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How private equity is changing housing

theatlantic.com

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Re: How private equity is changing housing

#101

Post by the_sleaze_ »

phkahler wrote: post #24
garbawarb wrote: post #15

Earlier quoted context omitted.

It's interesting to think of the second-order effects of this. If these corporations can't invest in housing, they'd direct their money elsewhere. Maybe we'd see a stock market or commercial real estate boom. Maybe a proliferation of new ventures.

>> If these corporations can't invest in housing, they'd direct their money elsewhere. I think that's why they're buying residential - there aren't any other traditional investments that aren't in a bubble or just have low returns. If you anticipate economic collapse or hyper inflation or whatever, physical assets make sense - when you measure wealth in houses you don't care what the dollar does. Gold people can do w…

There will be a squeeze on real estate as the sea level rises and insurance increasingly withdraws from coastal and fire-prone areas.

Re: How private equity is changing housing

#102

Post by hippich »

HexPhantom wrote: post #77
hardtke wrote: post #18

One of the issues the article doesn't mention is that these houses are effectively cheaper to purchase for corporate owners. Generally they can borrow money at a lower rate, but the ability of corporate owners to use depreciation on a new purchase to offset profits from previous purchases is more significant. Effectively they are redirecting money that would be paid in taxes into the payments on the new purchase.

It's wild when you think about it: a family scrapes together a down payment and pays full freight on property taxes, while a corporate landlord can roll one property's paper losses into the next deal and keep building their portfolio, tax-deferred

Afaik, property taxes are due no matter what, at least in Texas.

Re: How private equity is changing housing

#103

Post by SirFatty »

lotsofpulp wrote: post #99
HexPhantom wrote: post #78

Earlier quoted context omitted.

That sounds like an absolute dream compared to today's market

Homeownership rates are not materially lower than before. Page 5 for the data, page 13 for the formula. https://www.census.gov/housing/hvs/files/currenthvspress.pdf I would bet most, if not almost all homes, are sold to buyers who will occupy them. This graph goes further back: https://fred.stlouisfed.org/series/RHORUSQ156N More info: https://en.wikipedia.org/wiki/Homeownership_in_the_United_St...

Median age of ownership? Skews older now I'm guessing.

I was talking about the younger crowd trying to get a start.

Re: How private equity is changing housing

#104

Post by triceratops »

hardtke wrote: post #18

One of the issues the article doesn't mention is that these houses are effectively cheaper to purchase for corporate owners. Generally they can borrow money at a lower rate, but the ability of corporate owners to use depreciation on a new purchase to offset profits from previous purchases is more significant. Effectively they are redirecting money that would be paid in taxes into the payments on the new purchase.

What is this special depreciation corporate owners get? IIUC any landlord can use depreciation to lower their tax bill. Wouldn't the depreciation from a new purchase also apply to the rents from that new purchase?

Somewhat more outrageous is the 1031 exchange. Sell VTI at a profit to buy VOO and the government hits you with a capital gains tax. Sell your primary residence for $250k more than you bought it - same thing. But landlords are a special, privileged investor class to whom these rules don't apply. They can sell a house and pay no taxes on gains as long as they buy another property.

Re: How private equity is changing housing

#105

Post by BeetleB »

the_sleaze_ wrote: post #97
BeetleB wrote: post #34

Earlier quoted context omitted.

As another commenter pointed out, buying a home to live in gets you lower interest rates than buying for any other reason. > but the ability of corporate owners to use depreciation on a new purchase to offset profits from previous purchases is more significant. If you're referring to cost segregation, this is probably less true now than in the past. It used to cost a lot of money to do a cost segregation analysis, an…

And what about if rent into the next 10 years fully servicing the debt, and the maintenance with a margin on top? If I am blackrock? If I am smaller PE deploying 10 million a year?

And ...?

Not sure what you're asking.

As the report points out, institutional investors purchase only 3% of homes nationwide (but much higher in some cities). Regular smaller investors likely buy more homes than the institutional ones.

Re: How private equity is changing housing

#106

Post by guyzero »

ahmeneeroe-v2 wrote: post #94
guyzero wrote: post #91

Earlier quoted context omitted.

