Meet Your New Landlord: Wall Street?

CreditMadrid's picture
Rank: King Kong | banana points 1,072

So a friend of mine linked me to this article that was originally posted on the WSJ and he had asked for my thoughts on this. Here is a quote which basically summarizes things:


A new breed of homeowners has arrived in this middle-class suburb of Nashville and in many other communities around the country: big investment firms in the business of offering single-family homes for rent. Their appearance has shaken up sales and rental markets and, in some neighborhoods, sparked rent increases.

Well what I said to my friend went like this (I am copying and pasting the text I sent him so there may be grammatical errors).


"From a capitalist's perspective, Essentially this huge Wall Street-backed firms were able to see many homes go up for foreclosure which enabled them to buy them at a bargain price, renovate them as needed and now that things have started to settle down, the economy has been doing well, etc, they can rent them out for a lot. Genius really and changes the whole landscape of owning real estate. Because personally, when people think of (and even I think this way and would like to) is to buy pieces of property and rent them. If you are going to buy another property besides your home, unless you are making massive amounts that you can either buy it outright or pay for the mortgage each month without feeling pressed, it's a necessity to rent. That is what makes a home an asset. Because lets be real, owning property is a liability not an asset. Renting it out or selling it outright for a higher price is what makes it an asset. But the average Joe like you and I, or even our parents do not have enough capital to buy multiple pieces of property in affluent neighborhoods and rent them out to people. Like maybe enough to buy one other property? but that's it. So these firms can easily compete against the "mom and pop" investors and not have to worry from them. Also, people who want to buy a new home in an affluent neighborhood can't compete against these investment firms because they do not have enough capital to outbid these firms.


The reasons why they can make so much money is by basically bullying out the little guy and then turning around and forcing that same guy to rent out that property if they want to live in a good area suitable to their needs. The big man wins in this situation. At the present moment, it's difficult because in a lot of marketable areas the foreclosure rate isn't high enough as the economy is relatively fine. But that doesn't stop them, they are just going to do it the old fashioned way and buy homes one by one. Now you may ask, will it still continue to be a profitable practice? Yes, very much so. Because not many people are buying homes as compared to back then. The housing market overall is expensive if you want a good home in a good neighborhood (ik I'm speaking in general terms but still). Millennials have many debts to pay, the big one being student loans. If you are a 24 year old who is making (for the sake of simplicity) $70k salary, up to $85-90k in total compensation and are working in a major city (Boston, NYC, SF Bay Area, etc), AND have over $100k in student loan debt, you are not going to be focused on buying a house at all period. Most likely you'll be living in an apartment. However if you ended up having a girlfriend and (being stupid) have a kid you will probably have to move into a home. But you won't have enough to buy a decent home so you're going to rent it instead. You have to and you have no other choice. The investment firm can charge whatever they like and they have to make a profit off of the home they bought and most likely renovated. They "need" that money.


For the average middle-class person, this fucking sucks. They are going to have to work insanely hard to be able to win a bidding war and I bet you some will be unable to so they will be forced to rent. And renting a home end up being more expensive than buying it outright. Even think of it from a general perspective, you do not own the property. It is not your property. It is the investment firms. And if you cannot pay for it then they will force you out almost immediately. And for those who do stick around, they will be paying a lot more than if they had bought the home. Literally this is basic economics at play. Investment firms are buying up the supply so there will be less of it and therefore the demand will have to go up because people have limited choices. I know in the article they mentioned bills trying to be passed to cap the amount of homes these firms can buy but that threatens the free market. These firms have every right to do so if they choose to: they are kinda customers when you think about it. So you gotta ask yourself is it fair? Yes but not for everyone.

As far as I understand this, investment firms have stumbled on a great way to develop a new real estate sector: single-family suburban homes. The perfect opportunity to strike came along when the financial crisis hit and homes were being foreclosed like crazy. Really all it is is buying low and then selling high. However, this is going to divide the middle class even further. What are your opinions on this monkeys? Am intrigued to hear your thoughts on this.

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Jul 28, 2017