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EJ
11-20-10, 11:26 AM
http://www.itulip.com/images2/teedup300.jpg

Stagflation Investment Idea – Part I: Multi-family residential real estate

Inflation discussions typically focus on the price side of the inflation equation, but the income and expenditure side shows how households are responding to changing prices, especially wages and other income relative to goods and services prices. As part of our ongoing quest to look for ways to move out of our Treasury bond position that we have been in since the year 2000, today we look at the residential rental real estate market

The latest BEA report on personal consumption expenditures (PCE) comparing September to August 2010 begins:

"Personal income decreased $16.8 billion, or 0.1 percent, and disposable personal income (DPI) decreased $20.3 billion, or 0.2 percent, in September. Personal consumption expenditures (PCE) increased $17.3 billion, or 0.2 percent."
Rising expenses and falling incomes is the definition of stagflation.


http://www.itulip.com/images2/stagflationSept2010.gif

This is not a one-month phenomenon. The trend for 2010 is personal income, disposable personal income falling faster than PCE. It’s the relative rates of change that is creating economic pain for millions of Americans now living through the Transitional Economy, as explained in The Postcatastrophe Economy: Rebuilding America and Avoiding the Next Bubble (http://www.amazon.com/gp/product/1591842638?ie=UTF8&tag=wwwitulipcom-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=1591842638)http://www.assoc-amazon.com/e/ir?t=wwwitulipcom-20&l=as2&o=1&a=1591842638.


http://www.itulip.com/images2/stagflation2010.gif

What can we, as investors, do to manage through this period? Is there a way to mitigate its impact on our savings?

Taking a closer look at the income data, we see clear trends in rental, interest, and dividend income. Income from interest is falling – big surprise with rates near zero. But rental income is rising steadily.


http://www.itulip.com/images2/incometrends2010.gif

Independent tracking of national residential rent trends aligns with our July 2008 forecast (see Housing Bubble Correction Update: Here comes the jobs crash (Part I) (http://www.itulip.com/forums/showthread.php/4424-Housing-Bubble-Correction-Update-Here-comes-the-jobs-crash-%28Part-I%29?p=39709#post39709)) Competition for rentals is stronger in regions of the country where the job market attracts migrants from states where jobs growth remains weak, while reducing rental competition and prices in the regions the migrants left behind. In that mid-2008 analysis we identified Energy Price Inflation States (e.g., Texas) as good potential markets for housing rent and price appreciation, and Ground Zero States “where housing speculation itself was a major driver of incomes and employment during the bubble, such as in Florida, Arizona, and California” as areas to expect falling rents and prices.

The data from the site http://rentbits.com (http://rentbits.com/) corroborates the forecast.

Rents advance in Atlanta...


http://www.itulip.com/images2/rentalratesAtlantaNov2010YTD.gif

...heighten in Houston...

http://www.itulip.com/images2/rentalratesHoustonNov2010YTD.gif

...boom in Boston...

http://www.itulip.com/images2/rentalratesBostonNov2010YTD.gif
...and trend up in Tampa.


http://www.itulip.com/images2/rentalratesTampaNov2010YTD.gif

But they are flat in Phoenix...

http://www.itulip.com/images2/rentalratesPheonixNov2010YTD.gif

...and are dipping in Detroit

http://www.itulip.com/images2/rentalratesDetroitNov2010YTD.gif.


In addition to the migration “pull” effects of high energy prices and “push” effects of the collapsed housing bubble, the trend away from home buying and toward renting is becoming cemented in the minds of both sufferers of negative equity and those who have seen the prices of their home collapse since 2006.

A May 2010 Real Estate Channel article “Will Growing Rental Trends Undermine U.S. Home Sales?” states:

There is a far-reaching change occurring now which threatens housing markets around the country. A survey conducted by Harris Interactive for the National Apartment Association in May 2010 found that 76% of those surveyed now believe that renting is a better option than buying in the current real estate market, up from 71% in 2008. Especially sobering was the fact that 78% of those surveyed were homeowners.

David Neithercut, CEO of Equity Residential, the nation's largest multi-family landlord, believes that there is a "psychology change" in the mind of consumers. In a June address to an industry conference, he declared that there is "a change in one's thought process about the benefits or wisdom of owning a single-family home.
But the article also notes that the “End of the Housing Bubble Led to a Surge in Houses Available to Rent,” causing rents to fall. That may still be true for the home rental market but not for the multi-family apartment rental market.

