During boom years, the problem was “fix and flip people” hoping for short-term appreciation, not rental investors. If people can get 7.5%+ renting out properties at reasonable rents, then why the hell not buy a few?
One house I’m looking at in NJ needs maybe $10k of work. It will sell for maybe $110k. Taxes are $450/mo, insurance is $100/mo, ancillaries $100/mo, common utilities (basically gas/water) will run about $250/mo. Both apartments will rent for about $950/mo, which hasn’t changed a lot in the past 5-10 years.
Assuming one month vacancy per year, that’s still an 8.5% cap rate. Try getting that at a bank, what with “Zimbabwe” Ben-Shalom’s zero-rate policy.
Another condo has $220/mo carrying charges, stable and with good reserves. Rents for $1000/mo. Tenants pay all utilities that aren’t included in common charges. Taxes are $100/mo, extra insurance is $25/mo, call it $50/mo for ancillaries. 8.1% right there if I pay $90k.
Rental income is taxed, but only on profit. You can deduct:
* Property taxes
* Maintenance expenses
* Utilities paid by landlord
* Depreciation
* Mortgage interest
Basically same as any other business. And if I paid $200k, I’d expect to be collecting closer to $25k-$30k/yr in rents — I’d have to for the deal to make sense and turn a profit. And fuck yeah, it’s better than “getting a better-paying job” — the idea is for my housing expenses minus rental income to be negative inside of this year.
Live in NYC for basically free, combined with good income from one’s “full-time” gig? Killer. All of the benefits of the city, without being a wage-slave like 80% or so of its residents, and the ability to save $10-20k per year and put it towards travel and fun. Awesome.
As to my possible inexperience, both of my parents are architects, and have been in the rental business as a sideline on one level or another for a decade or so. I’m an engineer who has worked in the construction business in the past, though not residential.
