new thread for Vegas market and foreclosure issues

I deserved that, I think

I do, never said you did

Well I hear the illegals are heading the other way these days, maybe it’s already started. I’ll put a tent up in the back yard for ya

Kidding aside I don’t think the HF’s are going to get time to really get to grips with the PI market. A few will wet their feet but my guess is many are still in the evaluation phase and trying to figure out how things are going to work with big numbers and who they’re going to have to partner with to make this work.

Over the last month I’ve been researching in depth looking for the smoking gun that will set off the next big crash. The straw that breaks the camels back so to speak. Most people are watching Europe and expecting bank failures there to ignite things but I’m coming to the conclusion that maybe it’s the US via JPMorgan that will set this ball rolling.

Two guys I follow, Tyler Durden and Jim Willie, have a track record of making some pretty incisive calls over the years. While they’re in the minority and not a lot of economists/analysts agree with them on everything they non the less make a good case to support their conclusions.

Two interesting articles from Jim Willie – heavy reading but up your ally Jay
http://www.marketoracle.co.uk/Article34819.html

http://news.goldseek.com/GoldenJackass/1339012800.php

Eighteen months ago you could read analysts/economists opinions and their was a general mood of ‘this is salvageable’. The contrarian’s didn’t believe so and were in the minority. Few were prepared to put careers on the line and take a contrarian stance. It’s too much for some of these guys. A bit like a priest admitting maybe there’s no God. Anyway that now appears to be changing rapidly. Not only is there a significant hint that things probably aren’t going to be fixed but that things are going to get a lot worse near term. Even MSM is starting to report hints of economic reality. To me that’s a paradigm shift in thinking from the mainstream.

The kind of things I’m seeing now suggest to me that we are very close to breaking point. I’m thinking weeks to months. However, I don’t underestimate the powers that be from delaying this thing a little longer. When central banks hit the print button en masse I think we’ve reached that point.

So how does that affect the property market?

JP Morgan is one of 5 super banks in the US. Their (more like ours) problem is they are all cross collateralised with each other to the tune of some $600T in derivatives. Willie and Durden speculate that JPM could be in the hole to the tune of a Trillion after its “IRSwap hedge gone wrong”event recently. That’s still playing out. Willie mentions a European Banker inside source who suggests that;

…a trigger having gone off in a chain reaction that is not stoppable, which will bring down the USTreasury Bond market and topple the USDollar.

US dollar conjecture aside I get the distinct feeling that things are unraveling at an accelerating pace.

The problem with these 5 super banks is that they’re not too big to fail they’re too big to rescue even though the US government has said it will backstop their derivative trades. That leads to Europe where they get something like 46% of their loans from US banks. Euro banks collapse instantly if US banks hit the wall. It would require massive central bank intervention to hold things together and that means massive printing. You basically have a Euro US banking system that is both insolvent and illiquid without CB support

I’m a dumb rookie when it comes to economics but even I can see that an implosion at just one of the big 5 will suck all of them down the plug hole and that leaves no single or even group of entities big enough to stop it. Forget the 2008 GFC that’s just a minor glitch compared to the next melt down.

I know you guys like to get all patriotic and think the US is big bad and beautiful enough to dig itself out of any mess but I’m afraid this one is going to be a bridge too far even for the US economic machine.

If even half this speculation comes to be I would expect to see the RE market take a hit at all levels and across the board initially. I think many renters are going to turn into squatters. The guy who is under on his mortgage and not paying is effectively a squatter now. By the time he gets to renting he’ll be well versed in the art.

Absentee international investors are going to get hammered big time. My guess is that 80% of PI’s are incompetent at best. In a melt down they will be the initial risk as they fold or panic. They won’t become an opportunity until the market emerges out the other side.

This is how I summarise the US market; a lot of people doing deals and treating things as a relatively normal business cycle albeit more volatile than normal. They just don’t realise they’re on the Titanic

To the Frecks/Jay et al…

When GFC happened in 2009 and I decided not to be the "woulda coulda shoulda but didn't" person, not many were saying invest in real estate as it was on a downward spiral to heaven only knows where (most were saying a lot of the diametric opposite) and all holding up Detroit-like scenarios….many of the properties bought back then WERE still going down – so back then EVERYONE who invested asked the crystal ball projection HOW BAD COULD IT GET? Would wherever I was going to buy be another Detroit? So I went into doomsday thoughts… haven't revisited them but…. it isn't a bad idea to start ANY investment with WORST case….

