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Investors Hoping To Find Gold Instead Found Themselves Dragged Into The Mire Of Financial Troubles

A report from the Houston Chronicle in Texas. “These investors fix and flip, and the faster they sell a home, the lower their holding costs and the greater their profit. That’s the way it’s supposed to work. But two years after Harvey, dozens of investor-bought homes remain vacant, standing in various combinations of repair and neglect. In one Wimbledon Champions home, a newly renovated breakfast bar overlooked a pool half-filled with emerald green water – where the pool filter should have been lay a nest of disconnected pipes.”

“Investors raised more than $1 billion to invest in damaged Houston homes in the wake of Harvey, much of it in the form of so-called ‘hard money’ loans. Wimbledon Champions, where more than 165 of the community’s 1,100 homes sold after the hurricane, was one of the most impacted neighborhoods. Kevin Johnson, a Wimbledon Champions homeowner who stopped working for six months as he restored his home was puzzled by the condition of a house around the corner. Eventually, he paid his own landscaper to tend the yard.”

“‘It was horrendous,’ he said. ‘I think the owner just walked away from it.'”

“He was right, in a way. The owner who had walked away was not the family that had lived in the home for a quarter century before the storm. It was Home Today Inc., a crisis investor based outside Las Vegas. Home Today didn’t walk away from just one home. It walked away from dozens. In the six months after the disaster, the company bought 72 homes in Harris County, according to documents from the Harris County Appraisal District, making it one of the top buyers of Harvey-flooded homes. Two years later, 61 of those homes had entered foreclosure.”

“The Nevada company has been sued by contractors, who claim to be owed $195,000. Harris County and the Spring Independent School District have also sued, saying they were owed a cumulative $34,343.85. Home Today’s lenders have been trying to recoup $15.7 million they lent the company.”

“Representatives of Home Today, which calls itself a nonprofit on its website, did not respond to multiple phone calls and emails.”

“The company was not alone in its troubles. Many investors hoping to find gold in the floodwaters instead found themselves dragged into the same mire of financial troubles faced by homeowners throughout the region. And because many bought at scale, their difficulties had an outsized impact on communities. More than 150 homes purchased by investors within six months of the disaster have entered foreclosure, data from Foreclosure Information and Listing Service shows.”

“Home Today was able to borrow more than $11 million from LendingHome, a San Francisco company despite reporting just $622,000 in revenue the year before. Home Today then moved on to other lenders, borrowing $3 million from Civic, a lender based in Redondo Beach, Calif., then another $14.5 million from Anchor Loan, a lender from Calabasas, Calif.”

“The lenders said repaired homes sat on the market for longer than Home Today had expected. When sales are slow, an investor’s costs add up. Every month a property remains unsold means an additional a month’s worth of taxes, insurance, utilities, homeowner association fees and landscaping costs eating into the bottom line. Selling quickly is especially important for investors who take out loans, which often come with double-digit interest rates.”

“Investors that walked away from unprofitable properties left houses in a type of purgatory as the community around them tries to heal. Others have stuck by their investments despite unforeseen costs. One was Fred Farah, who bought more than two dozen homes in the area, hoping that the market would recover within a year and a half or so, allowing him to make a profit of 20 percent to 30 percent.”

“But despite updating the homes, Farah, who did not bankroll his purchases with hard-money loans, has had a hard time finding buyers. After listing one home for more than 100 days, he decided to start looking for renters. ‘I put it on the market in March,’ he said. ‘Customers — when they hear ‘flooded,’ they’re not listening to buy.'”

“Further complicating sales efforts, sellers who have to contend with the stigma of flooded homes also are dealing with competition from other investor-owned houses in the same neighborhood. Because so many homes turned over at the same time, there’s a bumper stock of renovated homes on the market.”

“Meantime, holding costs have eaten away Farah’s profits. He has offloaded some of the homes to other investors, who are renting them out. And to stanch his hemorrhaging costs on the remaining homes, he has rented those out as well, becoming a landlord — something he never intended. He wasn’t alone. Only seven Wimbledon Champions homes had been listed for lease on the Houston Association of Realtors website in the two years before Harvey. In the two years after, that number increased to 49.”

“Meanwhile, Farah still hopes the market will go up enough to make the homes worth selling after the leases are up. ‘Maybe one more year,’ he said. ‘Maybe the prices go up and people forget the hurricane there. You still have a chance.'”

This Post Has 58 Comments
  1. ‘Farah still hopes the market will go up enough to make the homes worth selling after the leases are up. ‘Maybe one more year,’ he said. ‘Maybe the prices go up and people forget the hurricane there. You still have a chance’

    You’re fooked Fred.