An August 2010 National Apartment Association report begins:

“Over the past 12 months the apartment industry has faced some of its greatest operating challenges in decades. It did not matter whether the owner or operator was a public or private company, a large or small organization, or based in any particular region of the country; the impact of the economic downturn, historically high level of unemployment, lack of meaningful job creation, declining rents, and significant declines in both transaction volume and asset values placed a greater emphasis on operation performance and bottom line metrics. However, the challenges over the past year appear to be “bottoming out” for the multifamily sector, and there are signs that over the next 12 to 36 months, there will be significant improvement in operating performance. Rents are beginning to rise, concessions are slowly declining, investor interest has increased and a renewed emphasis on managing the bottom line at the property and portfolio level is underway.”
If a trend toward higher multi-family apartment rents in Energy Price Inflation states, and those that benefit from dollar depreciation will be with us through the Transitional Economy, might there be a way to invest in this trend without the aggravation of becoming a landlord?

We continue our exploration of alternatives to our Treasury bond allocation by reviewing a fund aimed at the multi-family apartment market.

Stagflation Investment Idea – Part II: Here come the funds (http://www.itulip.com/forums/showthread.php/17603-Stagflation-Investment-Idea-%C2%96-Part-II-Here-come-the-funds?p=181567#post181567)

I recently reconnected with my friend Eric Silverman, partner in Eastham Capital, based in Needham, Mass. Turns out he is in the later stages of raising a fund that may fit the iTulip investment thesis. Asked if he thinks his multi-family residential real estate fund might make a good inflation hedge he replied, "Inflation? Rents are inflation. They’re 40% of consumer expenditure!" Reviewing the most recent Bureau of Economic Analysis (BEA) data, I’d say he’s got a point. more... ($ubscription) (http://www.itulip.com/forums/showthread.php/17603-Stagflation-Investment-Idea-%C2%96-Part-II-Here-come-the-funds?p=181567#post181567)


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Starving Steve
11-21-10, 12:11 AM
I love it! "Rents go up." So here is how the inflation feeds-back and starts the inflation ball going: rents go up. The landlords can't keep paying rising utility costs forever--- to protect bird-habitat and salmon habitat and make Greenpeace happy--- so they raise the rents. Everyone has to live somewhere, so lest they go back home to mommy and daddy, they fork-over the higher rent.

If the renters can't pay, throw them out, and get some new faces in. I love it! And if no-one here can pay, then the immigrants from Mexico will. Excellent! The immigrants would be glad to live two-families per apartment.

Already in Central California, McMansions are being sub-divided into apartments, sometimes legally and sometimes not. The rent-flow is what counts! Money makes things happen; a good lawyer might make your McMansion apartments legal.

So as the rent comes flowing-in, the real estate values go back up. Lovely!

And as the rent flows in, the velocity of money begins to increase. MV becomes a positive number, and the money supply does begin to force prices up, for everything.

So the process was: habitat protection >>> utility increases >>> rent increases >>> general inflation >>> work longer hours.

And for this brilliance, we need Ben Bernanke and the Federal Reserve Bank System?

:o

Chris Coles
11-21-10, 05:39 AM
There is much more to this than the idea that rent can always be expected to rise. Surely that is the very same mistake that was made with house prices? With a mortgage, you can be bankrupted, but with a rental.... especially if the renter gets the underlying message and always ensures they have an "OUT" without bankruptcy, then as their income declines, they move. They move out to a lower rent. Moreover, by setting out to so do, they will drive the process down, not up. The reverse of the trick made with moving credit card accounts.

Then there is another much more important aspect to this debate; where are investors going for the long term view? By going, I mean; what is there long term aiming point? If it is to repeat the same mistakes that have virtually destroyed the economy, particularly the industrial economy; then right on, keep this up. A great ploy to just keep the wheel of misfortune for your respective nations turning.

If the long term view is the re-invigoration of the underlying economy, then of all things, the long term view of the cost of housing those next generation of industrial employees must be to reduce them..... all the way back to competitiveness with what they were when you were last a successful industrial economy. PERIOD.

