Post: #1

We've been liveblogging Warren Buffett's appearance on CNBC, and in watching him it's clear which investment idea stands out above all of the others for him: Housing.

Specifically, he likes the idea of actually buying distressed houses with cheap leverage, and renting them out.

There are some caveats: He suggested that it's a good idea for "handy" investors, which implies that it's not the kind of passive investment you can just make and sit back and watch. You need some gumption to get out there, bid on homes, and do the leg work to rent out the property.

But if you can do it, the riches for you will be lucrative, says Buffett.
Just to underline this point some more, if you can get a loan, houses have never been better on an affordability/cost of mortgage basis.


Read more: http://www.businessinsider.com/warren-bu...z1nbbgEv4q

Here is Buffet's letter (pdf) http://www.berkshirehathaway.com/letters/2011ltr.pdf

Post: #2

He just said on TV that he would buy a couple hundred single family homes IF he could manage them.

He would "load up".

Post: #3

Yep. Due to artificially low interest rates, renting is now the best way to make money in the real estate market.

Quote:Yes, the market is terrible, but prices aren't actually that low when we take a long term perspective. In inflation-adjusted terms, prices (for comparable properties) were lower through most of the 1980s and 1990s.

Prices had to be lower back then because interest rates were much higher, and the only way one could get the cash flows to work was to pay less per unit in inflation-adjusted terms.

The truly remarkable development is the back door that the Federal Reserve has unintentionally opened for individual investors, while trying to cope with the aftermath of the long series of mistakes committed by the Federal Reserve itself, Wall Street, the mortgage banking industry, and the federal government.

The Federal Reserve has directly and openly manipulated interest rates in general - and the mortgage market in particular - resorting to the direct creation of money out of the nothingness on a massive scale when necessary, specifically to make sure that mortgage interest rates are well below free market levels.

While this policy of deliberate and massive market manipulation steals from many millions of people - it gives with both hands to others.

http://danielamerman.com/articles/2012/REcashC.html

Post: #4

From the little i have read about real-estate, i dont disagree actually.

(02-27-2012 12:47 PM)thegmanifesto Wrote:  We've been liveblogging Warren Buffett's appearance on CNBC, and in watching him it's clear which investment idea stands out above all of the others for him: Housing.

Specifically, he likes the idea of actually buying distressed houses with cheap leverage, and renting them out.

There are some caveats: He suggested that it's a good idea for "handy" investors, which implies that it's not the kind of passive investment you can just make and sit back and watch. You need some gumption to get out there, bid on homes, and do the leg work to rent out the property.

But if you can do it, the riches for you will be lucrative, says Buffett.
Just to underline this point some more, if you can get a loan, houses have never been better on an affordability/cost of mortgage basis.


Read more: http://www.businessinsider.com/warren-bu...z1nbbgEv4q

Here is Buffet's letter (pdf) http://www.berkshirehathaway.com/letters/2011ltr.pdf

Post: #5

Good tip. Yes, these low interest rates are an opportunity.

For the internationally oriented investor, a more creative play: borrow USD or EUR at extremely low rates, send it offshore to a different currency and invest there.

Not necessarily saying now is a great time in the cycle to do this. But it has been solidly profitable over the last few years as the USD and EUR depreciated.

Post: #6

redacted

Post: #7

I can vouch for this. I make plenty of passive income every month from my rental portfolio. People pay more in rent than the cost to own so I make money just by owning and renting. Plus, in 15 years I own the shit outright!

Post: #8

Suppose you own 10 houses and thus have ten mortgages. Can you deduct the interest from all of those houses as well as the property taxes paid from your taxes when you itemize?

Further to G's post below, I have one property as follows:

4 br SFH in Durham, NC. Rent: $1350/mo; management fee: 8% of collected rent; Mtg: 30 year fixed @ 5% (I think), mo. payment of $850. Property tax: $3300 (should be lower because tax assessed value is too high).

Durham is actually a great market to do this in, especially near Duke University. There is always a turn over of people so a ready supply of renters. The whole area has tons of cheap houses you can buy, and finding a renter is not a problem.