    1. Or maybe buyers balk at purchasing a formerly flooded house flipped by vulture capitalists and remediated by cowboy contractors and illegal alien workers who cut corners and did shoddy work with substandard materials to maximize their profits, while guarenteeing long term issues like black mold for the hapless marks who would buy such a shack.

  2. ‘Representatives of Home Today, which calls itself a nonprofit on its website, did not respond to multiple phone calls and emails’

    It is a non-profit! Proof is in the pudding.

    ‘Home Today was able to borrow more than $11 million from LendingHome, a San Francisco company despite reporting just $622,000 in revenue the year before. Home Today then moved on to other lenders, borrowing $3 million from Civic, a lender based in Redondo Beach, Calif., then another $14.5 million from Anchor Loan, a lender from Calabasas, Calif’

    Yellen bucks looking for a place to die.

  3. ‘Investors raised more than $1 billion to invest in damaged Houston homes in the wake of Harvey, much of it in the form of so-called ‘hard money’ loans’

    Where’s Diane on this? Surely CNBC is interested in watching a billion Yellen bucks evaporate in shack gambling?

    1. From Wikipedia …

      “Hard money is similar to a bridge loan, which usually has similar criteria for lending as well as costs to the borrowers. The primary difference is that a bridge loan often refers to a commercial property or investment property that may be in transition and does not yet qualify for traditional financing, whereas hard money often refers to not only an asset-based loan with a high interest rate, but possibly a distressed financial situation, such as arrears on the existing mortgage, or where bankruptcy and foreclosure proceedings are occurring.”

    2. Surely Senator Running Deer and Maxine Waters, in their key positions on the House Financial Oversight Committee, are even now launching a vigorous investigation of the loose lending practices highlighted by this and other cases. Furthermore, as self-described champions of the middle and lower classes, these two esteemed Democrats will fight tooth and nail against any attempts to transfer the banksters’ gambling losses to taxpayers.

      I slay me….

  4. This situation puts a spotlight on how corrupt and dishonest the REIC is. Right after this storm (the second 500 year storm in two years – just how do we know what a 500 year event is anyway?) it was reported that there were something like 4,000 foreclosures begun in one month. Only problem was they were initiated before the storm. Didn’t think I’d remember that, did ya REIC?

    Fact is Houston got their shack prices hammered by the oil fall in 2014. Plus they build like crazy down there.

    1. “… it was reported that there were something like 4,000 foreclosures begun in one month.”

      (pssst … there must be some way to link this to Climate Change)

      “Only problem was they were initiated before the storm.”

      (close enough)

  5. Ah, the perils of competing with a builder in a yet to be completed subdivision –
    I noticed this one: https://www.realtor.com/realestateandhomes-detail/629-Honey-Dew-Ln_Fort-Mill_SC_29715_M55378-85398

    PRICE ADJUSTMENT – SELLERS WANT AN OFFER.

    Checking the county records, it looks like the sale price back in 2016 was $331k, and they’ve been slowly chasing the market down over the past 4 months. This subdivision is about a year to a year and a half away from being completed (selling out).

    The bare bones model currently starts at $273k before extras.

    I’m keeping an eye on this. I like the community and sense there will be some really good opportunities down the road.

  6. “When sales are slow, an investor’s costs add up.”

    Oh? In what way?

    “Every month a property remains unsold means an additional a month’s worth of taxes.”

    (ouch)

    And insurance

    (ouch)

    And utility costs.

    (ouch)

    And homeowner association fees.

    (ouch)

    And landscaping costs.

    (ouch)

    Wow, that’s quite a list. Anything else?

    Well, there’s this: Loans, which often come with double-digit interest rates.

    (double digit interest rates. ouch)

    Sign me up.

  7. More than 150 homes purchased by investors within six months of the disaster have entered foreclosure, data from Foreclosure Information and Listing Service shows.”

    Die, speculator scum.

  8. “One was Fred Farah, who bought more than two dozen homes in the area, hoping that the market would recover within a year and a half or so, allowing him to make a profit of 20 percent to 30 percent.”

    Greedhead POS. Hope he goes bankrupt

    1. “finally going to be held accountable”

      That question is a joke, right?

      And now back to your regularly scheduled episode of Orange Man Bad.

      1. Does that Hillary have anything in those emails that will lower my prop taxes, HOA fees, insurance ? If so I dont care if Hillary whomever sends emails to Magilla Gorilla…. send away!

        1. You’re missing the point. If a corrupt and venal .1% in the financial sector and their political accomplices can break the rules with impunity, then the rule of law no longer applies. That’s a much bigger issue than you and your property taxes, HOA, etc. But your response indicates what a nation of sheep the USA has become.

