[quote=gzz]I think inflation even at 0% is overstated.

For middle class people, new cell phones, PCs, and car payments are major expenses.
[/quote]

I disagree. All of the items you mention are choices.

We pay childcare and preschool costs that go up at least 2.5% per year. These costs are not a choice, we have to put our kids somewhere while we work. Also, we will have to pay for extended care when they go to school. And college costs rise every year.

My healthcare costs are going up at least 3% per year. This is through work but still is part of reimbursement.

We own a house (thankfully), but our friends just rented a place for $4100/month. That is substantially higher than a few years ago.

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Most everything is inflating, can’t hardly buy a fast food combo(large) for less than $10 bucks now a days. Anyone eaten at a McDonalds lately? The interest on my house is about the only thing going down in a steady fashion these days. I for one am going to start eating at home more and anyone that raises the bill on me will be getting a phone call. Union Tribune tried that and after calling I got it for less than I was paying before.

[quote=FlyerInHi]Material consumer goods are cheaper. Services are more expensive.
Food is also cheaper.

Rents are more because landlord can ask for more In popular areas. It feels like it’s due for a correction if/when a recession hits. However, I believe the top tier metros are strong because they are attracting population and I don’t see this trend reversing.

In Vegas, Blackstone bought 2/2 typical garden style apartment complex for $229k per unit, more than can you buy nicer condos. More than I paid for condos in San Diego. Crazy. But there’s a lot of money chasing real estate.
https://www.reviewjournal.com/business/buyers-pay-269m-for-4-las-vegas-apartment-complexes/%5B/quote%5D

I decided to look at the issue from the opposite direction. What does the financing look like. I took the DiNapoli Capital Partners purchase and ran a rough approx. I assumed all $62mil financed at 4%. Total monthly nut is about $295,997 for 404 units for a per unit average financing cost of about $733. I went online to their online rental office and lowest rent is $1010/month. Approx $300/unit/month avg return on money not yours is not too bad ($121,200/month). Rents there are $1010/mo, $1016/mo, $1037/mo, $1250/mo, $1200/mo. If I assume 10% vacancy, the effective unit cost ends up being $813, still not too bad and it looks like you have more ‘headroom’ for contingencies. Noted that this is a very cursory assessment. NOTE: that this is the newer area of Las Vegas. NOTE: Financing all at 5%, bring monthly total to $332,829 – or $914/unit/month at 10% vacancy, $824/unit/mo if all occupied. This is a bit tighter. I do wonder what they put down, and how it was financed.

The Elysian West purchase is as follows. $508,447/month total financing at 4%, all amount financed. This comes out to $1091/unit/month at 100% occupancy. Rental ranges are; 1/1 at $1085 – $1947, 2/2 goes at $1348 – $1731, 3/2 goes at $1607 – $2050. As you noted, these prices start to move into the actual purchase price for housing. It is also very close to a major freeway. What is interesting is that this one looks like a ‘spec built’ apartment complex. I wonder if the builder is carrying some of the financing cost. I also wonder if the anticipated rents are really going to be seen. A July 2015 Google street view shows that area as empty, no apartment complex

street view

On the other hand the aerial shot shows the complex, but it looks kind of ‘institutional’ and sparse compared to the ‘Palms’. You also have a nearby heavily traffic’d freeway.

aerial

Ok, just freaked myself out. I revisited the aerial map and it shows an empty field there, where I once saw an apartment complex… I suspect that the complex is so new to the point that Google’s map data is inconsistent between servers. Fiddling with ‘toggles’ shows that if you have 3D view on, you don’t see the complex. With 3D view off, you see the complex. I suspect that this complex was ‘spec’ built. It looks kind of ‘institutional’ compared to the ‘Palms’.

Used Google-Earth. Got the complex on imagery date; 5/13/2017 shows complete with more than 10% vacancy(parking lot survey), 9/2/2016 – fairly complete but mostly empty – south covered parking not complete, south units just finishing up, 3/15/2016 shows the complex still under construction, 3/22/2015 shows empty field and grading just starting. Google earth doe show a lot of construction in the area over the period 3/2014 – 3/2016.

Side note: If you set the time to about 8/10/2003 on Google earth, you can see the work that Las Vegas did on dealing with the flash flood control tunnels.

How Blacktone and those equity groups work are beyond my pay grade. I just see properties getting snapped up and prices moving up and up.

The economy is doing well and developers are building luxury apartments at the higher end. There is so little supply at the lower levels that if you got a remodeled condo, your can rent it out at a premium within days. Amazing.

I’m not calling bubble yet. But I worry. I don’t think we’ll have a real estate led recession, but an employment led recession will eventually cause a real estate downturn. That’s traditionally how it works. When? How much more will RE prices go? Whatever happened to hyperinflation, debt crisis and skyrocketing rates?

[quote=ucodegen] I assumed all $62mil financed at 4%. [/quote]

Bad assumption. Doesn’t work that way. 4% is reasonable for a SFH. And up to 4 units. Not for anything more than that. Lending for large apartment buildings is often balance sheet lending. 100% debt is rare, even for the most credit worthy. Interest rates vary tremendously between the best and worst, based on relationships and credit worthiness of lender. Most common number I see used lately is 5.5%. Some borrowers could do better. Others can only get higher rates. Most often, rates are not fixed, and loans are 5-7 years.