And in which case, the aiming point for the leadership of the new economy for the Western nations MUST be towards reduced housing costs and increased investment into new manufacturing employment. And the consequence of that is an inevitable slow reduction in rental income. I well remember that one of the primary causes of the inflation during the early 1970's here in the UK was the discovery that employees living in London could no longer afford to live there as rents and values rose, inexorably. That whole process has to be reversed. Yes, it will take decades, but it has to be reversed.

The leadership of the new age of investment must have the whit to be able to see this is their prime responsibility.

raja
11-21-10, 07:42 AM
What does "multi-family apartment" mean?

Surely it doesn't mean an apartment in which many families live at one time.

jk
11-21-10, 08:02 AM
What does "multi-family apartment" mean?

Surely it doesn't mean an apartment in which many families live at one time.

a larger building with several to many apartments within it.

chr5648
11-21-10, 10:16 AM
If the long term view is the re-invigoration of the underlying economy, then of all things, the long term view of the cost of housing those next generation of industrial employees must be to reduce them..... all the way back to competitiveness with what they were when you were last a successful industrial economy. PERIOD.

And in which case, the aiming point for the leadership of the new economy for the Western nations MUST be towards reduced housing costs and increased investment into new manufacturing employment. And the consequence of that is an inevitable slow reduction in rental income.

Thats too much common sense for this forum, let alone the world we live in. Keep these thoughts to yourself. /s

metalman
11-21-10, 10:28 AM
Thats too much common sense for this forum, let alone the world we live in. Keep these thoughts to yourself. /s

read this book. (http://www.amazon.com/gp/product/1591842638?ie=UTF8&tag=wwwitulipcom-20&link_code=as3&camp=211189&creative=373489&creativeASIN=1591842638) that's his argument... neo-industrial development 'should' replace the fire economy. but the csm review starts... 'Despite the disparity between where the US economy is heading and where the author would prefer to see it go...'

you're new here & welcome... here's the deal. itulip invests in the world 'as is' not as we wish or hope it was... or will be in the future. gold & bonds since 2001. 'should' stocks have done beat gold & bonds? yeh. did they? nah.

from here... 'should' rents fall? yep. will they? not so long as the fire econ boyz run the show. you wanna bet they plan to leave quietly any time soon?

jk
11-21-10, 11:07 AM
rents can fall in real terms while rising nominally. whether you profit depends on the other side of the balance sheet and the rest of what's happening on the ledger.

karim0028
11-21-10, 11:54 AM
I have been struggling with this for some time... Rents have been going up bc of the amount of people getting foreclosed on and then renting vs buying, but what happens when incomes dont keep up with inflation? How do these apartments deal with a situation of utilities going up but incomes declining? Wont the amount of people able to afford high(er) rents decline? Will folks just suck up and pay? If that happens we really will turn into a fuedal society, land owners and renters....

EJ, how do you see these investments doing in a high interest rate environment? That is something i have been questioning/trying to understand as well..... Why not buy these in a high rate environment? In your later pieces you mention rates of 18-24%, how do you foresee these investments doing in that environment? Wouldn't prices go down if rates go up? I ask this knowing that as with any investment you make money when you buy so rent increases are icing on the cake when at current rates you can probably get 15% cap rates.

I am assuming that with multi-family units weren't as distorted as SFH due to more investors instead of retail buyers, but as you mention in AZ rents have gone down due to lack of rental demand due to folks leaving the state.

c1ue
11-21-10, 12:53 PM
There are also a number of other factors to consider with multi-family rentals:

1) Rent control. Many places have it - and many more will get it
2) Taxes. Only going to go up
3) Maintenance costs. Only going to go up
4) Deadbeats. Only going to go up

A large enough local operation can offset 3) via full time maintenance staff, and can even out the effects of rising deadbeats, but provide an even more attractive target for 1) and 2).

Starving Steve
11-21-10, 02:08 PM
Landlords, developers, and rightwing city-planners have an approach to deal with rent-affordability issues: they increase the density of the development. It's called, "slicing the pie thinner".

If you want to see 25 front-foot lots, drive-thru Winnipeg. There are actually some homes on 18 front-foot lots. And then comes the kicker: the city-planners and their contacts in the development industry sub-divide the old homes into apartments, making renters share bathrooms and share kitchens, etc. Stick as many apartments as you can into an old house on a tiny lot, and that is what is considered "progressive" city-planning.

I shouldn't pick on Winnipeg. Regina wasn't much better. Or one might visit the Bronx in New York City to see how planners have dealt with rent-affordability issues there. Co-op City in the Bronx provides a visual example of raising density. At least, Co-op City is "progressive" in the sense that it is affordable to most people, but who would want to raise a family in Co-op City in The Bronx of New York City?