Post: #9

(02-27-2012 02:03 PM)gringoed Wrote:  I can vouch for this. I make plenty of passive income every month from my rental portfolio. People pay more in rent than the cost to own so I make money just by owning and renting. Plus, in 15 years I own the shit outright!

Gringoed -

You should bust a little Data Sheet on this. A "how to" of sorts.

Doesn't need to be volumes and volumes.

I bet that would be real valuable to a lot of people on here.

Which market are you in?

Post: #10

(02-27-2012 01:37 PM)Tigre Wrote:  Good tip. Yes, these low interest rates are an opportunity.

For the internationally oriented investor, a more creative play: borrow USD or EUR at extremely low rates, send it offshore to a different currency and invest there.

Not necessarily saying now is a great time in the cycle to do this. But it has been solidly profitable over the last few years as the USD and EUR depreciated.

Are you are talking about using eur or usd as a carry trade currency? a funding currency? Dont forget about the known risk.

The carry trade funding currency of choice is the JPY.

Post: #11

(02-27-2012 02:03 PM)gringoed Wrote:  I can vouch for this. I make plenty of passive income every month from my rental portfolio. People pay more in rent than the cost to own so I make money just by owning and renting. Plus, in 15 years I own the shit outright!

I have a few questions.

what is your CAP rate?

what is your GROSS Rent Multiplier?

what is your occupancy rate like?

Number of units? and how about the commission split? was it more or less than 2%?

thanks, i appreciate your answers.

Post: #12

I'm looking to buy an owner-occupied rental late 2012/2013. (There are huge benefits to this. In some rent control areas, you can evict a rent-control tenant if you're going to live there.)

Obviously an international playboy wouldn't owner-occupy.

A friend (he posts here) is mentoring me.

Check out http://www.loopnet.com to check out some places.

Guys who are going to buy a house would be much smarter to buy a unit, live in one, and manage the other one.

Post: #13

I am a big observer of real estate, there is a good chunk of truth to Buffets words... BUT dude is a shill as he had extreme influence on the greater market. Remember Buffet already had large holdings of top bank funds which are holding onto hundreds, if not thousands of foreclosed properties. Prices are in a coma and still dipping, Buffet now has armies of investors licking their chops at scooping up housing which by all estimates won't stabilize in prices for another 5 years. Rates are great (but will eventually climb as Buffet and his fellow top crust want gains on the almost 2 Trillion in paper they ate sitting on), housing prices will still dip and people want to borrow to try and be landlords? Why?

He's shilling hard. Anybody can own rental properties quite easily through REITs or scooping small units which are more manageable then dumped out SFHs in Stockton. Plus the best deals will still be in the crappiest markets that still have crappy job prospects, and empty houses putting downward pressures on your investments. For folks who are ultra swift with a hammer and have cash burning in their pocket ... Your good. But for the rest whom are only punching numbers and not taking in other factors such as time and market variances you'll get slammed.

Still holding debt with a small percentage hedge, with folks undercutting you as they enter at lower prices than you. You can dump rentals in your portfolio and not pick up a damn hammer or deal with any tenants. Big Rental corps are making killings right now scooping up stuff dirt cheap, giving you equal returns with no hassle of Suzie loosing her job or burning down the kitchen making ramen.

This opportunity is for sure legit, I fuck with REITs and got homies who own apartment blocks. I am out of the game now but there are smarter ways to do this... Buffet is shilling to up his portfolio. Dude left out to many obvious tools tho, there are way more easy ways to do this.

Post: #14

Actually, Buffet said he was dead wrong for investing in real estate so early. Which is why BH only returned 4.2% this year.

http://finance.fortune.cnn.com/2012/02/2...ce=cnn_bin

Quote:Buffett says he still believes a real estate recovery is on the horizon. Yet, the Oracle of Omaha admits that on housing his crystal ball has been cloudy. Last year, Buffett said the real estate market would recover in 2011 or early 2012. While home sales have risen recently, it would be a stretch to call the past year a recovery, and Buffett doesn't try. "I was dead wrong," he writes.

