Forget Affordability, Consider Capita per Inventory

by Scott Sambucci

What if everything you thought about housing affordability was wrong?

Traditional housing affordability indices by the National Association of Realtors (NAR), the US Census, and the National Association of Home Builders (NAHB) calculate “affordability” as a measure of home prices relative to median income. For example, NAR’s calculations are “Based on a 25% qualifying ratio for monthly housing expense to gross monthly income with a 20% down payment.” Of the 225 metros ranked by NAHB, Carson City ranks 6^th nationally. Phoenix is 51^st and Las Vegas is 59^th, while Washington DC is 176^th, the San Francisco-Bay Area is 224^th, and New York is 225^th.  

And all of these measures are flat wrong. 

“Capita per Inventory” – a calculation of how many people (capita) there are for each available home for sale (inventory) – is a truer supply and demand measure, determining the amount of demand relative to available housing supply. 

Here in the San Francisco bay area, we here it all the time: “How can anyone afford a house in Palo Alto with a median price easily over $1,500,000?”  Except that it is not anyone who has to be able to afford a house in Palo Alto, but fewer than 60 households because that’s how many homes are for sale right now in Palo Alto.   As long there are enough people with incomes able to support a million dollar home in Palo Alto, it very quickly becomes “affordable.”  With Apple, Facebook, Zynga, and the rest of the booming Silicon Valley tech companies, there are plenty of available buyers out there at these prices.

Examining five Bay Area cities for the week ending 11/11/11, the “Capita per Inventory” numbers are startling, and explain everything about home prices in these markets.

Moreover, the home price data set since January 2007 reveals an 87% correlation on “Capita per Inventory” to home prices — as “Capita per Inventory” changes, so do home prices. The fewer the number of people per available home for sale, the lower the local market’s price becomes.

Stockton and Sacramento, where available housing inventory is relatively high, require significant in-migration or local demand (thousands of people) to clear the local market’s inventory, while more desirous towns like Palo Alto and Davis need about a hundred people to snap up the available inventory. Think Stockton and Sacramento measure poorly? Capita per Inventory in Carson City is 205, while Las Vegas measures at 106.

This concept applies more broadly to metros and regions.  The Bay Area, Washington DC, and New York, while they have their own local market variances, are considered more expensive and thus “unaffordable” by traditional methods. However, their Capita per Inventory measures relatively high compared to lower-priced markets like Phoenix and Las Vegas, considered by traditional measures to be “more affordable.”

Finally, Capita per Inventory has implications for municipalities and city planning policies. Zoning restrictions, school districts, and tax laws, if implemented effectively, can directly support home prices by restricting housing supply and increasing the demand to live in their towns.

Inflation-adjusted median incomes are flat to down since the recession, and the pundits talk in circular arguments — housing won’t recover until we solve unemployment, but we can’t solve unemployment until we solve housing.  That’s true in a national sense, but for the savvy investor crunching the right numbers, there are plenty of opportunities to find local markets where demand will always be relatively strong.

So when you’re at dinner and you hear – “Palo Alto is so expensive, but it’s a great time to buy in Sacramento – houses are cheap! I should buy two or three and rent them out!,” take five minutes and explain Capita per Inventory. Their nest egg will thank you for it.

(Note: Altos Research is a market analytics firm and does not provide investment advisory services. This article should not be construed as specific investment advice to buy or sell properties.  Consult your local real estate professional before making any real estate investment decisions.)

Scott Sambucci is the Chief Operating Officer with Altos Research – working daily with capital markets and fixed income clients to develop predictive models and applications using real-time housing market analytics and leading indicators.  He’s written numerous white papers on the topics of residential housing valuation and market trends. He also serves as an adjunct professor in the areas of Finance, Economics, and International Business.

In Intimate Detail: U.S. Housing Market

An Interview with Douglas G. Duncan, Ph.D., Vice President and Chief Economist for Fannie Mae

by Geraldine Barry

Ger: At a recent debate, all the Republican candidates felt the only thing that would help housing was fixing the economy. Do you think improving the economy and lowering unemployment will do much to change the fact that 25% of homeowners with a mortgage are upside down? 

Doug: If we get an improving economy and growing employment (both big “if’s” at this point) it will help. Job growth begets income growth which begets household formation which begets housing demand both owned and rental which will put upward pressure on prices which will reduce the number of households underwater IN THOSE AREAS WITH JOB GROWTH.

