itself. At the time the stuff went for < 20c, in bulk, but almost all the buying was by private partnerships. It used to be extremely profitable, as US refinancing programs made the deadbeat temporarily look good enough to allow the mortgage to be resold for a 100-300% profit. We looked at RoundPoint Financial Group

(3) Buy the best of the US retail banks (Wells, BAC, etc). Over time much of the risk dissipates as mortgages run-off - & either get foreclosed on, or refinanced (at better spreads). But solvency risk gets swapped for dilution risk if there's a significant hiccup or tightening of capital requirements.

           

You really need to see it as a sector rotation from (2) to (3) to (1). You've no real idea how long you should be in each sector, & you can't assume that sector correlation will remain relatively stable over time (ie: short (1) long (2) pair trade, then reverse).

 

We found that we if simply bought TD we'd get much the same exposure at materially less risk. 50% of the TD branches are located in the US, most are in the more viable states, & whatever they do needs to stay within OSFI's risk tolerances.

 

SD 

 

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What about mortgage insurers?  Genworth looks interesting, partly because they are diversified and could jettison the mortgage insurance if it made sense to, and it looks like the rest of the company could support a valuation north of today's with normalized earnings.  But if housing turns around, the mortgage insurance subsidiary would contribute a lot of upside.  They are also more conservative with reserving than some peers.  I haven't done a rigorous sum-of-the-parts, but it is something I'm looking into.

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