Or directly from his shareholder letter:
http://www.berkshirehathaway.com/letters/2011ltr.pdf

Quote:Last year, I told you that “a housing recovery will probably begin within a year or so.” I was dead
wrong. We have five businesses whose results are significantly influenced by housing activity. The
connection is direct at Clayton Homes, which is the largest producer of homes in the country,
accounting for about 7% of those constructed during 2011.
Additionally, Acme Brick, Shaw (carpet), Johns Manville (insulation) and MiTek (building products,
primarily connector plates used in roofing) are all materially affected by construction activity. In
aggregate, our five housing-related companies had pre-tax profits of $513 million in 2011. That’s
similar to 2010 but down from $1.8 billion in 2006.

Post: #15

Kosko is spot on about REITs.
Blows my mind more people don't consider this.

Fuck Warren Buffet.

Post: #16

Case Shiller Shows 8th Consecutive Month Of House Price Declines


“In terms of prices, the housing market ended 2011 on a very disappointing note,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “With this month’s report we saw all three composite hit new record lows. While we thought we saw some signs of stabilization in the middle of 2011, it appears that neither the economy nor consumer confidence was strong enough to move the market in a positive direction as the year ended.

“After a prior three years of accelerated decline, the past two years has been a story of a housing market that is bottoming out but has not yet stabilized. Up until today’s report we had believed the crisis lows for the composites were behind us, with the 10-City Composite originally hitting a low in April 2009 and the 20-City Composite in March 2011. Now it looks like neither was the case, as both hit new record lows in December 2011. The National Composite fell by 3.8% in the fourth quarter alone, and is down 33.8% from its 2nd quarter 2006 peak. It also recorded a new record low.

“In general, most of the regions also posted weak data in December. Eighteen of the cities saw average home prices fall in December over November. Seventeen of the cities have seen monthly declines for at least three consecutive months. In addition to both monthly composites, 10 of the cities saw home prices fall by more than 1.0% during the month of December. The pick-up in the economy has simply not been strong enough to keep home prices stabilized. If anything it looks like we might have reentered a period of decline as we begin 2012.”

http://www.zerohedge.com/news/no-housing...e-declines





http://www.calculatedriskblog.com/2012/0...o-new.html

Post: #17

The real problem here is demographics.

The Baby Boom hits the age they will start selling their Single Family Homes and moving into Retirement Centers sometime around 2014. And will continue to do so until 2026. Once that downward curve begins there's no coming back for at least 12, possibly 16 years.

Between 2014 and 2026, because of the enormous Baby Boom size in America, there will be far more people getting to the age that they sell homes than those that get to the age they buy homes. Which because of rising student debt, is also being put off to later and later in life.

There was some hope the Baby Boom will bring back up real estate prices in retirement areas like Las Vegas. But the workamper movement is not buying homes at all. They're wirelessly connected and living the Burning Man/gypset lifestyle all year, traveling site to site. Nor is the Baby Boom lush with funds for expensive housing. Many are workamping low paying job to low paying job still in their 50s and 60s, and will never be able to afford expensive retirement housing in what remains of their lifetime.

We still have a lot of asian investors tossing money into California real estate and getting regularly fleeced. We see the tourist busses driving around with some guy shouting in Mandarin or Cantonese about how they can make so much money investing in the same shitty buildings their "investment" company has foreclosed on previous "investors" many times. It's the same "vacation and a hard sell" deal used to sell timeshares back in the 1970s, updated to swindle asian couples out of their money --with the additional advantage that as non-citizens, they can't file anything in the US courts after the touch. And they certainly won't file suit in their home country because they're always breaking their own country's limits on how much money can be moved out legally.

Moral of the story: Avoid California real estate like you'd avoid a five day old used tampon. It's gone from being just a bloody mess, to being a bloody mess with bottom feeding maggots on it.

Post: #18

Good series of articles if you have the time:

http://www.bloomberg.com/news/2012-02-22...lling.html
http://www.bloomberg.com/news/2012-02-23...lling.html
http://www.bloomberg.com/news/2012-02-24...lling.html

A summery is home prices may have another 20% drop nationally, and rents are going to keep going up as home ownership rates continue to drop.

The most important question of investing is does the math make sense? I had an associate who bought a house in Chicago after the "crash" and rented it out for half it was worth. Didn't do his math.