Should Homeowner Groups Stop Investors From Buying Houses to Rent?

[BMWTurboDzl]

not a hypothetical--a real world example: My neighbor sold his house for 720K. A Chinese national bought it, cash, to get his money out of China. It sat vacant for about 7 years, then sold about roughly twice that amount. It was sold to a Chinese investor...

Who was actually was made better off here? Well, I guess I was, since my property values continue to shoot up. They were since they were able to hide some money from the Chinese govt (which is getting harder and harder to accomplish these days).

Who loses in this scenario? Anyone trying to buy a house in Seattle--or, the surrounding areas that feel the upward price pressure, since people can't afford it here.

Other countries have taken steps to limit foreign investment, and it seems like a reasonable thing to me.

Ya I see this all the time. It's sort of a running joke because many times a Chinese buyer will have downpayments in the form of multiple gifts from his/her numerous uncles/aunts/brothers/sisters. All coming from a country which had a 1-child policy for decades. ROFL.

The original property seller was made better off when they sold the home to the initial Chinese buyer and ya everyone else in the neighborhood benefits from that sale. Remember it's a good thing when USD return home and are used to buy assets in the US. The US consumer benefits with having cheaper imported goods, cheaper financing and low taxes.

Zoning restrictions are a big issue with regards to affordable housing combined with that fact that some markets have worldwide demand.

Remember China has 4x the population of the US so they're naturally going to have multiples more buyers who can afford near-luxury REO in prime markets.

 

[Jack Watts]

Ya I see this all the time. It's sort of a running joke because many times a Chinese buyer will have downpayments in the form of multiple gifts from his/her numerous uncles/aunts/brothers/sisters. All coming from a country which had a 1-child policy for decades. ROFL.

The original property seller was made better off when they sold the home to the initial Chinese buyer and ya everyone else in the neighborhood benefits from that sale. Remember it's a good thing when USD return home and are used to buy assets in the US. The US consumer benefits with having cheaper imported goods, cheaper financing and low taxes.

Zoning restrictions are a big issue with regards to affordable housing combined with that fact that some markets have worldwide demand.

Remember China has 4x the population of the US so they're naturally going to have multiples more buyers who can afford near-luxury REO in prime markets.

well, not everyone... the house sits between me and another guy, and he spent 7 years cutting the grass (not kidding!). He didn't feel like he was winning...

I mean, you're right that the seller did benefit to a degree, since there was one more bid on the property (in their case, they had similar offers, but the convenience of a cash deal was too good to pass up for them). And I agree with your general point that this isn't a clear zero sum game. There are tertiary benefits which are often ignored. It's a complicated issue.

I spend a lot of time in China (well, pre 'rona), and I can tell you there's a big reason they want to invest here: 1) their housing market there is grossly overvalued, 2) they're at the whim of the CCP. You know, the whole "tallest tree in the forest is knocked over by the wind" thing... No one wants to ball to hard over there, so having some assets out of site and out of mind is a real thing. And, there is a LOT of new money over there.

However, as an American I do think our priority should be our citizens. And while I don't think that means rolling up the gate, I do think it means looking critically at the impacts--good and bad--of foreign investment in real property.

 

[Trashman]

True, I suppose it does depend on the zip code since $2K/month in 2018 would have gotten you a nice 1,700sqft 3bd/2 bath/2 car garage in a nice neighborhood 40 miles away from downtown Chicago while $2K in Gold Coast, Chicago gets you a 2bd apartment.

I don't have a problem with folks renting out their homes that they grew out of like @Trashman stated but I do have a problem with corporations buying them for profit (and I usually side with corporate "freedom.")

I'm just like you usually, pro free market, pro freedom, but in this case, the freedom of the big guys is running us normal folks out of our homes.

 

[Trashman]

What's the difference between greedy and an investment? Who are normal folk? Are those the same people who also trash a place and not pay rent?

Nope, those are undisciplined, disrespectful POS. But I suppose to millionaires, us peasants are all just trash that should be thankful to get squat.

 

[Wolf359]

I'm just like you usually, pro free market, pro freedom, but in this case, the freedom of the big guys is running us normal folks out of our homes.

How is it your home now when you're not the owner and now you want to tell the owner who to sell to?

The big guys see a business opportunity same as the little guy. The business opportunity is there because there's not enough supply. Real answer is to fix the supply issue but owners have already decided that they don't want more supply so they're just making a bad situation worse.