          1. Agreed. As long as they can have a new SUV in the driveway, a boob job for the wifey and the latest iPhone every year, far too many people just don’t care about endemic corruption.

  9. October and the holiday season are on us again. How’s it looking for homemoaners trying to sell a shack who have yet to attract an offer they can live with?

    October. This is one of the particularly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August and February.

    Pudd’nhead Wilson’s Calendar
    Mark Twain

    1. There was a large group of Trump supporters out this morning in Poway with US and Trump flags countering the weak weekly anti-Trump protesters. It was quite a sight!

        1. Hillary lost the election in 2016.

          My mom asked me today what I thought about impeaching Drumpf and I told her civil war, states seceding, etc.

          Drumpf won 2,600 counties, 84% of the U.S. geographic area. Where do the people in the counties that voted Hillary think their food and electricity comes from?

          “You cannot invade the mainland United States. There would be a man with a rifle behind every blade of grass.” — Japanese Admiral Yamamoto

          1. “Drumpf won 2,600 counties, 84% of the U.S. geographic area.”

            Voters are people, not units of geographic area.

          2. “What is the electoral college?”

            They’re working on destroying that. It’s a #Narrative.

            My greatest hope for the 2020 election is that Trump loses the popular election by 10 million votes and wins the electoral college by 1.

            The YouTube videos of Portland burning itself to the ground will be glorious. People born after 1990 shouldn’t be allowed to vote.

  10. I don’t understand all the hate against investors. This is private, non-government capital coming in to refurbish homes damaged by storms. This is how free markets are supposed to work. Would you prefer some huge government program to improve these homes. These investors aren’t responsible for the government programs that artificially inflate the price of homes. There seems to be an underlying resentment of the wealthy, similar to what I hear from the Socialists/Communists.

    1. In not that anybody cares that somebody is making some money off a investment. It’s that it’s a fake price bubble that will crash and most likely tax dollars will be used to bail it out

      Also, shelter is a basic need and when the majority gets priced out, based on speculation driving the prices, it’s a bad overall result. So, people’s needs like shelter are screwed.

      It would be like taking water and charging 20 dollars a ounce for it, when it’s only worth 10 cents a ounce.

      1. It’s that it’s a fake price bubble that will crash and most likely tax dollars will be used to bail it out

        This is where the problem lies. Stop this and things will sort themselves out — speculators will lose, and learn not to speculate in the future. Others may learn by example.

        Those who can make it work due to hard work, skills, etc, will prosper, as they should.

      2. If your “betters” could fit an electric obedience collar on every citizen they would do it tomorrow morning. The 2nd is the only thing holding them back.

        1. The “bullseye” would fit perfectly in a Socialist propaganda piece. What makes the predatory? They are taking risks where others are fearful. This is one way capitalism works. The housing stock is improved by people buying these homes at their current market value and taking large risks in an effort to gain a profit. Do you prefer these homes just sit there in disuse? I don’t see them as speculators unless they based their model on unrealistic expectations for market appreciation, but who cares if someone speculates with their own money and “hard money” from other investors? When people do it using government backed loans, ok, but this reaction just seems misguided and coming from a place of anger and resentment which is what generally drives the Left.

    2. “These investors aren’t responsible for the government programs that artificially inflate the price of homes.”

      They certainly are responsive to the government programs to ensure that real estate always goes up. How else do you explain so much dumb money chasing real estate riches based on the presumption that double-digit annual rates of housing price increases are forever?

      1. Our government is actually subsidizing risk taking. I don’t think it is necessarily irrational to invest if you can put three percent down on a house and you don’t need to assume double digit appreciation to have that make sense. If you put 5K into a $100,000 house and you can get it to break even on cash flow, an annual appreciation of two percent gives you a 40 percent return on capital before you consider tax benefits. The system is set up to encourage this kind of risk taking–I’m not sure why you would blame the person who takes the risk.

        1. ‘I’m not sure why you would blame’

          We’ve done the “internet morality” thing a few thousand times. Waste of time.

        2. Real estate is a private good and shelter is a basic necessity. If there is a good reason for the government to be in the business of driving prices to a level where few U.S. households can afford to buy a home, while enriching wealthy speculators in the process,
          I’d love to hear your explanation.

          I’m personally looking forward to watching the latest wave of government-incentivized real estate speculators having their asses handed to them.

          1. More than anything, I’m just hoping that affordable shelter somehow returns, in the form of rents and purchase prices.

          2. I’m just hoping that affordable shelter somehow returns

            Hear hear…and that we still have jobs at the same time.

        3. “Our government is actually subsidizing risk taking.”

          That’s the first subsidy.

          The second one is the bailout measures that are inevitably put into force when the government-sponsored speculators see their high-risk gambling schemes collapse.