Ger: Is it possible that having such a large percentage of homeowners over burdened by mortgage debt is part of the problem with the economy? And if so won’t we need to fix housing in order to fix the economy? 

Doug: Fixing the economy and fixing housing are closely correlated and somewhat causal. Housing supports a host of supply industries so it has a bigger impact than a lot of other sectors. However, small business has to see future sales and profit growth potential before they start hiring. At present that is being forestalled by recession-level consumer pessimism and related business pessimism about the direction of the economy. Until there is a reduction in expected future taxes and regulatory burden, don’t expect strong growth.

Ger: How has the performance of Fannie and Freddie’s mortgage debt compared to those of privately securitized loans? And in terms of vintages where did the problems occur first… in Fannie and Freddie debt, or private securitized debt?

Doug: Investors treat GSE debt as though it has the full faith and credit of the U.S. Government. With current Federal Reserve purchase activity levels, they are rational to do so. This applies particularly to short term funding. Longer term funding is effected by perceptions of what will ultimately be done with the two entities from a policy perspective. The mortgage market problems appeared first in private label securities, one reason the private securitization market has yet to re-emerge. Fannie and Freddie did not cause the crisis…it had a number of parents. They did contribute to the magnitude of the crisis.

Ger: If we do at some point come to the conclusion that we have to deal with negative equity, what do you think would be the best way to do it, with the fewest unintended consequences? 

Doug: It is not perfectly clear what the net impact of a principal write-down would be. Clearly loans modified to reduce monthly payments perform better in proportion to the degree of the payment reduction. Therefore, reduction of principal component of the monthly payment would contribute. However, the saving to the borrower is a loss to the investor. Whether the probability of default and cost of that default is offset by a reduction in those two items is the question. It is not clear that the net social measurement is positive.

Ger: How do you see the relationship between the general U.S. economy and international markets, particularly problems in Europe (primarily Greece and Italy) impacting the U.S. Is the U.S. on a similar track to Greece, or is our size and our resilience as a nation something that will help us out of this dilemma? 

Doug: The U.S. is clearly on a fiscal path that could lead to a Greek type problem in the long run. The public grasps this which is part of the reason for the current ferment in the body politic. If we make the politically difficult decisions rapidly we can rapidly return to a growth path taking us into a strong economic future. The appropriate actions are not hard to understand.

The US economy will be affected by Europe’s problems through trade relationships and financial market connections. Bad things in European economic sectors have downside effects in the US.

Ger: What are your thoughts on China? Should we be concerned that they will become a more dominant force economically particularly as they hold a lot of our debt? 

Doug: China has potential as a long term trading partner and has many more difficult problems than we do, so I don’t fear them. They are a communist country with a growing middle class that may well increase pressure for more political freedom. As a result of the one child policy, they also have a rapidly aging population with no social safety net and a shrinking relative workforce to support the older population. Also they have reached close to the end of their ability to invest and must shift to consumption which means wage increases which will reduce their competitive advantage in labor costs and shift some advantage back to the U.S. (if we install growth oriented policies). They can’t sell off their U.S. debt without potentially adversely effecting their own income statement, so I don’t fear rapid liquidation of their U.S. holdings.

Ger: Is this current negative economic situation beneficial in any way - what lesson has been learned from this economy? 

Doug: It would never be a good thing to have 9 percent unemployment from either a human or resource utilization perspective. It is not clear that we have seen the kind of response in the policy would that would indicate lessons learned. The most important lesson is that leverage has both benefits and costs. We had far greater leverage in our economy than was healthy and the downside has been painful. The evidence that there is serious attention to leverage reduction is hard to come by. In fact, we have codified in law the existence of institutions which are too big to fail and the first test of the regulatory apparatus that was to oversee them led to a regulatory failure (MF Global’s bankruptcy). We undertook massive government spending ostensibly to spur economic growth and it failed. Many policymakers are still in denial of that fact. Prosperity is a hard-won result of nurturing a stable private sector with growth prospects and that lesson will hopefully be relearned and implemented.

Ger: What positive signs to you see in terms of the U.S. and growth down the road?

