From previous posts, I believe you said you were using a rent multiplier to decide when to buy, correct? If so, are you using today’s rents?
If I were trying to convince myself not to buy, I would try to determine what happened to rents during the last downturn in housing/recession. If you can’t get your hands on historical rent data, then you could attempt to make your own SWAG guess about rents using some fraction of the current number of expected abandoned houses.
For example, what would happen to rents if 70% of houses bought in Temecula since 2005 went into foreclosure and 25% of those foreclosures became rentals? Let’s say there is 100,000 square feet of rental property currently in Temecula renting for on average $100/square foot (no idea if these numbers are anywhere close to being correct). This gives us a total rental demand of $10 million (something tells me this is way low). In any event, using the theoretical numbers above, if the foreclosures add another 30,000 square feet, assuming that the demand for rentals doesn’t change (it may even go down in a recession), then you get an average rent price of $10 million/130,000 square feet ~ $77 per square foot.
As an alternative to trying to figure out the numbers for the above calculation, maybe you could just use a rental multiplier assuming 2003 rental prices. In any event, my point is that the rent multiplier you are using today may be based on an artificially low supply of rentals due to so many current and future unoccupied houses and a higher demand number for rentals than may exist in the future if we are going into a recession.
For the sake of full disclosure, I’ve never owned real estate in my life and there is a good chance I never will. However, it’s always a good idea to play around with whatever metrics you are using to at least try and get a feel for the worst- and best-case scenarios.
