It’s About Time: JP Morgan Enters the Housing Slumlord Trade

It was just a matter of time before the most powerful crony capitalist bank in America decided to join the housing trade.  Making money running the food stamp program just wasn’t enough for Your Crony Highness Jaime Dimon and company, it’s time to join his financial oligarch brothers in the bidding war to corner the housing market and become your overlord.  That way they can control how you eat (food stamps) and where you sleep.  It’s become very clear what the large financial interests in these United States are attempting.  Funnel all the low interest crony American money, with a dash of Chinese laundered money, into the “housing recovery.”  From Bloomberg:

JPMorgan Chase & Co. (JPM) is giving its wealthiest clients the chance to invest in the single-family rental market after other investments linked to the U.S. housing recovery jumped in value.

The firm’s unit that caters to individuals and families with more than $5 million, put client money in a partnership that bought more than 5,000 single family homes to rent in Florida, Arizona, Nevada and California, said David Lyon, a managing director and investment specialist at J.P. Morgan Private Bank. Investors can expect returns of as much as 8 percent annually from rental income as well as part of the profits when the homes are sold, he said.

The bank’s wealthy clients are joining a growing number of private-equity firms and individuals buying rental homes in the regions hardest hit by the U.S. housing crash. Blackstone Group LP (BX) has spent $2.7 billion, and said last month it accelerated purchases as home prices rise faster than anticipated. Even after home values in November gained by the most in six years, investors are wagering on rental properties as an alternative to housing-related stocks and mortgage debt that’s already soared.

The strategy is similar to institutional buyers including Blackstone, the world’s largest buyout firm, Thomas Barrack’s Colony Capital LLC, and Oaktree Capital Group LLC. (OAK) They’re aiming to profit from low prices on distressed properties, often those in foreclosure and sold at auction — and the demand for rentals from people who don’t want to own a home or can’t qualify for a mortgage.

Now here’s where the article gets really interesting.

“It’s hard to find a private-equity firm on the planet that doesn’t have a strategy in this space,” Gary Beasley, chief executive officer at Waypoint Homes, said last week at the American Securitization Forum’s annual conference in Las Vegas. The Oakland, California-based company has bought homes in California, Arizona, Illinois and Georgia.

Sure seems like the right time to buy housing.  You know, after every single pool of aggressive private capital in the nation and abroad is already bidding.

Now take a look at how poor the returns are.  This is what happens when things get too crowded.

“If you look at some of the really beaten down areas — Miami, Orlando, Vegas, Tampa — we do think the return on that asset, if you just buy a home, collect the rent and do whatever you need to do on the cost side, you’re getting a return of somewhere between 6 percent and 8 percent,” Bordia said. Non- agency mortgage-backed securities are generally yielding 4 percent to 6 percent, he said.

Even as the housing market probably will do well across the nation, areas where property prices already are high such as San Diego, Los Angeles, Denver and San Francisco, will see lower rental yields, of 4 percent to 5 percent, Bordia said.

Are you kidding me?  A 6%-8% yield is all you get for taking on all the responsibilities of upkeep, rent collection as well as the risk of capital depreciation.  I’ll take the check please.

Finally, just when you thought the lunacy couldn’t get any more extreme…

While buying single-family homes to rent is among “the smarter ways to invest going forward,” Pastolove advises wealthy clients to buy the properties to rent themselves if they are able. Morgan Stanley isn’t purchasing homes or managing them; instead it’s making loans to high-net-worth customers at rates lower than a typical mortgage, and using their investment portfolios as collateral. That provides people the capital to purchase investment properties, he said.

This. Will. Not. End. Well.

Full article here.

In Liberty,
Mike

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12 thoughts on “It’s About Time: JP Morgan Enters the Housing Slumlord Trade

  1. This Is Housing Bubble 2.0: David Stockman

    “It’s happening in the most speculative sub-prime markets, where massive amounts of ‘fast money’ is rolling in to buy, to rent, on a speculative basis for a quick trade,” he contends. “And as soon as they conclude prices have moved enough, they’ll be gone as fast as they came.”

    By ‘fast money’, Stockman is referring to professional investors like hedge funds and private equity firms. To his point, global investment firm Blackstone (BX) has spent more that $2.5 billion on 16,000 homes to manage as rentals, according to Bloomberg. It’s now the country’s largest investor in single-family homes to manage as rentals, with properties in nine markets. And Blackstone is joined by others like Colony Capital LLC and Two Harbors Investment Corp. (SBY) in trying to turn this market into a new institutional asset class, Bloomberg reports.

    Stockman argues the problem in housing is the two forces needed for a recovery, first-time buyers and trade-up buyers, are missing. With the combination of 7.9% unemployment and staggering student loan debt, he doesn’t see a young generation of new home buyers coming into the market. And with baby boomers heading for retirement with less than adequate savings, he thinks they’ll be trading down with their homes, not up.

    http://finance.yahoo.com/blogs/daily-ticker/housing-bubble-2-0-david-stockman-133026817.html?l=1

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  3. Will it end as bad as the long gold miner trade !!
    If inflation picks up so do replacement values
    Pick the right price and location and your fine

    • There’s no exit to this trade unless Zimbabwe. People won’t have money to pay rents unless we start getting EBT checks for rent. Could happen…I’d rather have metals in that event than a portfolio of homes for a 6% return.

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