[Heineken]

I definitely agree with Rubin.

Pup, the best thing investment you can make right now is in NOTHING.

All the "pros" you've carefully thought out could get wiped out.

Be risk averse, especially now.

[pedalling_faster]

it sounds like you need a realistic realtor. what part of the country ?

[threadbear]

I'd stay half in cash and half in gold, and avoid real estate like the plague for the time being.

[drgoodword]

I own a rental property myself (small apartment building), and here's few thoughts on the thread topic....

The following is an old yardstick and probably known to pup and all others interested in rental properties, but it bears repeating: rental properties are valued at 8x to 12x yearly income, depending upon location and other factors.

Buying single residence houses for rentals in this economy and current housing bust (where there are far too many houses on the market) is more risky than usual. A housing glut may also translate into a houses-for-rent glut (as opposed to rentals in apartment buildings).

Buying "low-end" houses with the intent to rent in a deep recession is also risky. These types of rentals are especially vulnerable to tenant nonpayment in a down economy. Make sure you research the eviction process in your area. In my neck of the woods--Toronto, Ontario--the eviction process takes three months under ideal conditions, and I've talked to landlords who had to process an eviction for as long as six months. Plus damages from evictions tend to be higher, and recourse to recover damages is next to zero (what use is a judgement against a person that's too broke to pay their rent). Yes, pup, you did factor in six weeks a year of non-rent, but in low-end housing in a severe recession, it wouldn't take much to blow that particular margin.

The best rental investments these days are multi-unit dwellings (a threeplex at a minimum) in long-established middle class areas. Middle class tenants are less likely to stop paying rent, faster to evict if they do, and less likely to cause damage on the way out. With a threeplex (or more), you spread risk in one building as opposed to have a single tenancy in a stand-alone building (i.e. a house) take all the risk for that building.

Landlords of residential properties with relatively low vacancy rates and relatively low eviction rates often survive economic crises that destroy many other types of businesses.

[threadbear]

$this->bbcode_second_pass_quote('pedalling_faster', 'i')t sounds like you need a realistic realtor. what part of the country ?

[Heineken]

Super post, Dr. Goodword. Thanks for the insights.

[cube]

$this->bbcode_second_pass_quote('pup55', '')$this->bbcode_second_pass_quote('', 'w')hy buy now unless absolutely necessary

[Heineken]

I agree with Cube. Pup's analysis is great. I just hope he draws the right conclusion.

[mos6507]

Nobody seems to be aware of historical charts comparing income to house prices. The two are completely out of sync right now despite housing coming down from record highs. The attempts to bail out homeowners and have moratoriums on foreclosures only result in keeping first-time buyers like me on the sidelines. I want to see the market finally hit bottom. I just can't see myself holding off on a home purchase beyond next summer, but at this rate there will likely be roving zombie hordes before home prices reach their 'correct' values. The timing of this bubble couldn't have been worse.

[frankthetank]

I've got to agree with some of the others here. I'd stay away from buying any property just yet. This thing is just in the opening stages and you might get in on some very good deals in the future. Why pay dollars now when you might be paying pennies?

People don't need a place to live. They'll just start squatting, living in their cars, tent cities, etc...

The job market is going to melt... There is no way Obama is going to fix this problem in the next few years.

My brother watches local land prices (mostly larger acreages) and just told me the other day he has noticed a small drop, not much, but a drop...

I'd but some vacant land, a sailboat, or spend the money on some hot girls

[gt1370a]

Interesting observations, thanks for posting.

$this->bbcode_second_pass_quote('pup55', 'I') passed on a couple of places that were priced attractively to her (because they had dropped about 25% vs. the local market) and she said were perfectly good deals, but when I laid out for her the projected rent vs. the cash out of pocket, it did not give me a positive ROR.

