‘Squatter’ rent masks regular rents. Flip tax delinquent properties. Post 168

Benefit To US Economy From Deadbeat Squatters: $50 Billion Per Year

ZeroHedge.com 03/30/2011   by Tyler Durden

About a year ago, Zero Hedge first floated the then apocryphal idea that the economy is receiving an implicit boost from the money “saved” by squatters: people who no longer pay their mortgage, but due to banks’ unwillingness to have a price discovery event on the home (in the form of an auction on REO or foreclosed properties) which would force mark bank assets far lower (due to impairments on the mortgage as opposed to it merely being in “Special Servicing” status), continue to reside in the property. Furthermore we disclosed yesterday, per LPS the average delinquency period is now 573 days meaning the typical deadbeat resides in their home for over a year and a half without paying a single cent. And since there are millions of delinquent mortgages, all this adds up to a lot of money. How much? … In “Rental income and “Squatter’s Rent” JP Morgan’s Michael Feroli kills two disinformation birds with one client note: first he debunks all myths that “rental income” is surging, as was reported in glaring headlines in a variety of propaganda media outlets…This is patently false. As Feroli explains: “This rise has little to do with landlords getting more from their tenants. In fact, it has very little to do with what speakers of the English language would normally consider “rent.” Instead, it mostly reflects mortgage payments of the household sector coming down, in part because of the aggregate decline in household mortgage debt due to net cancellation of mortgages associated with foreclosures.” In other words, surging rental income is nothing more than “squatter’s rent” saved by not paying one’s mortgage. As to quantifying this amount – per Ferroli until recently it was $60 billion a year! This is a stunning 0.5% of GDP. Luckily there is good news: this unethical and artificial “boost” to the economy is finally declining… and is now only $50 billion on an annualized basis.

See the entire article:  http://www.zerohedge.com/article/benefit-us-economy-deadbeat-squatters-50-billion-year

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Coach Mitch’s REFLECTIONS™

 

The mortgage mess is joke that keeps on giving

There is some great information in this long blog. Go read it, but be prepared for caustic comments by the blog readers.

This commenter has an interesting idea, and a sense of humor.

I am surprised the Banks have not yet colluded Treasury to treat the value of Squatter Rent & foreclosure deferral as a current financial benefit, as it would allow the Banks to write down the current lost interest against current profits, create a taxable event for the Squatters which Treasury would tax, and the Banks would still be able double dip on their post-foreclosure write downs and loss sharing agreements. They must be getting rusty.

Don’t miss the big points

• If you’re doing real estate investing, and you are doing rentals, do not count on this bad housing market to force higher rents.

• We are in a bad recession. People are lucky to have jobs and they aren’t asking for big raises. Right now, the ideal is to simply try to hold onto what you have, for as long as you can, while we all hope that the economy will overcome all that the politicians are doing to it.

• The market is still very soft despite a leveling off of the steep decline in some markets. The Option ARM crises is starting to show its ugly face. Yes, this party still has a long way to go.

• The banks are playing their games, but you and I live in the real world. We have to pay our bills and provide for our future.  Use extreme caution when spending monies.

Buy Right to Sell Right

• Especially now, the main thought is: Buy At Firesale Prices – so you can Sell At Wholesale!

• Especially now, tighten up what you think is a “good” deal. Make sure your buying criteria is accurate and complete.

• Your safest transaction is to resell quickly.  This necessitates a very low purchasing price.

• These days, your best friend is the capital gains tax.  Hope that you sell, so you have to pay taxes!  Such are the times we live in.

Beginners Beware

A beginning real estate investor, in this type market, will be overwhelmed with what he thinks are “great” deals. If this were an up market, then buying at 70% of fair market value would be a great deal.

However, we are in, at best, a sideways market, and in most places a somewhat declining market. In some states, the market is terrible.

In a robust market, a beginner could safely buy at 70% of FMV and hope to resell quickly; but not in this market.

The Current Rule

Be certain of the real fair market value, and don’t go over 50% of that value; period.

The Exception  (there always is one, isn’t there)

Use Coach Mitch’s “famous $1 Option.”™, and it doesn’t matter what price you agree to. You are only putting out $1. That is your maximum loss, excepting marketing.

The Answer

If buying, purchase at a price that is so low that you are certain not to be hurt. If the seller won’t sell at that low a price, then use Coach Mitch’s “famous $1 Option.”™ to control the property OR move on to the next prospect.

One of my favorite statements to a reluctant seller is:

“That’s OK Mr. Seller. My partners and I are going to be buying at least two properties this week. I was hoping to see if your property qualifies, but if you are sticking to an amount that I can’t possibly afford, then I guess I’ll just move on. But it’s OK. I still have 37 more properties to look at in the next several days…Good luck to you, and here’s my card in case you have a question.”

This “Push-A-Way” sales technique will, almost always, get a prospect to come back to you with something positive.

See Coach Mitch’s “Ridiculously Simple System…”™ for details.

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