Doug: The public has gotten the attention of the government and is in ferment over the country’s debt, both current and future. If the public can overwhelm the special interests (some of which are themselves) and get control of the entitlements, this is still the biggest economy in the world by a factor of 4 and the best entrepreneurial talent in the world so the prospects for the future are undiminished. Unbridled entitlement growth and the belief that the government creates wealth are the legacy of Europe which the public is watching melt before their eyes. I believe that is why 77% of the people in our survey say the economy is heading in the wrong direction.

Ger: What do you like most about your job as Chief Economist for Fannie Mae? It is probably a very stressful position.

Doug: I have a great staff and enjoy coming to work with them every day. I like real estate. Everyone lives in some sort of building, and most work in some sort of building, and the buildings sit on land and always will. Almost all real estate is financed at some time. That means I am a part of everyone’s life every day and that is energizing. I love going out and speaking with the public; particularly the question and answer portion. Americans are great people and the most generous in the world.

Ger: Your favorite things to do to de-stress? 

Doug: I love to read (history and biography) and listen to music (jazz and blues) although time for those is precious to come by. I also love to work outside physically having grown up on a farm and working in an office. I have been known to take a glass of pinot noir from time to time.

Ger: What are your 2 or 3 most favorite sources for business news? 

Doug: Wall Street Journal, Sunday New York Times, Forbes Magazine, various other print media including the web. No television.

Ger: The best business or economy book you have read this year? 

Doug: Rivers of Gold: The Rise of the Spanish Empire, from Columbus to Magellan by Hugh Thomas. I also read P.J. O’Rourke’s book on Adam Smith, On The Wealth of Nations. The Bible also has a lot of good advice on business conduct.

Online Robbery

By Aaron Norris

Apparently, there’s now a magic wand pricy consultants can wave over my website to make it the go-to site for every potential customer in my industry. I have been inundated by offers of thousands of impressions, 100,000 subscribers, and top spots in Google by outside vendors selling their over-the-top marketing promises. I would love to hand over these responsibilities to another company, but know respectable search placement takes testing, measurement, and effort … followed by even more testing, measurement and effort. Why on earth would I let someone experience that for me? (I know, I’m sick.)

In all seriousness, I think too many small businesses get duped into paying for something they don’t need and don’t understand. If you’re venturing into the world of online advertising, it takes many forms and there are certain things you need to be aware of.

Online Ads

Impressions: An impression is the measurement of how many times something is viewed. Let’s pretend you’re reading this article on the fabulous SJREI blog. That counts as one impression. Let’s further pretend you love it so much, you come back to the blog and read it again in a week. That’s two impressions. Let’s go crazy now and say you loved it so much that you forwarded it to your friend Susan and she reads it. Three impressions.

Unique Hits/Unique Impressions: This takes impressions to the next level by getting rid of duplicate data. In the scenario above, you loved the article so much you read it twice. But, if we’re measuring only unique hits, it only counts once (but I still appreciate your enthusiasm). Tossing out one of these duplicate views gives us two unique hits or unique impressions.

Clicks: Clicks are literally the user engaging with your online ad, link, or media with their mouse. Let’s continue with our example and say in the article I’ve strategically linked to The Norris Group site. You’re in a rush so don’t click on my hyperlink. However, your friend Susan loves the article, but knows very little about The Norris Group. So she decides to click on the hyperlink within the article. She’s instantly transported off of SJREI’s site and starts enjoying the content of The Norris Group. Our math up to this point: three impressions of the article, two unique impressions (you and Susan), and one click.

Conversion: A conversion is when the consumer performs a pre-set goal you’ve defined. This is much more sophisticated than a click and way beyond that of an impression. Let’s say on The Norris Group’s site, I’m measuring the amount of time a user stays on the site and the number of requests they make for information about trust deed investments. If a user is on our website for more than twenty minutes, I am going to assume they fell asleep at the keyboard or they are engaging in some of our rich media (radio, blog, videos, etc.). I also count a conversion if a user fills out an application to receive more information about our trust deed investments.

Back to Hypothetical Land: Susan clicks over from SJREI to The Norris Group and stumbles upon our videos on trust deed investing. She spends 20 minutes going through the material and then notices a link to download a free e-book about trust deeds. She registers quickly online and receives the information in her email.

Susan has just given me two conversions! And all from one click. That’s pretty impressive.

Keep in mind Susan isn’t a customer yet. I’m measuring defined actions I think she’ll take on her way to becoming a customer. This allows me to later look at how much money I’m spending on different routes of advertising to see which one makes more sense. Furthermore, for you savvy CPAs and finance folks, I’m really cost accounting and figuring out what my cost-per-conversion is and comparing not only to other online ads but also my other routes of advertising.