My idea in city planning was to lower densities of development and to allow cities to grow (sprawl) outward. There was no shortage of land in Canada, so why not allow cities to sprawl, no matter what the textbooks on city-planning might say?

What struck me as odd in Winnipeg was the open land, vacant land, almost worthless-land, wheat-fields, literally inches away from the city's development limit. Why leave the land adjacent to the city in agriculture?....... And of course, I was the heretic in the Winnipeg Planning Department.

My vision for East Sooke, British Columbia is that someday, maybe apartment towers might be built along the route of the public-transit lines to downtown Victoria and downtown Langford. Someday, people and maybe even people with kids might be afforded the opportunity to live with an unobstructed view of the sea, not to mention a clear view of the rain-forest and the wildlife....... But this is still a dream, and it is still too radical of a dream for city-planners here.

lalla
11-21-10, 08:32 PM
does anyone have an opinion on daniel amerman? http://www.gold-eagle.com/editorials_08/amerman110510.html

he is on the inflation side and scares me to death. i think his point is to get a large mortgage to combat taxes, but since i didn't pay for the service i don't know for sure. yes, multifamily housing. i find him very convincing.

but i thought the money supply is not growing? which is it? is it inflation? or is it a big fake -out?

jk
11-21-10, 08:37 PM
does anyone have an opinion on daniel amerman? http://www.gold-eagle.com/editorials_08/amerman110510.html

he is on the inflation side and scares me to death. i think his point is to get a large mortgage to combat taxes, but since i didn't pay for the service i don't know for sure. yes, multifamily housing. i find him very convincing.

but i thought the money supply is not growing? which is it? is it inflation? or is it a big fake -out?
i spent the money to buy his stuff and i think he's got a worthwhile point: fixed rate debt is a great inflation hedge.

lalla
11-21-10, 08:54 PM
but how can we have inflation if the money supply isn't growing? sorry if this is a dumb question. i just remember the last inflation and it was all about money supply. every day in the paper it was posted. all the m's.

fixed rate debt is excellent if there is inflation. not, if not.

jk
11-21-10, 09:05 PM
but how can we have inflation if the money supply isn't growing? sorry if this is a dumb question. i just remember the last inflation and it was all about money supply. every day in the paper it was posted. all the m's.
the m's were volcker's cover to raise rates to kill inflation. hearing anything about the m's for the 25 years or so up until recent focus on the monetary base explosion? i don't care what the m's say, myself. i look at gasoline prices, food prices, movie prices, restaurant prices, and other consumption prices, as well as copper prices, electricity prices, and so on. inflation - for me - is about prices, not m's. the bls and treasury can play lots of games with stats. prices are harder to game.

i also remember when the m's were awaited with bated breath each week. they were also announcing the price of gold on the business news every half hour. we've got a way to go.


fixed rate debt is excellent if there is inflation. not, if not.

yep.

karim0028
11-21-10, 09:48 PM
but how can we have inflation if the money supply isn't growing? sorry if this is a dumb question. i just remember the last inflation and it was all about money supply. every day in the paper it was posted. all the m's.

fixed rate debt is excellent if there is inflation. not, if not.

You gotta read EJ's earlier work... Inflation is all around you. The banks are getting free money, speculating in markets, raising costs of commodities and it will show up in your day to day life in the next couple of months as the price of every commodity has damn near doubled in the last year... Just wait till you go buy your next pair of jeans or undies.... Cotton has run up about 100% in the last year... So has coffee, cattle, wheat, corn, etc.. Basically everything we need to survive. It takes about 6-9 months to see it in retail prices.

raja
11-21-10, 10:48 PM
My opinion on Amerman is that his fixed income mortgage idea is great . . . as long as certain conditions prevail, but it's definitely not a sure thing.

