Real Estate/Mortgage Loan/Stock Market - Page 2

Emperor · #11 08-11-2005, 04:57 PM

You are absolutely correct about the difference in markets.

While rents are higher in CA than in TN, the ratio of rents:value is completely in TN's favor

Landlords in CA are ecstatic if they can get rent that equals .5% of the property value per month. Landlords in TN regularly see rents over 1% of the property value.

In other words landlords in CA are claiming a loss because the rents don't pay the debt load (of course they have been raking in the appreciation), while landlords in TN are showing nice income streams (of course appreciation is lucky to equal inflation here)

Buffet is sitting on a lot of cash which seems very strange to me. If he's really bear on the market, then why doesn't he sell short the overpriced stocks in the market? Declines always happen quicker and with greater severity, historicaly speaking. Hedge funds anyone?

laserboy · #12 08-11-2005, 05:09 PM

REMINDER: When you buy a mortgage backed security in the United States today, there is some idiot American on the other end "pulling equity" out of his house to buy a new SUV or plasma TV. Or worse plowing it back into the real estate market.

If you buy MBSs in the US today, you are playing with fire.

laserboy · #13 08-11-2005, 05:23 PM

Like you said, real estate "investors" in California have long ago dissociated themselves with metrics like cashflow or capitalization rate. They are only concerned with flipping their overpriced property to some greater fool. Becoming a landlord of a newly bought property no longer makes any economic sense in most parts of the countries.

As Douglas Duncan, chief economist of the Mortgage Bankers Association, puts it: "I'm going to rent for while."

http://www.kansascity.com/mld/kansascity/news/local/12026905.htm

Emperor · #14 08-11-2005, 05:29 PM

[ QUOTE ]
Like you said, real estate "investors" in California have long ago dissociated themselves with metrics like cashflow or capitalization rate. They are only concerned with flipping their overpriced property to some greater fool. Becoming a landlord of a newly bought property no longer makes any economic sense in most parts of the countries.

As Douglas Duncan, chief economist of the Mortgage Bankers Association, puts it: "I'm going to rent for while."

http://www.kansascity.com/mld/kansascity/news/local/12026905.htm

[/ QUOTE ]

Exactly right. Actually I am getting ready to move to CA. The prospect of paying a $2K/month house payment seems ridiculous when I can rent the same house for $1K/month.

Darn I won't get that 45% appreciation that could turn -45% tomorrow...

squiffy · #15 08-11-2005, 09:47 PM

For one thing, he has too much money to invest. Peter Lynch writes about it in his books. Once a fund gets too large, it's hard to find enough undervalued stocks to invest in. And it's not easy to trade in and out of the market without affecting the stock price. Not to mention trading in and out leads to paying lots of short term tax gains.

There are some advantages to only having 200 or 300K to invest.

To me, making a few hundred or a few thousand on a trade is good money. If you have billions, it's a lot tougher.

My point is that it's not that hard to beat 4% a year. Heck, some stocks pay 2% in dividends and also appreciate.

squiffy · #16 08-11-2005, 09:52 PM

I actually tried selling short Countrywide CFC and lost about 10K. I am glad to see Adios is still here. I kept predicting the demise of homebuilders and mortgage lenders and he kept telling me I just didn't understand CFC and its business model.

Short selling is pretty tricky. If you buy and hold, you can theoretically wait 5 years if necessary for the stock to go up.

With short selling, a stock can take 6 months or a year to go down. And the natural direction of the American stock market, over time, seems to be up.

So betting against a stock is a lot trickier than betting on a stock.

I think if it were easy and profitable to short, Buffett would probably do it.

It's easier to buy and hold undervalued stocks or to buy entire businesses when they are cheap.

squiffy · #17 08-11-2005, 09:57 PM

In Japan in the 1980's they started doing 100 year mortgages. And typically a renter would pay his rent 100% one year in advance. Very scary stuff.

I have heard American 40 year mortgages are very unfavorable, not because the idea is bad, but because few lenders offer them and the terms are bad for the borrower.

But in theory, with a properly structured 40 year and with a highly liquid market for 40 year mortgages, a 40 year mortgage would be a great deal.

If you can borrow at 6% and invest the difference at 10% in the stock market and pay back in inflated dollars, why not?

If I can find a 40 year mortgage link I will post it. If all banks were forced to offer 40 year mortgages so that they became as standard and liquid as 30 year mortgages, then they would be fine.

But banks will want a higher interest rate to compensate them for the higher long-term risk of inflation, I would think.

squiffy · #18 08-11-2005, 10:02 PM

You have heard the saying a day late and a dollar short.

Well I was about a year early and I am now short 10K.

I tried short selling and also buying puts on CFC. But got in way too early.

It's just hard trying to get the timing right.

If you are going long and hold the stock, you theoretically have an infinite time to be right. You can collect dividends and wait 10 years if it is a solid company.

But waiting for the bubble to burst can be a long and difficult experience.

I knew long rates would start climbing and I knew home sales and auto sales would eventually slow down, but I cannot figure out a safe cheap way to profit from it.

Shorting is just downright dangerous. And puts go out only 2 years at the longest and often cost too much.

squiffy · #19 08-11-2005, 10:04 PM

Glad to see you are still around!!!
I haven't been back in about a year. After losing money on CFC, I couldn't show my face until I made it back on NOK.

Still. Homebuilders look like they are declining now. But cannot figure out a safe way to profit from it. Maybe puts on Hovanian. But they look very very expensive now.

Sniper · #20 08-11-2005, 10:39 PM

[ QUOTE ]
If you are going long and hold the stock, you theoretically have an infinite time to be right. You can collect dividends and wait 10 years if it is a solid company.

[/ QUOTE ]

This is a horrible way to look at the market. By waiting out a bad stock you lose TIME. There is also the possibility that the stock will never be profitable.