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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Cogito Ergo Sum who wrote (101703)	6/30/2013 1:24:55 AM
From: Haim R. Branisteanu	Respond to of 220293

Returning to Wall Street, the ultimate objective is to profit from price appreciation, not rental income, although a name has been given to the strategy -- "REO to Rental, with REO standing for 'real estate owned'" -- and financial creativity is once again finding its way into the investment world. The hedge funds and private equity firms who have bet on the REO to rental market had a more sophisticated exit strategy in mind than simply flipping their properties to the next sucker. The plan has been - and still is - to sell the cash flows from rental income and property sales, by using them as collateral for bonds. Investor appetite for such REO to rental securitizations, though, may have been overestimated, not least because the bonds are riskier than Wall Street claims. Rating agencies say the dangers include not just another economic downturn, but also failures on the part of the rental property managers, and risks associated with the lack of historic precedent for the REO to rental market. The hedge fund game has been in play for a while now, and here's another example that was reported last year, while highlighting that economies of scale are a problem. "We view (single-family housing) as a real continuation of our strategy," Cogsville said, adding that his company wants to buy more homes to gain economies of scale needed to manage scattered properties. "It is different, but it's doable." Cogsville offered $11.8 million on the Chicago homes, putting $2 million down and agreeing to pay the rest over time by splitting rental income with Fannie Mae. What remains to be seen is how the new ownership will affect neighborhoods, and how long investment firms will stick around if prices rebound. Although there's plenty that Bill Gross has added to the investment discussion as of late, there's only one statement that he made that is in line with my observations. The Fed itself may be driving in a fog to think that it's a cyclical as opposed to a structural problem in terms of our economy. seekingalpha.com