I wrote him an email saying, "What if the government creates a New Dollar worth 5 Old Dollars, and decides that henceforth all debt owed to the Banks is automatically to be paid back one New Dollar for every Old Dollar." We all know the banks are Too Big To Fail . . . it's a national security issue, after all. And we wouldn't want to do anything to harm the Financial Elite's bottom line. :(

Amerman never responded to my email. He either didn't receive it or just ignored it. If it was the latter, I can understand why he didn't reply; the scenario I outlined would undermine his Big Idea, and that would not be good for his bottom line.

lalla
11-22-10, 12:34 AM
thanks for the headsup, going to go out and load up on undies and t shirts.

what about gold miners? coal? tin? will the whole deal come down around our ears? no banks, no markets, like the zero hedge people think? is it insane to be in the market at all? i have tried to invest in stuff we use and have to use.

i haven't bought physical gold because i keep seeing the day we need to sell it, and there will be lines around block, everyone carrying their little bag of coins while the price is plummeting.

labasta
11-22-10, 04:32 AM
My opinion on Amerman is that his fixed income mortgage idea is great . . . as long as certain conditions prevail, but it's definitely not a sure thing.

I wrote him an email saying, "What if the government creates a New Dollar worth 5 Old Dollars, and decides that henceforth all debt owed to the Banks is automatically to be paid back one New Dollar for every Old Dollar." We all know the banks are Too Big To Fail . . . it's a national security issue, after all. And we wouldn't want to do anything to harm the Financial Elite's bottom line. :(

Amerman never responded to my email. He either didn't receive it or just ignored it. If it was the latter, I can understand why he didn't reply; the scenario I outlined would undermine his Big Idea, and that would not be good for his bottom line.

That's a good point.

I thought that a couple of years ago when the "economy" was exciting and fearful.

I can potentially see a time in the years or maybe decades to come where they introduce a brand new currency in the USA.

Possibly when the separation process happening now between the state and banks is at a stage where the political will to reindustrialize (possibly along Eric's lines of thought) will occur but... the state by that time will be flat broke with nowhere to turn except "doing a Zimbabwe". In this case, I suppose they will create a new currency and start again. Possible the Amero, although I'm a little suspect about involving Mexico, even though the Mexican and American people are, I gather, in some states by and large the same entity now.

Chris Coles
11-22-10, 05:33 AM
You have reminded me of a single statement burned into the brains of those of us old enough to remember Harold Wilson here in the UK:



"It does not mean that the pound here in Britain, in your pocket or purse or in your bank, has been devalued." Said Prime Minister Harold Wilson.

The only alternative, he said, was to borrow heavily from governments abroad - but the only loans on offer were short-term ones.

1967: Wilson defends 'pound in your pocket'
<!-- S BO -->The Prime Minister, Harold Wilson, has defended his decision to devalue the pound saying it will tackle the "root cause" of Britain's economic problems.
http://news.bbc.co.uk/onthisday/hi/dates/stories/november/19/newsid_3208000/3208396.stm

chr5648
11-22-10, 07:01 AM
read this book. (http://www.amazon.com/gp/product/1591842638?ie=UTF8&tag=wwwitulipcom-20&link_code=as3&camp=211189&creative=373489&creativeASIN=1591842638) that's his argument... neo-industrial development 'should' replace the fire economy. but the csm review starts... 'Despite the disparity between where the US economy is heading and where the author would prefer to see it go...'

you're new here & welcome... here's the deal. itulip invests in the world 'as is' not as we wish or hope it was... or will be in the future. gold & bonds since 2001. 'should' stocks have done beat gold & bonds? yeh. did they? nah.

from here... 'should' rents fall? yep. will they? not so long as the fire econ boyz run the show. you wanna bet they plan to leave quietly any time soon?

Thanks captain obvious, I have been on these forums for a few years, I know what the heck is going on. In addition to spending nearly 5 years in real estate development (fiRE).

PS. The book is nothing more than the combined posts of EJ on the itulip forum, and then a few chapters on the wishful thinking of a "TECI" economy, which has almost no chance of any "world 'as is'" fruition.

Jay
11-22-10, 07:41 AM
fixed rate debt is excellent if there is inflation. not, if not.As long as the collateral underpinning your leveraged debt doesn't further decrease in value. Be careful here. If you already own and don't plan on moving, go right ahead and take out all the money you can out of your piggy bank of a house, if you still have equity that is. Otherwise I would be careful about buying a house right now just for the low interest money, unless you love the house and don't plan on moving for a very long time.

raja
11-22-10, 11:23 AM
I look at it in terms of is where I can invest to lose the least . . . because I don't see any investment categories that don't have minefields.

Yes, real estate values will go down.
But compare that to gold where the gov't takes 28% (or possibly more) of your profits . . . and with gold you've also got the challenge of knowing when it's the right time to sell, i.e., where's the top.

