National Builder Takes a Page from Monetizing Your Debt

[don]

One of the nation’s top homebuilders plans to buy its own homes and rent them out.

Beazer Homes introduced its “Pre-Owned Homes Division” today, which will acquire, improve, and rent out recently built and previously owned homes in markets where the company operates.

“Homes targeted for inclusion in the Pre-Owned Homes program will have been built since 2004 by a reputable builder, including homes built by Beazer Homes,” the company said in a release.

“All Beazer Pre-Owned Homes will receive necessary repairs and upgrades to bring them up to strict Company standards.”

Beazer expects to acquire homes at a discount as most will be distressed sales, including foreclosures and short sales.

And Phoenix seems to be the test market, with more than 100 homes expected to be purchased in fiscal year 2011.

Beazer said it chose the desert metro because the rental market for recently-built homes is strong, with an estimated vacancy rate below five percent.

If things work out, Beazer may expand the program to include homes in Nevada or California.

The company said it will target consumers who have elected not to become homeowners, along with those unable to fully qualify for mortgage financing.
The move should help Beazer on a number of fronts, as they’ll be able to remove eyesores in the very neighborhoods they created, which should boost home prices and investor/homeowner confidence, while reducing foreclosures and upping home sales.

Those who rent the properties will eventually be given the option to buy as well.

Completing the cycle . . . .

http://www.thetruthaboutmortgage.com...its-own-homes/

[flintlock]

Re: National Builder Takes a Page from Monetizing Your Debt

Thanks, I just sent this article to a friend who used to work for Beazer.

[don]

Re: National Builder Takes a Page from Monetizing Your Debt

Flint- do you smell federal money inserted between the lines?

Helping Builders to Re-Build America.

Probably more indirect, like no taxes forever.

[lektrode]

Re: National Builder Takes a Page from Monetizing Your Debt

Flint- do you smell federal money inserted between the lines?

Helping Builders to Re-Build America.

Probably more indirect, like no taxes forever.

eye guess the 1st question is: is mr beazer a FoO-fof?
(friend of obama, vote dem, pay2play w tarp/hamp, TBTF, have access to disc window) = friend of FIRE, esp now that the 'danger has passed'... with the risk all socialized-away down into the feds blackhole, and after making a killing putting all them houses up, will now borrow at below rate of inflation to buy em in the rigged-game-auctions and then jack up the rents as fast a the bernank guts whats left of the dollar = BRILLIANT strategy, or what?

HOW DO WE GET IN ON THIS GAME????

[c1ue]

Re: National Builder Takes a Page from Monetizing Your Debt

If I were to guess, this is just an accounting gimmick to try and paper over unsold and/or returned Beazer homes.

An unsold and/or returned (via foreclosure on a Beazer carried note, backing out of an existing contract, etc etc) would normally be effectively a loss - as said home would impair capital and require adjustment as to its value.

However, by renting it out, it is quite possible that Beazer could still list said home at full original capital value and derive some 'income' out of it.

The reality as we all know is that the rental income is a large fraction, but still a fraction, of the amortized capital cost of said homes.

The analogy is: "Losing on every sale, but making up for it in volume"

This would only be worthwhile if it helped Beazer's accounts in some other way.

Note I'm also not including effects on existing Beazer home buyers: rentals historically decrease area home prices.

[Jay]

Re: National Builder Takes a Page from Monetizing Your Debt

eye guess the 1st question is: is mr beazer a FoO-fof?
(friend of obama, vote dem, pay2play w tarp/hamp, TBTF, have access to disc window) = friend of FIRE, esp now that the 'danger has passed'... with the risk all socialized-away down into the feds blackhole, and after making a killing putting all them houses up, will now borrow at below rate of inflation to buy em in the rigged-game-auctions and then jack up the rents as fast a the bernank guts whats left of the dollar = BRILLIANT strategy, or what?

HOW DO WE GET IN ON THIS GAME????

