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EZCORP, Inc. Message Board

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    • Rental rates are tricky, since there is some value in having stable tenant vs gambling on finding a new tenant at the market rate.

      "I'm only going to pay x."

      That's how sucessful real estate people work. Same as value investors. You can always choose to bid or not. Right now for example, a number of Triple-Net REITs are mostly sitting on the sidelines, becuase cap rates are too low.

      Remeber that residential RE markets are somewhat innefecient because of transaction costs. People don't switch houses year to year in search of the lowest rent/mortgage.

      In a situation were there isn't fresh demand, it can take a long time to clear out inventory via natural turnover *if* transaction costs get high.

      For example, lets say I have a 30 year fixed at 5.75%, current rates of 6.25% fixed are going to discourage me from switching. When you figure getting hit for 8% on both sides (selling old house+ buying new house), you can see why the Residential RE market can get stuck for a long time.

      " I will opine that rental rates for a comparable property are a truer value metric than comparable sales data. "

      No, I agree. I tend to think you need a multi-way perspective to get a value on a property. Of course rental rates are related to sales rates. When the two get out of whack you have a bubble/unbubble.

      For example, rent control greatly distorts the value of rental property. On the otherhand, trying to sell condo's at a price that requires a hopelessly high rental to justify it, isn't sustainable either.

      " One odd thing about real estate is that it is priced based on comparable sales. Should I pay $2.1 million for a 2BR condo along Fort Lauderdale's Riverwalk just because someone else did last week?"

      That's what the seller thinks. But remember that prices are set by the buyer.

    • One odd thing about real estate is that it is priced based on comparable sales. Should I pay $2.1 million for a 2BR condo along Fort Lauderdale's Riverwalk just because someone else did last week? Or should I say that's their problem? I'm only going to pay x. Of course the owner would think differently and an agreement might never be reached. During the dot com bubble creative valuations evolved to justify prices compared to other companies in the same space. Well now traditional valuation metrics are back.

      I realize Divi knows more about REITS than most of us and anyone in real estate will disagree but I will opine that rental rates for a comparable property are a truer value metric than comparable sales data.

    • The Miami-Dade stats are the most startling - 29k condos under construction with only 1058 sales in June06. If that sales rate were to continue, Miami has more than two years of inventory with no additional developments coming online, no more apartment to condo conversions and no current owners who bought over the last ten years feeding the supply side. If a retailer had two years+ of inventory would that be concerning?

      -still renting :)

    • "However, I don't think it will crash. A guy down the street from me is selling his home for $1.5 million. He bought it five years ago for $1 million. That is $100,000 of appreciation per year. Not bad heh?"

      Depends, will the person who buys it experience the same appreciation. There is also a big difference between what you list and what you get.

      The IRR on that house, probably is alot less than 20% after you factor in fixed costs, debt service, closing costs and the realtor's comission (6% on the back end).

      http://money.cnn.com/2006/05/04/real_estate/realestatetips_selling/index.htm

      There are going to be alot of people frozen into investment homes. Cant sell it, and can't walk out on it.

      " I think 2007 will be a better year for the real estate market than 2006, as the fed will begin to lower rates, and people will be able to afford "more" of a home."

      That depends alot on the market for mortgages. There is a big difference in the market for confirming mortgages and non-conforming mortgages.

      Since the investment mortgages/over levergaged/bigger than $430,000 are Non Conforming, as that market tightens up problems will ensue.

      Just look at the FICC numbers and share price. (BTW if you have some risk tolerance FICC is a very good buy.)

    • short_seller_extraordinaire short_seller_extraordinaire Aug 19, 2006 11:32 AM Flag

      Here is another one on with the same message. But Roach is nowhere near as cute as Sounders is. :-)

      http://www.morganstanley.com/GEFdata/digests/20060814-mon.html#anchor0

      By the way, Roach is a perpetual bear who has some time ago went bull (yeah go figure) and now back to bear.

      • 1 Reply to short_seller_extraordinaire
      • SSE, note that the article directly underneath Roach's article says that US economy willpick up as a result of Global Ex-US demand.

        My own guess goes something like this.

        The Housing bubble starts deflating in late 2006/2007. Tighter underwriting standards/higher interest rates make it harder to get new mortgages for sketchy buyers.

