A 4th scenario he didn’t include are >59.5 yo “boomers” seeking yield on their spare cash lying around. Some are still working and others are semi-retired or fully retired and they often have access to one or more pensions. This cohort is attracted to “bread-and-butter” properties in neighborhoods they are already intimately familiar with which they can fix up to rent out and manage themselves. This buying cohort (male AND female) aren’t afraid of the hard work involved in readying a property to rent out, vetting an assortment of prospective tenants with wildly differing qualifications, possibly readying their propertie(s) to qualify for the Section 8 program and dealing with tenants on a weekly/monthly basis. Many in this group would prefer a tangible investment (housing) that everyone needs and that they have full control over as opposed to losing sleep over having too much exposure to the stock market lottery with zero time to recover from substantial losses. Even if this group of LL’s have 3-4 months vacancy per year (only likely if mismanaged or eviction becomes necessary, IMHO), they are still netting far more annual rental income than they could make from the same amount of money invested in safe CD’s and MM’s, for example. And they’re not paying PM companies for mgmt duties or paying for most repairs because they perform as much of these services as they can, themselves.
A “down market” or “crash” resulting from excess inventory can’t happen unless owners are forced to sell en masse. This only happens when would-be sellers are “distressed” and an all-cash buyer will never be in a position of distress unless they later take “cash out” in some way and cannot pay it back. In all four scenarios described here (SK’s 3 and my 4th), there is no emergency to sell, regardless of the direction mortgage interest rates take. These groups of recent investment RE owners have a commodity that everyone needs … housing … and from that commodity can derive income … even SOME income is better than that which current safe, passive investments offer. This income can be used to live off of, to reinvest or be used to pay dividends and earn a profit.
If “Black Rock” hasn’t yet gotten their PM process fine-tuned enough (totally expected) to not suffer from eviction costs or to successfully target and obtain appropriate tenants for their (wildly scattered) housing inventory and their investors aren’t happy with currently making just 3-6% on their investment (instead of ~7%), then so be it. They can’t make that in passive investments that they won’t lose sleep over.