 

[Trashman]

The idea that "there isn't a problem, it's just kids these days" really flies in the face of reality. My wife and I certainly would no have been able to buy a house today 7 years after getting out of college (student loans to pay off, not family money to help out, early career wages...).

The scale is tilted pretty badly in favor of those who have baked in advantages. I know, because I'm one of those people. We bought a house for 160K in Seattle that quickly doubled, leveraged that into another property that is now worth 4 times we paid for it, and used that leverage to buy other properties that are in positive cash flow and have increased significantly. We used some of that money to invest in RELP's...

There are two ways to look at it: 1) it's been a great opportunity for me, so why restrict others from it? 2) real estate ownership is getting concentrated in fewer and fewer hands, so it's creating huge barriers to entry. Personally, I think the latter sentiment is closer to the truth.

To the original question, I think doing this at the HOA level doesn't really do much except lower the value of places in that particular HOA. As such, I'm not sure it's a great idea. Additionally, I think we need to make a distinction between an individual renting his place out, and real estate investors. If someone buys a house, lives in it and get a job somewhere else, that seems like a different thing than buying a place strictly as an investment.

To be honest, I think a lot of this could be corrected by the tax code. Right now, there are a lot of favorable advantages in the US for real estate investors. One quick way to level the playing field a bit would be to do what they do in some other countries, and this is to put a higher tax on places that are not owner-occupied, and to tax them if they're vacant. Additionally, a tax on foreign investment seems like something that really needs to be done if we actually care about housing affordability. This is a pretty good article on foreign investment: https://knowledge.wharton.upenn.edu/article/foreign-purchases-u-s-homes-impact-prices-supply/

In short, I've certainly profited from the rules, and I'll play by the rules in front of me--but I think we need to look a bit more critically at them. My $.02

My thoughts exactly.

 

[RDY4WAR]

Are you saying you as an individual shouldn't be allowed to place a unit under a LLC (ex,1120S?)

Correct.

 

[Wolf359]

Nope, those are undisciplined, disrespectful POS. But I suppose to millionaires, us peasants are all just trash that should be thankful to get squat.

How do you tell the difference? There's risks associated with any business. What you're saying is that somehow you can differentiate between the two. It's not always that easy. Which is why credit cards have high interest rates, lots of people out there who always pay on time, but the high rate is to make up for those that don't. And also make a little profit. It's the same sort of thinking that says you can tell if the person looks like a criminal just from their looks. And you always get those interviews with the neighbors who always claim that the guy was the nicest and they never thought he'd do such a thing.

 

[Wolf359]

Correct.

Placing a property in an LLC is a pretty standard business move to shield a landlord from liability. But the better way to go is to probably just get an umbrella insurance policy instead of placing the property in an LLC. LLCs have other drawbacks like having to pay annual filing fees for the business, the creation cost and if you go to court to evict a tenant, the owner can show up but an LLC needs to hire an attorney. An LLC also gives you some privacy. I've read of sports players that buy in the name of an LLC so that the public doesn't find out where they live. There's one big luxury building around here where many of the owners are LLCs and lots of sports stars live there.

 

[BMWTurboDzl]

Correct.

Interesting.

 

[nthach]

With rent control becoming the norm in big cities and investors turning their nose at older multi-family buildings major institutional investors like Blackstone/Wedgewood are turning to the suburbs and buying up houses at the foreclosure auctions. But those homebuyers on the radio also work for those guys.

Investors are only investing in “luxury” buildings in the cities these days.

 

[Job]

Everyone gets the HOA packet if they buy into that kind of property, and that packet would state doesn’t allow renting. Also important is the power of the members and board to change the rules. If a person sees a stack of papers to read, doesn’t read it, then signs anyway, it’s their mistake.
The second article I was able to read. Sounds like someone is ticked they are in a rentals allowed HOA and can’t accept rules. Too bad, you signed the paperwork.

 

[chrlsful]

landlords R4 rentals, sure...need them TOO. I meant starter homes like the GI offerings @ that time, at the 60s, etc.

Most need to sell that starter (a la the name) to afford the nxt/2nd. I found a poor ppl's loan to buy a duplex (gov incourages affordable rentals). The tenant paid the mortgage. Some were horrable, some fair. Both sides R now rentals & I live in suburbia/rural single as a big time landlord (no managment co, I take care of it all, ALL...sno plow, plum, roofin, etc, etc).

