Renter Nation: Blackstone Group & The New Serfdom Class

[Dean Cain]

This is such a sick way to make money, with money. http://www.streetaut...-fortune-460463

 

"The Blackstone Group (NYSE: BX), the biggest player in the new REO [real estate owned] to rental market, has spent $2.5 billion in the last year purchasing 16,000 homes, a number that amounts to over $100 million per week.

 

 

The suits take over

You want a smart financial strategy?

Look at Blackstone. One of the houses it bought -- probably much like the others -- was bought for $90,000. It has a mortgage on it of $200,000. The former owners are still living in it. Instead of a mortgage, they're now paying rent. Now they're serfs.

Do the math. If they bought the house in 2005, they probably had a 6% mortgage. Six percent of $200,000 is $12,000. Add in another, say, $3,000 in amortization and charges... and they probably had a monthly payment of about $1,250.

Now the suits take over. Thanks to the conniving of other suits at the Fed, they are able to borrow 30-year money for about 3.5%. Let's add another $10,000 to their purchase price (closing, taxes and maintenance) to make the math easier.

That gives them a monthly capital cost of less than $300 per month. And because these guys have big hearts as well as big wallets, they reduce the renter's monthly payment to only $1,000.

Everybody comes out ahead. The former homeowners don't have to move. They save money each month. And Blackstone -- which may have only about $10,000 of its own money in the deal -- earns (are you ready for this?) as much as $6,000, net, per year. That's about a 60% rate of return on its cash.

But wait. It gets better. Because Blackstone is not counting on a real bull market in housing. Nope, the geniuses at Blackstone are making a big bet on interest rates.

At no extra cost, they have gotten a free "put option" on the bond market. That's right: They're short the bond market in a major way. When bond prices finally fall (perhaps this process has already begun), Blackstone is going to get another big jackpot.

And this payoff is practically guaranteed. Blackstone's got its money-printing friends at the Fed to make sure it happens."

[DC Tom]

That's brilliant. Wish I'd thought of it.

[Magox]

Seems like a solid investment to me. Am I missing something? Are they doing something unethical?

[Dante]

I feel like a serf because of how much my money is confiscated by various levels of government.

[B-Large]

Real Estate is a great investment if you know what you're doing, it is sad good deals come at the expense of stupid Americans.... But that is nothing new...

[KD in CA]

People who get to live in the house they didn't pay for (as they agreed to do) are now "serfs"? lol Boy, must be tough.

[Nanker]

Here's a fine one they could get on the cheap in Momence, IL

[Chef Jim]

That's because the housing "recovery," as they're calling it, is fueled almost entirely by Wall Street private equity firms, hedge funds and the Fed's unwavering support

 

Fueled almost entirely?? Really? Not here in the Bay Area.

[RkFast]

Seems like a solid investment to me. Am I missing something? Are they doing something unethical?

Yes. Making a profit.

[Fan in San Diego]

That's brilliant. Wish I'd thought of it.

 

You only needed a few billion to purchase a bundle of non performing notes. let me go turnover my couch cushions and see if I can drum that up. we can start a mortgage pool.

[DC Tom]

You only needed a few billion to purchase a bundle of non performing notes. let me go turnover my couch cushions and see if I can drum that up. we can start a mortgage pool.

 

If I'd thought of it, I could have raised the billions.

[keepthefaith]

If I'd thought of it, I could have raised the billions.

 

It's not too late.

[TakeYouToTasker]

That's brilliant. Wish I'd thought of it.

No joke.

[KD in CA]

Yes. Making a profit.

 

WINDFALL!!! THEY'RE WINDFALL PROFITS!!!

[DC Tom]

WINDFALL!!! THEY'RE WINDFALL PROFITS!!!

 

And they're probably banking the cash, too, so don't forget the hoarding tax.

[Dean Cain]

 

 

And they're probably banking the cash, too, so don't forget the hoarding tax.

 

The nice thing about their tax liability is that since investment via Private Equity is after-tax it gets treated as a capital gain which Obama has so indignantly admonished as investment income vs. labor income.

[peterpan]

You dont have to be rich to do this same thing.

 

Go buy a multi family house down the street on a 30 year note at 3.5%. In Buffalo, UB and the other colleges provide for a number of excess renters that will keep rents higher than they should be, relative to home prices. While inflation hits, your rents will go up while your mortgage payments remain flat. Thats what my family has been doing for 4-5 years.

 

I also had the opportunity to pick the brain of one of the very sucessful Wall Street types. This guy started an investment firm in 2009 based on a risk algorithm. Since then they have over 500 million in controlled assest and are on pace to exceed $1Billion by the end of the year. He told me that if interet rates rise 2%, then a 30 yr bondholder will have lost 13.5% over that 30 years. COnversely, someone with a 30 yr note at 3.5% will have MADE that 13% if interet rates rise.

 

Ironically, its good to be leveraged in times like these.

[KD in CA]

You dont have to be rich to do this same thing.

 

Go buy a multi family house down the street on a 30 year note at 3.5%. In Buffalo, UB and the other colleges provide for a number of excess renters that will keep rents higher than they should be, relative to home prices. While inflation hits, your rents will go up while your mortgage payments remain flat. Thats what my family has been doing for 4-5 years.

 

I also had the opportunity to pick the brain of one of the very sucessful Wall Street types. This guy started an investment firm in 2009 based on a risk algorithm. Since then they have over 500 million in controlled assest and are on pace to exceed $1Billion by the end of the year. He told me that if interet rates rise 2%, then a 30 yr bondholder will have lost 13.5% over that 30 years. COnversely, someone with a 30 yr note at 3.5% will have MADE that 13% if interet rates rise.

 

Ironically, its good to be leveraged in times like these.

 

OMG....MORE WINDFALL PROFITS!!!! WHERE IS THE WINDFALL PROFITS TAX?!?!?

 

Who knew that our own Peter Pan was nothing more than an evil vulture capitalist.

[Dean Cain]

You dont have to be rich to do this same thing.

 

Go buy a multi family house down the street on a 30 year note at 3.5%. In Buffalo, UB and the other colleges provide for a number of excess renters that will keep rents higher than they should be, relative to home prices. While inflation hits, your rents will go up while your mortgage payments remain flat. Thats what my family has been doing for 4-5 years.

 

I also had the opportunity to pick the brain of one of the very sucessful Wall Street types. This guy started an investment firm in 2009 based on a risk algorithm. Since then they have over 500 million in controlled assest and are on pace to exceed $1Billion by the end of the year. He told me that if interet rates rise 2%, then a 30 yr bondholder will have lost 13.5% over that 30 years. COnversely, someone with a 30 yr note at 3.5% will have MADE that 13% if interet rates rise.

 

Ironically, its good to be leveraged in times like these.

 

The beauty thing in this business is the lack of upfront capital needed to achieve this leverage.

 

And with banks essentially handing out money at low interest to these rent seekers there is no way they can't make an ROI given their cost inputs.

 

I'm surprised that there would be a difference on bonds vs mortgage's. Being that both instruments allow you to lock in to today's rates. The 13.5% ROI is likely to force these REITs into mortgages. There is little risk if this business fails.