Just to be clear, you do know that on the national level almost all Republicans and Democrats are friends of FIRE. That is how most of them gained and keep their respective offices. The Democrats increase debt by spending on Entitlements, the Republicans on War. Both want a bigger centralized government that protects finance and its interests. There are not many important differences between Obama and Bush when it comes to finance, just who gets in on the gravy train.

[don]

Re: National Builder Takes a Page from Monetizing Your Debt

Just to be clear, you do know that on the national level almost all Republicans and Democrats are friends of FIRE. That is how most of them gained and keep their respective offices. The Democrats increase debt by spending on Entitlements, the Republicans on War. Both want a bigger centralized government that protects finance and its interests. There are not many important differences between Obama and Bush when it comes to finance, just who gets in on the gravy train.

We have one political party in America - the Neoliberal Party.

It has two traveling road crews, that put on shows when deemed necessary.

They are masters at lining their pockets and framing the argument, usually through omission.

Debate in a one-party state is an exercise in Twiddle Dee and Twiddle Dum.

it didn't take Alice very long . . . .

[mmr]

Re: National Builder Takes a Page from Monetizing Your Debt

It appears to me that Beazer is mainly struggling to come up with some new source of revenue now that the new home business in those markets is dead for the foreseeable future.

At this point, most of the large homebuilders have gone out and raised debt and equity to cut their interest costs and strengthen their balance sheets (Beazer has raised $250 million in debt just over the last three months and is sitting on $450 million in cash) and they're feeling pressure to put that cash to use somewhere. Fixing up and renting or flipping existing houses might give them a much higher return on investment than building out their existing developments. I'm curious if the sale price of a new home would even cover the cost of construction materials in someplace like Phoenix or Vegas these days...

In theory Beazer shouldn't be able to avoid a writedown on a home that they take back regardless of what they do with it afterwards. In practice, who knows...

[Jay]

Re: National Builder Takes a Page from Monetizing Your Debt

It has two traveling road crews, that put on shows when deemed necessary.

I really like that.

[c1ue]

Re: National Builder Takes a Page from Monetizing Your Debt

In theory Beazer shouldn't be able to avoid a writedown on a home that they take back regardless of what they do with it afterwards. In practice, who knows...

I agree that the theory prevents the shenanigan I outlined above.

But is the shenanigan of renting out a home and also keeping its full book value any different than calling nonperforming loans as 'good capital' and accumulated interest and penalties as 'earnings'?

[flintlock]

Re: National Builder Takes a Page from Monetizing Your Debt

Here is my take on builders like Beazer. They have a lot of money tied up in land already purchased. That land is next to worthless as there is simply no demand for it. I'd imagine some of their lots in existing communities will get built as well through this. Building a house on the land at least gives them at least some revenue in the form of rents. And keep in mind their actual cost of finishing these homes is fairly low. My brother was President of a rather large home builder and you'd be surprised at how low their actual bricks and sticks cost is, excluding the corporate overhead. So its not such a horrible idea if to buy some time is the goal. It also allows them to keep key employees around and at least have the appearance that they are still a viable entity. But this buys them time, nothing more. I'd watch for the rats leaving the ship soon, as I think it must have dawned on even the most enthusiastic FIRE supporter there, that the jig is up.

As far as buying existing homes, fixing them up, etc. It doesn't sound like a bad idea on paper. Sounds like a logical move. But in reality, new home builders often SUCK at this. Totally different ballgame than building from scratch. Like trying to make an omelet without breaking the shell. Heavy handed subs will either underbid and/or end up screwing up stuff. They'll try to apply new construction costs to remodeling and lose their ass. Seen this happen first hand. At least the homes are not occupied, which helps.

Don I have no doubt the Feds will give them all the support they can, as Uncle Sam will otherwise end up owning these homes of course.

[don]

Re: National Builder Takes a Page from Monetizing Your Debt

Spoken like a man who's been there!

(Not the fed subsidy part!!!!)