Gold is largely of symbolic value, and it's worth is basically whatever the government allows it to be (they can even take it away from you). On the other hand, real estate has real value, and it's value that will never go away -- although it can and probably will go down -- as long as you keep the roof from leaking.

There are at least major 3 factors I can see in deciding when to buy real estate: price, inflation and interest rates.
Housing prices will go down, inflation will go up, interest rates will go up . . . but probably at different times and at different rates. Is it better to buy now and lock in low interest rates . . . or wait till housing prices drop further . . . or buy before inflation really starts to kill the dollar.

It takes a supercomputer to figure all that out . . . too many variables +=(

Amerman has done some research calculating comparative profits using 20 scenarios with different variables. I'm too cheap to pay to read it . . . and I doubt that he is using supercomputers . . . so I'm just going to go by intuition.

Jay
11-22-10, 06:09 PM
I would also factor in taxes, insurance and upkeep into your real estate calculations. Remember that in an environment where municipalities are scrounging for cash, real estate is one asset that can't be relocated away from the taxman.

Milton Kuo
11-22-10, 06:52 PM
I would also factor in taxes, insurance and upkeep into your real estate calculations. Remember that in an environment where municipalities are scrounging for cash, real estate is one asset that can't be relocated away from the taxman.

This is an idea that Dr. Michael Hudson oftentimes states in many of his writings: that property taxes are a very reliable and steady stream of income for governments. Interestingly, one way to punish the FIRE economy is to allow mark-to-fantasy appraised values on foreclosed properties and then force the banks to pay the property taxes. That's one way of getting QE money away from speculation and into (government) services.

Jay
11-22-10, 07:08 PM
This is an idea that Dr. Michael Hudson oftentimes states in many of his writings: that property taxes are a very reliable and steady stream of income for governments. Interestingly, one way to punish the FIRE economy is to allow mark-to-fantasy appraised values on foreclosed properties and then force the banks to pay the property taxes. That's one way of getting QE money away from speculation and into (government) services.
Which is one of the many reasons I continue to rent and likely will do so in the foreseeable future. Real estate still has a lot of deleveraging to go in my mind. Taxes, unemployment, interest rate increases, hidden inflationary upkeep costs, a poor credit environment, unsold overhang, and bubble downside overshoot will help that process among other things. There are too many negative variables to put a toe in for me. The right multifamily could be a decent investment, however, I would likely only do something like that if I was the one making the decisions and only on a local level. I don't have the time presently to take that on. That is only my perspective and I am also sure there are groups out there who will do well in the multifamily market which is obviously a different beast than the decision to buy a home. It is about cash flow and risk adjusted return.

metalman
11-22-10, 08:17 PM
Which is one of the many reasons I continue to rent and likely will do so in the foreseeable future. Real estate still has a lot of deleveraging to go in my mind. Taxes, unemployment, interest rate increases, hidden inflationary upkeep costs, a poor credit environment, unsold overhang, and bubble downside overshoot will help that process among other things. There are too many negative variables to put a toe in for me. The right multifamily could be a decent investment, however, I would likely only do something like that if I was the one making the decisions and only on a local level. I don't have the time presently to take that on. That is only my perspective and I am also sure there are groups out there who will do well in the multifamily market which is obviously a different beast than the decision to buy a home. It is about cash flow and risk adjusted return.

no body here attended the seminar today? shit... hoped to poach your learnings. :(

silence = either the seminar sucked (silent horror) or killed it (sssssssssh don't tell anyone).

hmmmm. how to test?

jpatter666
11-22-10, 08:58 PM
no body here attended the seminar today? shit... hoped to poach your learnings. :(

silence = either the seminar sucked (silent horror) or killed it (sssssssssh don't tell anyone).

hmmmm. how to test?

Actually, the seminar was lightyears (my opinion) better than the first one. The lesson of being serious with your audience took hold.

One glitch was that the audio for asking questions failed, but we all were fine typing them in. And you know what? EJ -- that *should* be the way to ask questions going forward. We can all ask them at once, they get queued up, no accent issues, no possibility of misunderstanding (it's very clear what you typed).

Now, all that said, I'm not sure this is the investment for me, but I was far more impressed with the answers and scope of knowledge for this group.