There are so many confounding factors that this can't be taken at face value. Immigrants go where jobs are in general and it's demand for workers that causes housing prices to go up. If there was zero immigration there would still be huge housing demand in SF and LA.

You think that a minimum of 35% of demand being artificial isn't a factor that can be seen to increase overall demand? edit: I say "minimum 35%" because that is just the percentage of immigrant-demand that managed to secure housing. Hard to say exactly how many more immigrants are bidding on SF & LA-County housing but 35% is the absolute floor.

Framing foreign-born residents as "artificial demand" is definitely a thing you can do, but it doesn't align with reality. Some portion of the foreign-born population are naturalized or are family members of US citizens, so it's not like waving your magic racist wand would actually solve the problem.

Re: How private equity is changing housing

#107

Post by the_sleaze_ »

mrDmrTmrJ wrote: post #57
stock_toaster wrote: post #29

Wild idea... Maybe tax wealth instead of income? Tax break on single home ownership, but significantly increased tax on multi-home-ownership? It would be interesting to see comparisons between PE ownership in markets with property tax vs markets without.

Well, I want more multifamily housing (apartments or condos) to lower prices in good cities near pubic transit. So let me propose: a wealth tax on land! ("Georgism"). But not a tax on the "value of improvements," i.e, buildings. This disincentivizes single-family homes near train stations (widespread in the town I grew up in) and is very low-cost to collect. I don't know where you're writing from. But here in Califor…

Now my corporation owns my house, I rent from myself and since the rent my corp is charging is so incredibly low its essentially a write off.

Re: How private equity is changing housing

#108

Post by HarryHirsch »

vondur wrote: post #49

I just watched a video from Dave Ramsey title "What the Government Should Do to Fix the Housing Problem" He specifically calls out Institutional Investors and Foreign Corporations that have been purchasing single family housing and converting them into rental properties. I think he makes some good point in his video: https://youtu.be/_CrgniwSLLM

Why would someone listen to Dave Ramsey of all people? He is neither an economist, nor a Christian, he has nothing to contribute to the subject!

His shtick is real estate investment, of course he wants to see Joe Public buy a starter home. The trouble is: real estate as a government-guaranteed investment vehicle is what brought us the housing affordability crisis.

Re: How private equity is changing housing

#109

Post by CGMthrowaway »

triceratops wrote: post #104
hardtke wrote: post #18

One of the issues the article doesn't mention is that these houses are effectively cheaper to purchase for corporate owners. Generally they can borrow money at a lower rate, but the ability of corporate owners to use depreciation on a new purchase to offset profits from previous purchases is more significant. Effectively they are redirecting money that would be paid in taxes into the payments on the new purchase.

What is this special depreciation corporate owners get? IIUC any landlord can use depreciation to lower their tax bill. Wouldn't the depreciation from a new purchase also apply to the rents from that new purchase? Somewhat more outrageous is the 1031 exchange. Sell VTI at a profit to buy VOO and the government hits you with a capital gains tax. Sell your primary residence for $250k more than you bought it - same thin…

It's not special, just requires scale for it to make sense. E.g. Cost segregation studies and UPREIT transactions are cheaper on a neighborhood level. And you need enough passive income to absorb the depreciation losses

Re: How private equity is changing housing

#110

Post by the_sleaze_ »

gjsman-1000 wrote: post #40
stock_toaster wrote: post #29

Wild idea... Maybe tax wealth instead of income? Tax break on single home ownership, but significantly increased tax on multi-home-ownership? It would be interesting to see comparisons between PE ownership in markets with property tax vs markets without.

Wealth taxes don't work because wealth gets extremely fuzzy. For example, unsold stock that I bought 15 years ago; and then got a loan against. I'm wealthy... kinda? But I didn't sell the stock; I have unrealized gains, and you shouldn't tax me beyond income tax on borrowed money? Okay, tax me on my unrealized gains then - but then 2008 repeats itself, stock goes down 40%, do I get a refund? Of course not, I only pay…

> paper valuation

Don't allow loans against equity ownership. If you can take a loan against it, you should be taxed on it.

> artwork, rare collection

Tax the insured value. If it can be insured for 100 bucks, it should be taxed on 100 bucks.

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