Real estate investors are using hedge funds on short sales to buy up real estate.
Hedge Funds What?
First, what is a hedge fund. Here’s a helpful video, but if you prefer to skip the professor college-like lecture…keep reading.
Etymology: Hedging…to hedge your bets…off-set your risk…in hedge fund world the risk is less not because the bet was safe, but because its part of such a large portfolio…or hedges, the bush…hide something…
Hedger…an adventurous investor. Donald Trump is a classic example. One of the hedgers in his tower is in some deep boiling water. He faked his own death when investors want their money back. Here’s an article to check out.
The Hedger can invest (other people’s money) in debt…a CDS…He can buy bonds…Japan is big with hedge funds right now…debt…Japan’s debt…stocks…from anywhere…a variety of investments…pretty much anything.
What are the rules? There’s just one. 65% of investors need to be accredited. What does that mean? They need to be rich.
So for illustration purposes, a hedger puts forth 45% of the amount and he asks for the rest from anyone wealthy.
That’s the only rule. Then hedger can make up their own rules about how to invest…Take a 4 million stake, with high minimum level of investment. Large amounts are easier to deal with…”I’ve invested 4 million and if you invest with me I’ll get you 20% back in a few years.” Candy…Van…people invest the other 10 million. He can take that to a big bank and get a loan for leverage, like 50 million.
New rule: you are locked in for a year, and you cannot get your money back. Once that’s up, you have limited redemption…infrequent redemption.
Ok, brain seeped in the deep…here’s what you’d see in the news. People with big dollars like Josh DeLong, looking at Grand Rapids…saying, “I like Grand Rapids, people are investing in Grand Rapids,” DeLong said. “I think Grand Rapids is going to be a huge hit.” Uh-Oh.
Or, Ok. It depends on how you see it. Here’s an article from Grand Rapids Property Value, talking about their values in a healthy economy.
Hedge Funds have been scooping up property in Australia for awhile. Australia is known for having the largest housing bubble in the world.
Let’s say this first, “Banks on the continent are among the most profitable in the world, with a return on equity of 17.2% at Commonwealth Bank and 14.2% at Westpac. The average return on equity for all U.S. banks is 8.3%,” says an article on Fortune called “Hedge Funds Are Betting Against This Country’s Hugely Profitable Banks”.
There’s some concern over a bubble collapse in Australia, not just because of hedge fund investments have scooped up so much…but because simultaneously banks are taking poor credit and lowering interest rates for low-income. Hey! Everyone needs a home.
If there’s default and foreclosure there’s the wolf in the hedges, waiting. It’s pretty appealing for hedge fund investors to buy off the banks in what’s called a short sale.
YOU HAFA HAVE A SHORT SALE…Get Above Water…
The bank is short changed…but has the cash right away, through an investor throwing around a lot of money…without any rules (hedge fund). If your house is mortgaged for 100,000, but the property value is 80,000 you are underwater by 20,000. If you foreclose a short sale would let you off the hook…”(Home Affordable Foreclosure Alternatives known as HAFA). HAFA® provides homeowners the opportunity to exit their homes and be relieved of the remaining mortgage debt through a short sale.” says wiki.
The homes will still be there and the displaced can then turn around and rent…their home…from hedge fund investors with property managers? Yo hafa have a home…Please, some rapper, use that.
Ownership of Communities Becomes A Gray Area…Widowmaker Trade…
Widowmaker trade is a scary name going around for this kind of market. Here is an article about the hedge fund impact in Japan say, “These banks are powder kegs. The housing bubble is already toast in a number of smaller cities, particularly those tied to the mining bust. It’s starting to wobble in other areas. So hedge funds have redoubled their bets.”
The climate is getting hotter because of Shinzo Abe, head of the Liberal Democratic party, as prime minister of Japan Mr. Rigg says, “Abe is defined by his desire for growth, and it’s quite obvious that he wants the Bank of Japan to be more aggressive…” Perhaps meaning, selling the countries massive debt to investors, hedge fund investors…
Redoubled bets…By buying Japan’s debt in a hedge fund, then purchasing property in Australia there’s a new way to understand globalization…and it can get confusing, but now you know something.
If you are interested in buying a home click here…