Don’t Be A Sucker

Sharing an embarrassing example of my own will illustrate why this kind of conversion tracking is so important:

Several years ago I ran an event and was overjoyed when a national real-estate-specific cable show agreed to run an ad on their website for $3,000 and an agreement to make them sponsors of the event. I was told they had 300,000 unique hits every month and the usual advertising rate was over $6,000 per month. What a deal!

I created the artwork and submitted it anticipating that this website would create not only thousands of unique hits, but potentially hundreds of clicks. Even if it only had a 0.1% conversion rate, it was going to be a big success — that’s 300 conversions that would surely generate business.

Let’s take a minute to do the math. If I were to achieve a one tenth of a percent conversion, 300 conversions would cost me $10 per conversion ($3,000 paid/300 conversions).

After three months of running my ad on the site, I received three clicks. Yeah, you read that correctly. Three measly clicks. Zero new business.

Admittedly, I made a few amateurish mistakes. I assumed that:

1. Large impressions would equate to some reasonable number of conversions
2. Nationally-known media is better than local
3. Industry-specific, niche media will generate more interaction

Boy was I wrong. Lessoned learned. I could have done a few simple things before I signed on the dotted line to protect myself:

1. Ask the site salesperson for referrals and overall happiness of current advertisers
2. Follow up by calling on advertisers currently appearing on the site
3. Really look at the website and see if the audience is who I’m trying to attract

I’ve actually fallen for the large impression argument more than once. The second time was on a site that generated three million unique views and it didn’t fair much better than this embarrassing example. Bigger doesn’t necessarily mean better. Always be asking: Who is my target audience? Be very specific and be able to target and deliver your content to the right audience. Think about industry, location, age, lifestyle, and even how likely your customer is to show up wherever you advertise.

Just because a site has a national brand behind it doesn’t mean it will create a ton of business. One fanatic about your company or brand will be far more effective than a generic ad on a semi-industry-related site. Choose your media outlets wisely and consider engaging your current customers first. Work from the inside and move out.

Even with industry-specific media, make sure it’s reaching your target audience. The Norris Group doesn’t advertise in many magazines because we’re not national and few magazines have the ability to only deliver in specific markets. I’d rather spend my budget target-marketing to specific locales or creating great content that will spread throughout the web naturally … and for free.

Chris Clothier
877-773-9998
Chris@MemphisInvest.com

In Intimate Detail: Memphis, TN

An Interview with Chris Clothier

by Geraldine Barry

I am delighted to have the opportunity to interview Chris Clothier, Vice President of MemphisInvest.com, the largest real estate investment firm in the Mid-South and the largest, private property seller in West Tennessee. As an experienced investor and someone who lives and works in Memphis, Chris’ take on this market is very well grounded.  Please enjoy our interview.

Q: How would you summarize the Memphis housing market today?  

The investment market is very good, but like any city with a lot of opportunity, there is also a lot of opportunity for mistakes.  There are some very risky pockets of the city where property can be picked up for the cost of a small used car and that is not where we our company operates.  We are concentrating on the outskirts of the city in some of the suburbs and in newer parts of the city.  Prices in these areas are hovering around mid 1990 values and represent a great opportunity for investors who want to earn a solid return while eliminating as much risk as possible.

Q: Why is the Memphis a market to consider investing in?  It is certainly not a city that comes to mind first for investment.

First of all, we love being considered the sleepy little city on the edge of the Mississippi river and it certainly allows us to play up our “Southern Charm.”  But savvy real estate investors know that many in the U.S. business community consider Memphis a first choice city for business and investment.  Because of its central location in the country, low cost of living, and commitment by both government and civic leaders to promote the city’s amenities and cultural value, Memphis is thriving and growing.  As the 17^th largest metropolitan area in the country, Memphis was recently chosen by two international companies as the location for their new world headquarters and the only location outside of Japan to house a heavy generator manufacturing plant.  Why does this matter?  Memphis is the distribution hub of the U.S. and is home to five Fortune 500 companies, nine Fortune 1000 companies and these distinctions mean jobs.  Add all of these important considerations to the fact that cost of housing is 22% below national average and you get a market that has a low cost of entry for a real estate investor and a huge upside for growth of capital and return on investment.