          Why taxpayers who want no part in either encouraging or bailing out greater fools should be forced to do so is something that I don’t understand. Whatever the gamblers blow their Yellen bux on is typically a pure waste of real resources as well; case in point: luxury airboxes in the sky.

      2. “How else do you explain so much dumb money chasing real estate riches based on the presumption that double-digit annual rates of housing price increases are forever?”

        Dumb borrowed money still doesn’t quite understand that houses are rapidly depreciating assets.

        Kaunakakai, Hawaii Housing Prices Crater 19% YOY As One Broker Discloses “Appraisal Fraud Is Rampant”

        https://www.movoto.com/kaunakakai-hi/market-trends/

    3. “I don’t understand all the hate against investors.”

      Speaking only for myself (since I am the only one at my keyboard) I do not express hate against these investors only a bit of amusement. What seems to me to be an obvious way to lose large amounts of money appears to be a surprise to them.

      “There seems to be an underlying resentment of the wealthy, similar to what I hear from the Socialists/Communists.”

      Personally I do not resent the wealthy, instead I wish to join their ranks.

    4. ‘Would you prefer some huge government program to improve these homes’

      They got that too.

      ‘There seems to be an underlying resentment of the wealthy’

      No, I just think it’s funny when they take an a$$-pounding gambling on shacks. The lenders took an a$$-pounding too!

  11. Government really failed for the last 40 years regarding the American pie, or I call it the big beehive. Corrections are needed, but it’s one big distraction by Special Interest as to those solutions. It’s really discussing to watch. People selling overpriced shelter to each other is a disaster.

    1. “People selling overpriced shelter to each other is a disaster.’

      Or not. Positioning yourself in the middle of these transactions can make for some very easy money.

    1. fastFT US economy
      Cooling US economy muddies waters for Fed
      Data shows key US business investment gauge unexpectedly fell
      Mamta Badkar in New York September 27 2019

      A key gauge of US business investment unexpectedly fell in August and consumer spending slowed, signalling the US economy cooled in the third quarter and complicating the outlook for the Federal Reserve.

      Personal consumption expenditures, or consumer spending, which accounts for the bulk of US gross domestic output, climbed just 0.1 per cent month on month — its weakest showing in six months, the Department of Commerce said on Friday.

      That missed economists’ expectations for a 0.3 per cent increase and cooled sharply from the downwardly revised 0.5 increase recorded in July.

      Spending slowed even as personal incomes rose 0.4 per cent, in line with expectations.

      Consumer spending has been the main engine of economic growth. Even as GDP expanded at a slower 2 per cent in the second quarter, it was the American consumer that helped spur the economy, with the strongest spending growth in four-and-a-half years.

      However, the latest batch of data suggest the longest US expansion since 1854 continued to lose momentum in the penultimate quarter of the year as Americans tightened their purse strings.

      Paul Ashworth, an economist at Capital Economics, said: “The August personal spending figures, which incorporated downward revisions to earlier months, suggest that third-quarter real consumption growth was 2.6 per cent annualised, well below the 3.5 per cent gain we previously anticipated. “As a result, we now estimate that third-quarter GDP growth was 1.5 per cent rather than 2.0 per cent.”

    2. The Wall Street Journal
      Economic Data
      Global Slowdown Spreads Across U.S. Economy
      Economists lower third-quarter growth estimates after household spending nudged up 0.1% in August
      By Sarah Chaney and
      Paul Kiernan
      Updated Sept. 27, 2019 4:30 pm ET

      Consumers slowed spending and businesses cut back on investment in August, signs that a wobbling global economy and rising tariffs are sapping U.S. economic momentum.

      Personal-consumption expenditures, or household spending, edged up a seasonally adjusted 0.1% in August from July, the Commerce Department said Friday. The modest growth marked a sharp pullback from the first seven months of the year, when spending rose 0.5% a month.

    1. I think there are some industries that affect everyone. The housing industry, the medical industry, and the food industry are examples.

      When you have speculation or monopoly price fixing driving up the price, than people get basic needs denied, or they have to put too many dollars toward rigged prices. Than people start borrowing for other needs.
      When Wall Street messed with real estate by this easy lending it created a bubble of speculation demand with fake appreciation that will crash. It’s no different than what happened in 1929 with the buying stocks on margin.

      People who never invested in the stock market were taken down by the stock market crash when they lost their savings when the Banks failed.

      In other words, if a large number of people are gambling it can take you down also even if you didn’t gamble. The last housing crash cost the taxpayers about 10 trillion or more.

      1. The huge difference between 1929 and today are the demographics, e.g., longer non-productive existence with much higher per capita expenses.

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