Okay PS so here goes nothing. I cannot refute your points to well with regards to the availability of renters but the raw numbers I can at least play with. So okay here we go…
We had a 500k home that has depreciated to 320k. So it is on the shy side of 40% depreciated. Now if you put down a 100k and finance the rest. Now lets say we get a 10 year 7%interest only loan that converts to a libor. (not a great loan but you do enjoy 10 years of fixed rate) Your payment would be 1283 a month. Now throw in 3500 a year property tax and 500 bucks for insurance. Throw in another 50 bucks a month for maintenance. So we are at 4600 a year or about 380 a month for other costs. So that is 1660 a month to maintain the home. So I need to haul in 2260 to make a positive cash flow of 7200 a year or 7.2% on my 100k correct?
Now some people are luckier then others with vacancy. I guess I have been lucky. That is mostly due to the tenants I have been blessed with. Those that have left gave me plenty of noticed and my vacancy time was measure in days not weeks as I advertised and showed my homes long before my tenants left. I would agree with you that this is not the norm. However savy landlords know that the key to rentals is the quality of tenant you get. That is another story for another post.
Now I know this is a stretch but I am just trying to illustrate a point that it could happen. I think that more prudent investors are much more insightful then to be swayed by the mass psychology out there. This is actually what seperates successful people from the pack wouldn’t you say? Also I would not classify speculators and savy investors in the same bundle. I think that the savy investors left real estate a few years ago but once the numbers work out, they will be back. Same with the bubble sitters. Personally I hope to hit the bottom but realistically it probably will not happen. If I can get within 10-15% I will be thrilled though. However my purchase will be made because it will be a primary residence.
As for how many people have 100k to put down on a place. Well I actually believe there is tremendous wealth out there although it is concentrated in fewer people then it used to be. However I have known several people who bought homes for investment as a small group, maybe 2 or 3 of them. Your point is correct though that 100k is more then the usual downpayment. My point is however, that this is not an investment John Do will make. Nor is it for Jo firsttime buyer. This is for Freda seasoned investor who is a smart prudent investor.
Finally the crux is the rental rates. This is uncharted ground for me. It is somewhat of a paradox is it not? If people are not buying then more people are renting right? If rental demand is up won’t that prop rental rates up? Okay if they do not rent then they buy correct? I guess to me, the only thing that decreases rents is a drop in rental demand.
So I know my numbers are approximate but again, my point is to illustrate that at some point, the cash flow can be found. It WILL vary with LOCATION and it WILL be affected by rental rates. I am not saying it will stop the downturn but I think once smart money starts to jump in, that will be a very important point to note. People will start to make money. I cannot quantify when that will be…but when it happens I will post!