Q: How do the employment numbers look currently?

We are hovering right around the national unemployment levels with fewer long-term unemployed and a real struggle for younger people to find work.  That being said, local companies announced 5,000 new jobs in the first half of the year and the local government has been working hard to attract more businesses and more jobs. 

Q: I discovered recently that 48% of the population in Memphis rent?   Why is this significant and how do you view it – is that a positive or negative thing?

I view it as an absolute positive due to the mindset that is already present with prospective tenants.  The number is a little bit skewed because it takes into account some neighborhoods and parts of the city where every property is a rental.  As I stated earlier, we have developed our business model by working in the outer sections of the city and the suburbs and the neighborhoods where we manage portfolios for our investors are made up of mostly owner occupied homes.  Still, the mindset in Memphis is that it is ok to rent.  The negative stigma that may be present in other cities is not here. 

Q: How are rents trending?

Within our company, rents have been trending up as a whole and much of that is attributed to the neighborhoods that we are investing in.  During an audit of properties rented in August, we found that 37 of the 53 rental contracts closed during the month were on properties already in the portfolio.  Of those properties, 65% saw an increase in rent from the previous contract, 25% remained the same and 10% decreased.  This shows how rents and rental trends need to be tracked all the way down to the street location and not just by zip code or neighborhood.

Q: How are investors making money in the Memphis market right now?

We are concentrating on nicer homes and middle class to upper middle class neighborhoods.  So the properties and areas we start with for investors are more desirable.  From there, we are huge believers in reducing deferred maintenance and how big those savings can be for a long-term investment.  So we spend a lot more time and money on the renovation of an investment property.  Our investors are attracted to these two unique messages from our company – invest in better properties, with more extensive renovations.  Our investors find this essential to their ability to make money in this market.

Q: What have you learned from the recent financial and reversal of fortune in the housing market?

Do not take anyone else’s opinions on faith!  Regardless of who you are dealing with or how good the marketing, an investor’s own curiosity and willingness to ask questions may be the best tool an investor has for long-term success.  There are some fantastic opportunities in today’s investment market, but investors have to protect themselves and do business with whom they feel a connection.  This is long-term wealth we are looking to build and that cannot be done with outrageous claims of high returns or fast fixes. 

Q: What three things would you share with people who want to become investors or expand their investment portfolio? 

1. Surround yourself with the highest caliber people you can find.  The advice investors receive right now will directly impact their net worth in the very near future.
2. Seek the advice of those you surround yourself with on how to structure your investments protect your resources.  Wealth is built by being able to use capital in such a way that it is protected and working for you at the same time.  So do not operate in the dark – seek advice!
3. Investigate markets outside of your own.  If you do not live in a market with affordable price points or high rates of return, there are opportunities and efficiencies that did not exist in similar past real estate markets.  You can find quality partners today who cater to investors from out of the area like MemphisInvest.com.

Interesting concept when you see hedge funds hooking up with investors to get in the game:

By ROBBIE WHELAN

VALLEJO, Calif.—Agustin Gutierrez, a construction worker from this town in the hills northeast of San Francisco Bay, lost his job in 2009, then, 10 months later, he lost ownership of his home.

Now, the husband and father of four rents the same five-bedroom ranch from McKinley Capital Partners, an investment company that’s at the forefront of a new breed of big-money landlords.

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Getty ImagesHedge funds, private-equity firms, pension funds and university endowments are dipping into the foreclosure market.

McKinley, which has acquired more than 300 foreclosed single-family homes in the Bay Area over the past two years, recently teamed up with Och-Ziff Capital Management Group LLC, a New York hedge fund, with plans to buy at least 500 more foreclosed homes in the next year. Those homes, too, will be rented to people like the Gutierrez family.

Buying foreclosed homes as investment properties has long been dominated by mom-and-pop investors. But now hedge funds, private-equity firms, pension funds and university endowments are dipping into that market. The attraction is double-digit returns at a time when most bonds and other income investments yield very little.

The most popular strategy is for a big investor to team up with a local company that scouts out houses and finds the renters. The hope is to flip the homes in the future when prices recover.

“It’s kind of the Wall Street meets Main Street phenomenon,” says John Burns, an Irvine, Calif.-based real-estate consultant who has discussed investing in single-family rentals with hedge funds. “The Main Street guys need the capital, and Wall Street needs the expertise.”

