rental real estate

Buy foreclosures.
Be Picky.
Do the necessary repairs and sprucing up.
Rent only to qualified individuals at a reasonable price, including profit, insurance, taxes and an escrow account for improvements.
Keep until market cycles and then sell at a profit.
Reinvest profits diversely.

Capitalism at it's finest.

This works like a dream in rural America, but works anywhere if you are choosey.

3 BR/1 Bath 1,300 sq. ft. in clean neighborhood just went for $22,000. $23,000 in improvements increased to 4 BR/2.5 Bath 1,980 sq. ft. Home reappraisal after investment to $97,000. $45,000 total invested and the rental return is $10,500 per year.

Not bad! 6 year pay off (self financed). Projected 7 year cycle for sale at approximately $128,000.
 
Quote from K-Rock:

Foreclosures will force rental rates down because the banks and vulture funds will rent them out to mitigate losses and/or for rental income until the next bubble. It's basic economics.
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Nah. Never seen a bank rent out a foreclosure, but even if you were right, there are far, far, many more people who would like to buy houses but no longer can due to the more rigid lending standards. Folks who could have bought only a year ago, now have no choice but to rent. And as more folks graduate from school and enter the workforce, there is going to be greater and greater demand for rental housing in the face of low numbers of new constructions.

I suffered through low rental rates when the housing market was booming. Now the pendulum is swinging the other way, and I'll feast.

SM
 
Quote from Smart Money:

Nah. Never seen a bank rent out a foreclosure, but even if you were right, there are far, far, many more people who would like to buy houses but no longer can due to the more rigid lending standards. Folks who could have bought only a year ago, now have no choice but to rent. And as more folks graduate from school and enter the workforce, there is going to be greater and greater demand for rental housing in the face of low numbers of new constructions.

I suffered through low rental rates when the housing market was booming. Now the pendulum is swinging the other way, and I'll feast.

SM
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I agree. Cycles are there for a reason. Dumped the rentals on the housing boom, now picking up foreclosures for the rental boom.
 
I rent a high end SF that was priced at $3M a few years ago. When I rented it it was one of two options as far as high end SF rentals go in my area (Boston metro west inside 95). I just checked and there are now 15 available for similar or lower rent (for it to be worth buying in my situation my rent would eiother have to increase by 130% of the price of the hoime would have to fall by 43% taking in to account taxs and deductions etc). Also, many more SF homes in the lower brackets too. With the glut of condos sitting on the market downtown and the ones that have yet to come online rents in Boston are likley to fall. It may be different in other cities.
 
Quote from Mvic:

I rent a high end SF that was priced at $3M a few years ago. When I rented it it was one of two options as far as high end SF rentals go in my area (Boston metro west inside 95). I just checked and there are now 15 available for similar or lower rent (for it to be worth buying in my situation my rent would eiother have to increase by 130% of the price of the hoime would have to fall by 43% taking in to account taxs and deductions etc). Also, many more SF homes in the lower brackets too. With the glut of condos sitting on the market downtown and the ones that have yet to come online rents in Boston are likley to fall. It may be different in other cities.
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OK, I'm a real estate bull and many folks know that. I can definitely see that happening in the upper end of the market. Jumbo loans are getting expensive due to more rigid standards and stated loans are out the window now. Also, a disproportionate number of the high end places were financed with with ARMs. I can see how owners faced with dropping prices who can no longer afford their places would try to sell, and then give up and rent the place out because they can't afford to live in it. I'd characterize your area as frothy, but only because in my hometown you can count the number of $3 mill S.F.s on both hands.

That being said, with the dollar cheap, offshore interests may start buying up those upper end places because that is all they want right now. It is happening in many major metropolitan areas. After that, your rent may go up pretty quick, and you might look back and wonder why you didn't buy something while prices were low, rates were still low, and (maybe) there were a few companies out that who were still offering cheap jumbo loans to self-employed traders.

If you can/will hold real estate for a long time, you have to look at both the purchase price trend, and the liklihood of rates going up, and then project whether payments will go higher in the immediate future and if payments will ever be down at the level they are again in terms of cost per $100K borrowed. If you do this analysis, you may conclude that there is a window of opportunity that is closing as fast as that rock wall in the opening scene of Indiana Jones, and there may be still time to jump through. Of course, I guess some folks could use my Indiana Jones analogy and say you could get crushed too. :)

SM
 
You made my point. There is a hugh disconnect between rental rates and mortgage payments (including all expenses), so most sophisticated investors sold their real estate assets and will not look to buy until rental income reach a certain ratio. However, as more supply becomes available rental rates should decline until investors step in the market and renters move to quality properties (flight to quality). Rental rates have been inflated as well as home prices...thanks to all those condo conversion projects (from apartments) reducing supply. This all has to shakeout before the cycle starts all over again.


Quote from Mvic:

I rent a high end SF that was priced at $3M a few years ago. When I rented it it was one of two options as far as high end SF rentals go in my area (Boston metro west inside 95). I just checked and there are now 15 available for similar or lower rent (for it to be worth buying in my situation my rent would eiother have to increase by 130% of the price of the hoime would have to fall by 43% taking in to account taxs and deductions etc). Also, many more SF homes in the lower brackets too. With the glut of condos sitting on the market downtown and the ones that have yet to come online rents in Boston are likley to fall. It may be different in other cities.
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Doesn't square w/what is happening. Housing slump is 2 years old and residential rental occupancy rates and rents are both rising nicely during that time in my area (Phila. burbs).

The rental market was relatively weak in 03 and 04. Why? Well, why rent when you had to come up w/first, last, and security to rent. Buying required nothing down AND with a teaser rate, your mortgage payment would be less than your rent.
 
Quote from blackjack007:

with the problems getting mortgages now, it appears that rentals should perform well. during the past few years it was often cheaper to buy than rent, and with the easy credit, almost anyone could buy a house. but now a certain set of the population won't be able to buy anymore. add to that the foreclosures that will create new renters.

i anticipate that occupancy rates will increase as will the cap rate on rentals.
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People who can't buy are already renting.

John
 
What is the ratio of average house prices to average annual before tax income?

I heard it is around 3:1 in USA, here in Australia it is around 6:1. Our market is booming right now.

Also what about rental yields for good properties? Here it is around 3%.
 
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