RE: You know what the best thing about being a landlord is... (Full Version)

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UtopianRanger -> RE: You know what the best thing about being a landlord is... (9/9/2006 3:16:13 AM)

Lam….. 

 I’m really not sure how you’re analyzing this so I will reply to specific parts of your post. My initial post prolly should have been less ambiguous and more precise.
 
quote:

There are a lot of things wrong with those figures (aside from the questionable assumption that a $700K house will yield only $1,800 in monthly rent). 

 
Well….. when you say that, I’m thinking that your logic that the 1800.00 a month figure may be erroneous because you are assuming that those 700k homes that are factored into the 1800.00 month rental market, someone actually paid full price or close to the now 700k appreciated book value – Not true at all…. Not even close actually.  

Having grown up and spent thirty-four years of my life fifteen minutes north of San Francisco, I can tell you that a super large majority of those 700k homes were once 28 – 45k in the late 70’s / early 80’s. And I can tell you that while almost no one saw or had the forethought to know that those 28-45k homes would once have an appreciated book value of 700k and up, the writing was on the wall back in the late 80’s for them to be in the 300 – 400k range. So many of the people I know and families I grew up with purchased a spare house or two or three when they were all in the 70k to 100k range.  

Now if they purchased those homes in that range and rents were still fairly high at the 850.00 to 1150.00 a month range, those homes have long since paid for themselves by the renters ten years ago.  

Now the other part to me addressing this part of your post is the whole is issue of the rental game….. And I will tell you that the most important aspect {My opinion} in the rental business is PERCENTAGE of OCCUPANCY – Or more simply put….percentage of time the dwelling is occupied. – You want low-maintenance / low-expectation / long term renters – So knowing that a great many of the folks who own the homes that actually make up the rental market only paid a small fraction of the hieght of the bubble's appreciated book value, it's very feasible and easy for me to understand why /how you can still rent a home for 1800.00 a month.

 I might also add that I purchased a three bedroom two bath home back in early 1987 for 165k that now has an appreciated book value around 950k{at the height of the bubble}. Since I no longer live there and now live in Oregon, I use it as rental and rent it for 1550.00 a month and still have the same renter after eight years. Before I paid the mortagage off when I moved to Oregon, my payment with property taxes on a fixed loan was still only 900.00 a month - Which meant I still had a positive cash flow after the payment of 650.00 a month - Contrary to popular belief.... not all individuals are as greedy as the corporations you and I are both fond of [:D]

quote:


Also, I'm puzzled by what's meant by "principal loss."  Why are we ASSUMING that the homeowner is going to lose principal?
 

‘’Principal loss’’ as denoted in my example means the ''loss on paper'' with regard to the depreciated book value after the 700k home was purchased when the ‘’bubble’’ was at its most inflated point.  

And just like with the stock market, we know {Through trends and history} that with the real-estate market after a similar ‘’Bull’’ market is experienced, it’s always then followed by a similar ‘’Bear’’ market where the appreciated book value starts to fall and a new evolutionary cycle of depreciation begins.  

Now with the specific example I am pointing to in which case is the San Francisco Bay area, we're not just talking about trends and history here ; but rather there are external forces at work here that will speed up the deflationary cycle and make it more volatile.  

What I’m pointing to and what this guy mentions in his blog, is most specifically the shrinking pool of buyers capable of making the payments on 700k loan and up with interest rates on the rise and professional jobs in the technology industry being outsourced to India at all time levels   This guy also notes in his blog that at the height of the bubble, as much as 82 percent of the mortgages are either ‘’interest only’’ loans {The buyers bought with little or no money down on speculation the appreciated book value would rise immediately} or ARM’s – Adjustable rate mortgages, where as a two percent hike by the Feds with the prime rate, equates to forty percent increase in the interest the buyer has to pay on a five percent loan when it moves to seven percent.   

 Now I’m not sure what the market is like in Philly…..but if its even a tad bit comparable to the typical Midwest, then your example as stated above that purchasing is more beneficial than renting totally rings true. Much of California and even some of Oregon is the exact opposite.


 
- R



Lordandmaster -> RE: You know what the best thing about being a landlord is... (9/9/2006 9:47:00 AM)

quote:

ORIGINAL: UtopianRanger

I’m thinking that your logic that the 1800.00 a month figure may be erroneous because you are assuming that those 700k homes that are factored into the 1800.00 month rental market, someone actually paid full price or close to the now 700k appreciated book value – Not true at all…. Not even close actually.  


Wasn't the homeowner's interest figure in that comparison based on a mortgage corresponding to a $700K sale price?  If it wasn't, then the comparison was even MORE misleading than I thought.

Yes, people with $700K houses didn't necessarily pay $700K for them--but rents have gone up too, you know.  Landlords are in business to make money.

quote:


Now the other part to me addressing this part of your post is the whole is issue of the rental game….. And I will tell you that the most important aspect {My opinion} in the rental business is PERCENTAGE of OCCUPANCY – Or more simply put….percentage of time the dwelling is occupied. – You want low-maintenance / low-expectation / long term renters – So knowing that a great many of the folks who own the homes that actually make up the rental market only paid a small fraction of the hieght of the bubble's appreciated book value, it's very feasible and easy for me to understand why /how you can still rent a home for 1800.00 a month.


Well, that's not in fact what $700K houses rent for in my neighborhood.  Not even close.  Of course, that end of the rental market is highly illiquid, and most landlords don't concentrate on the "$700K and up" sector for investment (at least not around here).  But, essentially, if you wanted to rent a house in my neighborhood that would sell for $700K, you'd have to be prepared to pay at least $2,500 in monthly rent.  Probably more, because rentals are so scarce.  I don't know what rents are like downtown, where sale prices have surged over the past five years, so maybe the rent/return margin there is slimmer--but frankly I doubt it.  I'll look into it.  (I don't follow the downtown real estate market anymore because I decided it's all overpriced...)

quote:

quote:


Also, I'm puzzled by what's meant by "principal loss."  Why are we ASSUMING that the homeowner is going to lose principal?
 

‘’Principal loss’’ as denoted in my example means the ''loss on paper'' with regard to the depreciated book value after the 700k home was purchased when the ‘’bubble’’ was at its most inflated point.  

And just like with the stock market, we know {Through trends and history} that with the real-estate market after a similar ‘’Bull’’ market is experienced, it’s always then followed by a similar ‘’Bear’’ market where the appreciated book value starts to fall and a new evolutionary cycle of depreciation begins.  


Well, OK, if that's what "principal loss" means, then that comparison is totally invalid for most parts of the country (and for most periods of American history).  I don't think there's anything inherently peculiar about the real estate bubble; every market can have a bubble, and just about every market eventually does.  It's not possible to invest without any risk whatsoever.  So I don't consider it a great bolt of insight on that guy's part to explain to people that investing in a market that's about to burst isn't a great strategy.



WhipTheHip -> RE: You know what the best thing about being a landlord is... (9/9/2006 10:27:20 AM)

Collecting money.



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