At the end of May, 3.5 million loans were at least 90 days delinquent or in foreclosure, according to investment bank Barclays Capital. At the same time, the country’s home ownership rate has fallen, to 65.9% in the second quarter of 2011 from its peak of 69.2% in 2004, according to figures released by the U.S. Census Bureau last month. That drop has produced millions of new renters and helped push the vacancy rate for rental housing down by about two percentage points, to 9.2%.

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“The single-family rental market is actually quite large,” said Dennis McGill, director of research at Zelman & Associates, a research firm that follows the housing market. “The average American says, ‘If I’ve got two kids and a dog, I can’t live in a one-bedroom apartment.’”

Zelman recently issued a report saying that in Arizona, Florida and Nevada, states hard-hit by the foreclosure crisis, the number of families renting a single-family home increased 48% from 2005 to 2010.

Large institutional investors could eventually help stabilize the market by soaking up the huge overhang of foreclosures, which could allow housing to begin healing. However, the number of single-family homes being bought by institutional investors is still small compared to the millions of distressed properties. The biggest players in the market are deploying hundreds of millions of dollars, not the billions necessary to make a major dent.

The federal government has a large role as well. The Obama administration is currently considering ways of selling foreclosed homes to investors who agree to rent them out. Fannie Mae and Freddie Mac and the Federal Housing Administration own more than half of all unsold foreclosed homes.

Being a landlord can be a costly hassle for large investors. Unlike apartment complexes, which concentrate hundreds of rental units in one place, investors must buy hundreds of single-family houses that are miles apart, each with separate maintenance problems. Tenants can be troublesome.

“You could have a bad tenant who doesn’t want to pay their rent, or maintain the pool,” says Guy Johnson, an investor who buys foreclosed properties in Nevada, Arizona and California and rents some of them out. “A hedge fund manager doesn’t want to have to be their own plumber or electrician.”

Buying foreclosed properties isn’t easy either. Investors sometimes have to pay thousands of dollars in “cash for keys” payments to the previous homeowners in order to entice them to leave the property, and foreclosed homeowners often damage their homes before they are evicted.

Private-equity giant Carlyle Group LLC tried its luck with the single-family home market two years ago but abandoned the strategy late last year after concluding that the returns weren’t large enough. Carlyle’s strategy was different. The company formed partnerships with local asset managers in California that bought and flipped homes, rather than renting them.

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For now, more investors are plunging into the single-family rental market. McKinley, the Oakland, Calif., company that owns Mr. Gutierrez’s house, has already begun to use Och-Ziff money to purchase houses. Its model is to buy homes at an average price of about $100,000 apiece, put between $10,000 and $25,000 in renovations into them, and set the rental rate of the house so that it produces a return of 8% to 12% annually. This often works out to a rent of roughly $1,200 per month.

McKinley and Och-Ziff could see additional returns from selling the houses at a higher price after a few years, once the market has improved. “Two years ago no one thought you could scale this business or that it could be institutionalized,” said Gregor Watson, a principal with McKinley. “Now, you can get very good yields. It’s a very good long-term strategy.” He declined to comment on the Och-Ziff investment. Och-Ziff also declined to comment.

Other large investors have formed rental-housing partnerships.

G8 Capital, a private-equity fund based in Ladera Ranch, Calif., has bought 3,000 homes across the country since 2008, mostly to flip them. It decided last year to begin pursuing a hold-and-rent strategy. It has since bought 250 foreclosed homes as rentals. Carrington Property Services LLC, a Santa Ana, Calif.-based property investment company that manages about 4,500 homes nationally, is in talks with investors to raise funds for a real-estate investment trust, to be called Residential National Trust, which would acquire foreclosed homes for rental. The company plans to buy as many as 5,000 more rental homes in markets including Chicago, Miami, Phoenix and Las Vegas.

Waypoint Real Estate Group, an Oakland, Calif.-based company, has bought 700 homes in the past two years as rental properties. Doug Brien, a former place kicker for the New York Jets who is now managing director of Waypoint, says that his company has approached pension funds, university endowments and large private investment groups about investing in his fund. In July, he says he closed on a financing deal from an Ivy League university endowment, but declined to name the university.

“At some point, there will be a shortage of housing,” Mr. Brien said. “Everyone is realizing that single-family buy-and-hold is the way to go.”

