Breakeven opportunites are closer than you think

[(former)FormerSanDiegan]

n_s_r –

Rental rates will depend on the economy, namely jobs, weage inflation and interest rates. Average rents tend to track inflation.

I’d bet on 4% annual rental increases over 5 years.

[lendingbubblecontinues]

Not to feed the troll but…

The coming implosion of exotic loan products is substantially more important to our case than “reversion to the mean”. Don’t forget that the pendulum nearly always overshoots on the downswing, too, as extreme pessimism sets in.

Anyway, back to being “crazy”…I think I’ll take the wife to Donovan’s tonight to spend some of my hard “earned” cash and continue to eavesdrop on the conversations I have been hearing amongst our citizenry…sundevil–your brethren are becoming quite a bit more nervous of late. It’s been quite enjoyable, actually, watching formerly smug people begin to shit their pants.

[no_such_reality]

FSD, I would typically agree with your 4% appreciation. I suspect inflation near term 1-5 years will push 4% on average.

I question whether renting will track. Or more importantly, whether real renting will track. The published numbers, much like new home sales have little to do with what the real rent deal is. I also don’t know if that average rent includes privately rented homes and condos or if it is just generated by the major complexes.

Also, I don’t think the rental markets have see a substantial oversupply that is coming online. Rental availability has steadily decreased in current years due to the run up in home prices and people selling for the profit. That is about to change.

I think certain areas, such as downtown SD will see oversupply problems.

[(former)FormerSanDiegan]

n_s_r –

Published rental rates are typically apartment complexes. It’s harder to get large-scale info on SFRs and condos. SFRs tend to track them however, IMO. My reasoning is that most would pay a premium to have a yard, no common walls, etc. If this premium is small, then people move out of apts and suppress those rates. Apartment rents are a good indicator.

Downtown is the monkey wrench …
I agree that downtown SD oversupply will eventually suppress rental rates in some nearby areas. Would I rather rent a 2BR apt in PB or a downtown condo if they were the same price? It depends on the number of bums (I mean transient non-occupants, to be PC) I pass while walking my dog at night.

[(former)FormerSanDiegan]

sdsundevil –

Not to quibble over $50/month on insurance, but landlord’s coverage is typically 30% higher than personal residence if you add on vandalism coverage and increase your liability to protect yourself.

Re: rents and postive cash flow “within reach”
The example in this thread does not produce positive cash flow, and will require about 5 years of 4-5% rent increases before it does so. This is not “within reach.”

Give me another 25% reduction in price (down to ~200K from 270K) and steady rental rate at 1400 and I’d buy it.

[no_such_reality]

Give me another 25% reduction in price (down to ~200K from 270K) and steady rental rate at 1400 and I’d buy it.

I see we have the same numbers…

[(former)FormerSanDiegan]

I see we have the same numbers…

Exactly !

[Anonymous]

I can't help but wonder — why try so hard looking for cash-flow here when it's so hard to find?  I sold my home and invested the proceeds in areas such as GO Zone areas in Mississippi or Baton Rouge.  Lots of employment, the rents are high and it's a no brainer to cash flow — even at 95% LTV.  

 That doesn't even include (if you can qualify) they very nice bonus depreciation in year one.  

 

[powayseller]

gunbuster, can you still buy rental property at 100x rental income in those areas? I also heard Texas, Utah, and CO are seeing an influx of people, but two of those states have the highest foreclosure rates in the country. My landlord was smarter than I, and bought rental properties in the areas you mentioned after the storm; he gained a lot of equity he told me.

[(former)FormerSanDiegan]

gunbuster –

I’m using the analysis more to gauge the state of the market than as a shopping trip for investment.

I agree that it is easier to find cash flow properties out of our area. That’s almost always the case. Although I would never buy property in an area that I wasn’t very familiar.

[Anonymous]

Utah and CO are pretty expensive now vis-a-vis the rents (although no where near San Diego). In TX you can still get 100x rental, although from what I’ve seen many of the new communities are full of investors and have many units for rent. I am still waiting for one of my SFH to rent in TX. But in MS or LA, I practically had tenants by the time I closed. There is a real shortage there — not only for displaced people from Katrina, but for workers coming in for reconstruction. I don’t believe that these very high rents will last forever, but since I needed a place to park some equity, it’s nice to get some cash back out while I’m waiting out the bottom of the SoCal market.

[PerryChase]

gunbuster, how do you manage far-flung rental propeties? I would think that the services of property managers would cut into your profit.

[smfj]

Secondly, from what I know and truly believe, rents NEVER go down.

As someone who signed a lease in Manhattan on 9/8/01, let me assure you that is not the case. I could have gotten the place at LEAST $300 cheaper a week later. Rents still weren’t back where they were pre-9/11 when I left NY in August 2003. Obviously, 9/11 was a once-in-a-lifetime shock to the real estate market(let’s hope), but all it takes is one unexpected tragedy. Earthquake anyone?

No reason to live in fear, of course, but it CAN happen.

[Anonymous]

They do cut into the profit, but the numbers still work out so that I’m able to turn a positive cash flow. I’m not pretending that I’m a seasoned pro at this — and it did take a real leap of faith to start investing in far-flung rental properties. But at the time, it made more sense than investing here. For the record, I rent here…

[(former)FormerSanDiegan]

sdrealtor: I’ll have more for you all 2morrow.

… and you were saying …

[Author]

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