EJ, well done.

karim0028
11-22-10, 09:20 PM
no body here attended the seminar today? shit... hoped to poach your learnings. :(

silence = either the seminar sucked (silent horror) or killed it (sssssssssh don't tell anyone).

hmmmm. how to test?


How about a third option :) Didnt know there was a seminar today!

raja
11-22-10, 10:20 PM
I would also factor in taxes, insurance and upkeep into your real estate calculations. Remember that in an environment where municipalities are scrounging for cash, real estate is one asset that can't be relocated away from the taxman.
I'm not too worried about tax and insurance. These have to be kept within bounds because every homeowner must pay them, so there will be a natural check on their rising too high.

By the way, a general comment here:

The greedy rich folks who have brought about the current dismal state of the world economy are too stupid and arrogant to understand that the middle and lower class working people are the bedrock of the economy -- the true wealth generators. Like an insensate parasites, the Financial Elite are killing their host, and they in turn will suffer.

Of course, the higher ups will escape, taking their billions with them. But the remaining leeches won't be happy with the world they have created around themselves . . . .

flintlock
11-22-10, 11:45 PM
I would also factor in taxes, insurance and upkeep into your real estate calculations. Remember that in an environment where municipalities are scrounging for cash, real estate is one asset that can't be relocated away from the taxman.

Bingo! It's a fixed target.

I'd be very careful about any RE "investing" in the near future. People's ability to pay will be the biggest single factor. Generally speaking, multi-family housing = lower income wage earners. Which segment to you see doing the best in terms of employment? I say betting on Joe the factory worker or Sue the cashier is a losing bet. Jane the corporate career gal and Bill the bureaucrat have better prospects. If you just have to invest in RE, look for affordable family sized homes of good build quality. Not the McMansion stuff or the starter homes, but simply a good solid place to raise a family. Those will always be in demand.

Many glowing reports of ROI on rental property, even in during the housing boom, ignored or conveniently misapplied maintenance costs. The chickens are coming home to roost on all those "kick ass" homes people were buying as investments a few years back. My company works with sellers to get homes ready to sell and fix home inspection issues. 20 pages of "defects" are not uncommon on inspection reports. This is either because they were simply built like poop, or the fact they are so damned old that they are near the end of their useful life. In my experience, people not in the business tend to grossly underestimate the repair costs of a home. Folks play Russian roulette with leaky roofs, hot water heaters, and other systems. Always hoping nothing breaks before they can move to the next city and pass it off on some other poor sucker. As people tend to stay put and move less often in the post bubble economy, this game will become more difficult to play. I'm noticing that buyers now actually care more if a roof is new vs 25 years old. They seem concerned if that furnace is an old dinosaur. During the boom times, it was about price and features period, not quality or condition.

Sharky
11-28-10, 06:44 AM
In the long term, rents can't increase faster than wages.

Wages are going up more slowly than inflation, and there's no reason I can see as to why that will change anytime soon.

It seems to me that landlords will soon be stuck in the same position as manufacturers, with steadily decreasing margins as their expenses increase faster than their ability to charge for them. The time to be a landlord is during an economic boom, when both asset prices and wages are increasing faster than inflation.

charliebrown
12-09-10, 06:35 PM
if home owners become renters, they may be able to force rents up because renting a 1000 sqft 2BR apartment will seem like a great deal compared to owning a 1800 sqft house. How about the self storage buildings? I think the average person will hold onto their stuff in this downsizing until they realize the past isn't coming back. Last time I checked rents were great, something like 1.20 a sq ft per month in my area. That is roughly the same price per sq ft. as an apartment. little maintenence, little chance of people trashing the place, easy eviction ...

ThePythonicCow
12-09-10, 10:08 PM
How about the self storage buildings? ... Last time I checked rents were great, ... roughly the same price per sq ft. as an apartment Yeah - what is it with the rental rates on self storage?

A number of times over the years, on account of my being a bit of pack rat, I've checked these rents. In good times and bad, in well-to-do areas and in cheap areas, the rents have always been (as best as I can remember) similar to the low-end apartment rents, per square foot. I keep expecting cheaper; never find it; never end up renting such storage.

I'm beginning to suspect that the actual maintenance costs, perhaps due to the higher turn over rate requiring more personnel on-site per square foot, are not actually much better than the maintenance on cheap apartments.

P.S. -- The self storage unit also has to absorb the costs of all utilities, rather than foisting them off on the renter.