TonyCinTX

Winners and Losers from the Mortgage Mess

The winners from this fallout are builders that are not involved in the housing boom or credit markets. For commercial builders of shopping malls, government buildings, theaters, apartments, office buildings, medical buildings, warehouses and factories and replacement and renovation of all these, labor and materials are getting cheaper. There is an oversupply of both and reduced demand. For a solid investment backed by logic and experience, money is there to be loaned. I wouldn't bet on credit cards.

For investors with capital, there are some desperate people and banks that cannot afford to wait two or three years for prices to recover, and that may mean a profit. I am not doing it, but it may be possible to find houses selling cheap, at auction or otherwise, that could be rented to cover 90-95% of the mortgage, and will appreciate in value 25% or so by 2012. That is far more than a respectable investment. Suppose I have to put 15% down and pay 6.25% for a mortgage and the rent only covers 90% of the mortgage payment. If the property appeciates 25% in the next four years, my total investment is 22.5% of the paid value, maybe 25% with repairs, while my profit is 25% of the paid value 100% in four years. That is an annualized compounded return of 19%.

As with all booms and busts, the winners after the bust are the people with the capital and judgment to acquire good assets cheap. As people lose their houses they must live somewhere and if it isn't the street, apartments and rentals are the only place left. I expect a new boom in trailer parks.