EconProf wrote You guys are way underestimating the true costs of being a landlord, and are thus overestimating potential profits.
Aren’t there standard metrics that professional real estate investors use? Don’t they typically look for cap rates in the 8-10% range? Merely covering the costs, as many of these posters have alluded to, is nowhere near sufficient; investors need to earn a profit as well to compensate them for the cash flow risk and the asset price risk. Given the risks involved, and the illiquidity of the investment, I would demand at least 20% profit.
The current crop of investors buying rental houses are “dumb” investors; they are assuming that eventually the asset prices will appreciate enough to overcome any rental losses. The owner of the house I am renting, for example, is losing money at a steady rate (8% to the realtor managing the property!); I wonder whether they have thought through the finances. I doubt it.
It will take a long time to purge the system. People still have faith that San Diego house prices go up.