[pup55]

$this->bbcode_second_pass_quote('', 'I')f the place otherwise meets your needs, make a low-ball offer that give you the ROR you want,

[DarkDawg]

I have to agree that investing in a single rental unit is a bad move even in a good market. Even if you are lucky enough to get a good tenant, many things can happen and even good tenants can break a lease and disappear on you, then you have a vacant money pit. At least with multi-units you can spread the risk and usually have at least one unit rented to offset vacant units and provide cashflow. Even great tenants can have a sudden unexpected change in income like losing their job or having a health issue, or suddenly they start paying late which makes it tough to meet those mortgage payments on time. Or something big breaks like the refrigerator, and suddenly you're out a few hundred more than you calculated and your margin is wiped out.

If you end up doing this, here are a few more suggestions from a former landlord. Sign up for a credit screening service like this one.
It will more than pay for itself. If a tenant refuses to give you their SS# so you can screen their credit - DO NOT RENT TO THEM!
Also, don't feel guilty about refusing to rent to smokers, or pet owners, or at the very least have pet owners pay an additional deposit along with signing a lease addendum. Pets can do a lot of damage and their owners could care less.

As for taxes, yes you can write off espenses, but don't forget about capital gains IF you are lucky enough to have a gain.

Finally, if you haven't done so already, get a few quotes for landlord insurance. This one may surprise you and you may need to adjust your calculations accordingly. It's not the same as homeowner's insurance so you can't use the same numbers.
It was this one expense that got me out of the business of single unit renting because it destroyed the margin so much.

Good luck in whatever you pursue.

[vision-master]

Large good tracks of land are still getting premium prices........

[pup55]

$this->bbcode_second_pass_quote('', 'L')arge good tracks of land

[Revi]

I was in the real estate game for a couple of years. I learned a few things from it. The real estate agent generally works for the seller. They aren't interested in selling something at a low price, because that cuts into their profit. They aren't going to change the price on the spot. You have to make a wolfish offer and see if the seller will go for it. The realtor won't just drop the price unless the seller goes for it.

That's the way the game is played.

[davep]

$this->bbcode_second_pass_quote('Revi', 'I') was in the real estate game for a couple of years. I learned a few things from it. The real estate agent generally works for the seller. They aren't interested in selling something at a low price, because that cuts into their profit. They aren't going to change the price on the spot. You have to make a wolfish offer and see if the seller will go for it. The realtor won't just drop the price unless the seller goes for it.

That's the way the game is played.

[Revi]

Great way to do it Davep!

The realtor is working for the seller, so if you offer through another real estate agent the first realtor can say that this low offer is the only one they got.

[strider3700]

I've recently been trying to sell my house and purchase a new one. Basically the intention is just to move to a larger place in the same market(family is rapidly outgrowing my starter place)

After two months trying to sell and getting no offers even with large price reductions we've taken it off the market. The place we wanted ended up reducing price by 21% in order to get someone to buy without a must sell current house clause.

The week that we lost that house our realtor reported that we have over 1000 listings in town now and during that week we sold 12.

At least 2 of those twelve where foreclosures or on the verge of foreclosuring. The house at the bottom of the road was going to be foreclosed on at the end of this month, it suddenly sold last week for 55% of the price they originally listed at. it was also 25% lower then the official asking price at that time. Now that place was a dump that was grossly overpriced but I did find it interesting that it sold for the price of the land it was on last year.

Come spring I will be listing again to see what is going on and hopefully I can get out of here. If I can't I have zero issues making the payments but will need to drop 70,000 or so into an addition to house the extra family members expected in the nearish future.

The most interesting thing I've noticed is raw land isn't dropping in price at all. I'm assuming the taxes are so low people are just waiting it out rather then try to sell them.

the other thing I've noticed is we have foreclosures again. The first one in almost 4 years too place in July. The paper listed at least 6 last weekend. I'm not sure why people are being foreclosed on since the economy really hasn't turned bad around here yet. They must have been screwed from the day they bought the place and now can't get out from under them.

[Maddog78]

Thanks for the info, strider3700.

I recall when you asked about real estate in a post a month or so ago.
I'm watching the real estate market closely myself in the lower mainland. Hoping to pick something up at or near the bottom of the market but I think that will be a little while away yet.