        So, people keep paying mortgages even though they are underwater. As housing prices fall, it becomes hard to switch out of an underwater house to a cheaper smaller house.

        I basicly, see a frozen "stagnation" secenario in which housing/mortgage activity slows down alot, and there is a bitter burden of servicing all that debt.

        How this affects everything else is anyone's guess. Markets which got overbuilt in the absence of demand, sustained by cheap financing/land (I.e florida and the rest of the sunbelt) will experience a different set of conditions from where there was a supply constrained bubble (California/Northeast).

        Different bubble different outcome.

    • Barrons has an article this weekend on the "No Money Down Disaster"...

      http://online.barrons.com/article/SB115594208047539900.html?mod=9_0031_b_this_we
      eks_magazine_main


      a) 32.6% of new mortgages and home-equity loans in 2005 were interest only, up from 0.6% in 2000

      b) 43% of first-time home buyers in 2005 put no money down

      c) 15.2% of 2005 buyers owe at least 10% more than their home is worth

      d) 10% of all home owners with mortgages have no equity in their homes

      e) $2.7 trillion dollars in loans will adjust to higher rates in 2006 and 2007.

      f) The following figures are from Washington Mutual's annual report: At the end of 2003, 1% of WaMu's option ARMS were in negative amortization (payments were not covering interest charges, so the shortfall was added to principal). At the end of 2004, the percentage jumped to 21%. At the end of 2005, the percentage jumped again to 47%. By value of the loans, the percentage was 55%.

    • "More than 2.3 million homes were bought for investment last year, according to the National Association of Realtors. That was nearly 28% of all homes purchased in 2005. "

      And if 25% of the investors go under, it adds back 7% of yearly production to housing supply. Figure about an 1.5-2year lead time before the forclosures start.

      This "snow" effect of realestate from 2002/2003/2004/2005 returning to the market in 2007-9 is what really scares everyone. It's the vast unwinding.

      BTW: Garp don't confuse the Commercial Real Estate Bubble with the RE bubble.

      The CRE bubble is the result of cheap loans leading to alot of buying and selling of existing properties.

      The Residential bubble,is the result of cheap loans, excess inventory, and abnormal demand from flippers. It is also a much much bigger bubble. What the flippers don't seem to understand is that buyers want to own property for the same reasons they do. The market for people who want to rent housing is not big enough for everyone.

    • " So I guess these office condos I keep driving by in business districts are basically office spaces for sale rather than for rent. Perhaps they are commercial real estate flippers :) "

      Yes, the financing for projects like that can be gruesome. JRT owns $31.7 million of $63.4 mezzanine loan used to finance a "Garden Apartment Condominium Conversion" in florida. The loan interest is Libor+1800 with a 2% exit fee.

      The person on the other side of that loan is a "motivated seller."

      "But why would a prospective tennant want to buy such a property when businesses periodically outgrow their properties and move when their leases expire?"

      They don't want to: But please don't tell the developer that, it can aggravate his ulcer.

      " I guess it comes down to price and/or a lease vs. buy analysis. "

      Not really, Commercial mortgages are such a hassle that most businesses rarely buy any property.

      People buying small scale office space just arent in the market for financing, so most of them could never afford. In NYC or LA, it might make sense, but there is tons of office space in florida.

      "Options and real estate are highly leveraged investments."

      Real estate isn't. First mortgages are for 75% LTV or 3:1 leverage. If you want to borrow more than that, it gets very expensive very quickly.

      Where you hear about leverage in RE is when you have leveraged equity investors. I.e people who borrow money to make the down payment. In Florida These people are screwed, because the condo's will never earn enough rent to pay all the expenses.

      "I suppose a pre-construction real estate speculator's stop loss could be to walk away from the deal and lose their deposit."

      Most people don't have the guts to admit they made a $40,000 mistake.

    • Garp, could you take a look at my post on the military bill in RoyalReturns?

    • IBD has an article on the subject...

      http://www.investors.com/editorial/IBDArticles.asp?artsec=19&issue=20060818

      More than 2.3 million homes were bought for investment last year, according to the National Association of Realtors. That was nearly 28% of all homes purchased in 2005.

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