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

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  • #31
    Re: Stagflation Investment Idea Part I: Multi-family residential real estate

    Originally posted by Jay View Post
    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.

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    • #32
      Re: Stagflation Investment Idea Part I: Multi-family residential real estate

      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.

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      • #33
        Re: Stagflation Investment Idea Part I: Multi-family residential real estate

        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 ...

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        • #34
          Re: Stagflation Investment Idea Part I: Multi-family residential real estate

          Originally posted by charliebrown View Post
          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.
          Most folks are good; a few aren't.

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