 

[PandaBear]

Ya. There are tract builders who are building out neighborhoods and selling to these companies. The deeper solution is to find out why these companies have to buy up residential REO vs more traditional avenues of investment.

Because everything else is inflated right now and they can always sell the homes later. It is easy to punish certain group of investment (oil, factory, telco, tech, food, etc) due to resentment but it is hard to ban home ownerships, as many of us are also home owners and will get affected (you cannot discriminate corporate or only one group of people).

 

[PandaBear]

I have family in CT and Long Island (my old home)
It is sustainable because it is happening. I get tired of people complaining that homes are not affordable. If they weren't affordable no one could buy them! Same goes for cars, boats and planes.

Home prices will ALWAYS be sustainable, prices are what the public can afford. Its worked for over 200 years in the USA among the highest standard of living in the world but that isnt good enough for some people for some reason.
The University you speak of isnt paying enough if people cant afford to live there.

... and BTW, a mortgage company will not let you overpay for a home that you can not afford. They can only make loans based on your income and limited by that income. If a mortgage company lends you money, you can afford it but many young people have been spoiled by free spending ways and dont have the maturity to stop spending on unnecessary items.

This is a good subject by the way, but look at it simply, if homes were unaffordable, no one would live in them. Rising interest rates will put a squeeze on rising prices and rightfully so, the young people in this country have had record low interest rates never seen in this country.
Once we get them back to 7 or 8% or even 10% home prices will settle down. Then they will complain about interest rates. Lots of complaining about their choices in life!

Normal people can't buy them, but corporations and folks paying cash for an investment don't have to worry about qualifying for a mortgage like we do. So yes, it is sustainable as long as you are rich, you are 100% correct.

Over a period of 30 years, yeah the price is always a reflection of affordability. However we are in an interesting time, where money was printed like crazy and incomes do not catch up. Those with money (in particular sovereign fund from other places lending US money or using USD as the foreign reserve) will try to hedge by buying up something that will worth something down the road, even if taking a loss today by overpaying.

This is also the main reason for the VC funded tech boom, there's too much money in the existing market and the only way to invest more without inflating the existing asset even more is to create them (startup).

The harder question, more accurate question to ask, is why is money being printed way faster than income to catch up? Why and since when are we printing so much money, are we ever going to slow down or ever going to pay them back? Will we collapse like other former empires with financial crises (Persian, Roman, Qing, British, Spanish, etc).

 

[PandaBear]

Chinese nationals are also currently one of the top buyers of US farm land.

You forgot the main one: everyone else like Bill Gate, Singapore, Norway, Saudi, Russians, Japanese, etc. USD is just not worth as much as it used to so you better buy something with it than let it inflate away.

 

[PandaBear]

However, as an American I do think our priority should be our citizens. And while I don't think that means rolling up the gate, I do think it means looking critically at the impacts--good and bad--of foreign investment in real property.

We "should" build more homes that people can afford, redevelop older area with low density into med density communities so more can buy.

But of course, that impacts existing home supplies and existing home owners will veto that in a second, they don't want to cheapen their neighborhood and let a bunch of lower middle class get in to dilute the prestige.

NIMBY always. We're not commies giving out freebies. So yeah, good luck with declining foreign buyers.

 

[BMWTurboDzl]

Because everything else is inflated right now and they can always sell the homes later. It is easy to punish certain group of investment (oil, factory, telco, tech, food, etc) due to resentment but it is hard to ban home ownerships, as many of us are also home owners and will get affected (you cannot discriminate corporate or only one group of people).

Yep. 12 years of "zero" interest rates which has juiced the market and pushed these companies to buy up in the one area where they can find value for their investors.

 

[BMWTurboDzl]

You forgot the main one: everyone else like Bill Gate, Singapore, Norway, Saudi, Russians, Japanese, etc. USD is just not worth as much as it used to so you better buy something with it than let it inflate away.

the USD is still a better bet than any other currency in the world.

 

[dbias]

I had a house across the street from me in the cul de sac that was bought by a young lady through her trust fund. She was immature and partied all the time. It was becoming a mess and my neighbors who were lawyers did some background work on the arrangement and contacted the person in charge of her very restrictive trust fund and made her move out. I bought the house, did a total remodeling of it and resold it to a nice older lady. Not a problem since.