My Personal DOOMSDAY Analysis 
1) How bad could it be for yield?  To be cash neutral on each of my houses I worked it out to the precise dollar, on one I needed PRECISELY $225 a month coming in. Insurance and taxes and maintenance…. Any cent over that, for me, would, in a worst case scenario be a win. If I had to – absolutely had to, I would rent my properties at $230 and I would be laughing (probably more so because the world would SUCK at that point)…. – I would be very very hungry but I would be okay AND have a roof over my head.

2) Would it rent? Then it was about buying where I COULD rent – which is why Las Vegas came up – not solely reliant on the US economy and they would have to bulldoze 1/2 of a America before Vegas would go under… then if it came down to it and they bulldozed 1/2 of Vegas, they would bulldoze condos first, townhomes second, 1 bedders and 2 bedders would be tougher to rent but at $225 and a minimum of 3 bedrooms and my properties would be close enough to amenities to survive. Every industry town in the US could collapse and be pulled off shore but my bet was that those suckers who were left would start wanting to gamble – even if it were out of misery…. I bet ultimately on addiction I suppose to the bright lights and big city….  In Atlanta Delta could fold, Home Depot could relocate to Vietnam, Coca Cola relocate etc etc….. tough to move Vegas or its appeal. Although if it became super cheap here, everyone would move here as labour costs would be down.

3) Capital Growth? I was never going to predict and buy at absolute rock bottom (history would decide that) – but anything 40% below rebuild cost was going to be good enough for me – that was my capital growth projection…. one day, some day, these properties would probably be worth at least rebuild cost.

4) The US economy tanks…. the US dollar is worth a pittance….. the peso outstrips it, the Vietnamese dong looks like a Bahraini dinar by comparison?? That was okay, my cost of living standards are based in the US. In the US, my bricks and mortar would equate…. ever shopped in East Germany in the day? I may not be able to travel outside of the States and afford a loaf of bread but I would be able to afford it in the US…. My few overseas properties would make me a MILLIONAIRE (which in this scenario would be 1 AUD = 1 TRRRRILLLLIONN USD)

Jay is right – people need to live somewhere and very few Americans are looking to relocate overseas. That means 300+ million breeding Americans have to live somewhere – cost of living may end up dire, people foreigners may end up shopping on Rodeo Drive as thought it is Patpong but ultimately – like Greece et al, chances are they eventually would just have to forgive the debt…..in the interim…. what would people invest in?

So, my PERSONAL doomsday prediction = still worth doing. 

BUT…… if I was sitting in OZ, would my doomsday prediction work – no….obviously not…so,  if you seriously think the USD is going down, that all hell will break loose, the greenback becomes the dong… and somehow Americans stop wanting to live in any housing, then obviously this is not such a great idea – unless you love VERY VERY VERY VERY cheap tax deductible trips to the US.

However, the definite comment from Freckle I agree with regardless is that absentee landlords are going to learn a few lessons about property management in the US… no question….. absolutely 100% accurate… that won't even take a meltdown – that is norm.

Why I just keep saying it – whether you are self managing or have a property manager – check yourself if the rents are in!

So, to play the neutral card…. um it gets back to your personal Tarot and crystal ball….and where you are sitting in that crystal ball projection…..literally….

Jay – your HF industry PI entry vehicle. Bloody scary if this is the way it’ll go. Jez I can see a few tears over this in the months/years ahead.

http://implode-explode.com/forum/viewtopic.php?p=290686#290686

HF minimum investment is 1,000,,000.00 so kind of seperates the mens from the boys.

I’m guessing you missed at least 3 zeros from the above number.

Your IRA 401k stuff is similar to SMSF (self managed super fund) here. Strict rules about investing in property though. Not my field really

While there might be trillions sitting in funds I suspect releasing it would not be that easy. If large amounts are able to be mobilised and head in the direction of property I can see some major market distortions and ultimately problems further down the track. Like I suggested earlier I think the US PI market is beginning to resembling a casino more than a serious investment opportunity.

Aagh ha an iPad dude…. all is revealed..