In November, hedge fund manager William Ackman’s Pershing Square Capital Management LP released a report arguing that single-family rental properties are an “under-owned asset class” that would make “an intelligent investment for institutional investors.” Pershing Square predicted that investing in single-family homes and holding them as rentals for 10 years could produce double-digit investment returns, even if U.S. home prices only improved marginally.

All the activity is fueling a renewed debate over whether investors are good or bad for the housing market. In the early days of the housing bust, some community groups discouraged banks from selling foreclosed homes to investors for fear they wouldn’t take proper care of the properties. Some communities riddled with foreclosed homes became slums.

Alan Mallach, a senior fellow with the Brookings Institution in Washington, argues that instead of running from investors, local governments should provide subsidies to investors who buy, rent out and are good landlords for foreclosed properties. “If a neighborhood has a high rate of home ownership, that’s obviously better,” he said. “But in some markets, there was so much inventory coming on the market that the sheer number of properties was destabilizing those markets.”

Mr. Gutierrez, the Vallejo construction worker, now pays $1,800 a month in rent, compared to the $2,500 per month he was paying to cover the cost of his mortgage when he owned the house. He says it bothers him that he no longer owns his home, but is happy to pay less and says his new landlords are good property managers.

He bought the house in 2003 for $340,000 using a $322,700 loan. He refinanced the home five times, driving up the total amount of debt on the house to $400,000. He lost the house to foreclosure in 2009. McKinley paid about $155,000 for the house that year.

“It’s confusing, because sometimes I think it’s my house, but I have to remind myself that it’s not,” said Mr. Gutierrez, who says he doesn’t plan to try to repurchase the house. “It’s sad, but it’s what happened to a lot of people.”

—Nick Timiraos contributed
to this article.

Information on the VA Vendee Program

The VA Vendee Program is an unbelievable program for investors and has been growing in popularity due to the extremely attractive financing options it offers

Here are a few bulleting points with the features of this loan: 

• Only 5% down payment required for investment properties( +2.25% Funding Fee)
• No PMI or mortgage insurance
• 2.25% funding fee paid to the VA
• Flat 4.5% interest rate fixed for 30 years
• Flat $2,500 in closing costs covers title/processing/underwriting/everything)
• Individuals who currently own rental properties for at least a year can use anticipated rent to qualify on the new property
• No appraisal necessary —great for individuals who like fixed uppers
• VA can cover up to 4% of closing costs limited to the $2,500 and the amount required to establish an escrow account
• No maximum number of properties than can be financed
• Assumable by qualification – a big plus for investors who are looking to sell in the near future

For additional questions, contact Accountant Richard Smith at rsmithtax@aol.com

Our friend and fellow investor, Lisa Moren Bromma, shared this very important information below with us today.  Anyone who is in the note business needs to be very concerned about this legislation.  We are fortunate enough to be having Lisa as our guest speaker tomorrow, and she is participating in conference calls early tomorrow regarding this legislation, and will share up-to-the minute information on what we need to know.  This is really important for investors to understand so come join us tomorrow night for the straignt scoop!

The Federal Reserve, which received sweeping new authority under the Obama regulatory reauthorization, wants to effectively eliminate seller-held (a.k.a. purchase money) mortgages. It will do this by enacting a rule for the Dodd-Frank Act prohibiting property sellers from taking back a mortgage unless the buyer essentially can qualify for conventional financing!

What’s more, Ma and Pa Homeowner, who create 95% of seller-held mortgages, won’t be able to qualify buyers under the same underwriting standards that banks are required to perform, and therefore the cash flow notes won’t be created.

If this is enacted it also will remove access to housing for millions of Americans, because seller “financing” is the only way people who can’t qualify for conventional loans can buy a house.

We have precious little time to try to stop this. The deadline to comment is FRIDAY, July 22.

Go to:  http://snipurl.com/t2cfq
Then go to snipurl.com/AbilityToRepay to submit your comment to the Federal Reserve.

Moreover, it would allow a buyer a three year right of rescission (they can cancel the sale) if the seller did not properly qualify them. The right of rescission also applies to anyone who buys the note.

Going Beyond Real Estate’s most recent podcast is available by clicking below. Last Sunday’s show included an all star line up including Bruce Norris! Be sure to listen.

http://goingbeyondrealestate.c?om/mp3/gbre070311.mp3