Replies to post #7447 on Value Microcaps Motherboard

[lentinman]

cws: Housing:

I think at some point it could be better for rentals, but it may take awhile. I think there has also been too much building of rental properties too. And, a lot of people may try to survive by renting their second homes still believing in property appreciation as their way out of the mess. I suspect that it will be tough in the rental business (depending on the area, etc) for some time.

Then, you have to add additional credit risk as a much higher percentage of renters will likely have lower credit scores.

I know where I live (a highly desireable area in south JOCO), it is almost impossible to be cash flow positive. You have to realize that some landlords are going to be forced to sell just like homeowners. Maybe even a higher percentage. If that happens, the new buyer will be paying less for the property and thus needing less money on rent. So, rental rates could go down for some time and the payout could be problematic for a long time. There is just too much speculation in the market today IMO.

Len

[dickmilde]

cws9 Real estate...

I'll let this be my last post on this subject since this is really a message board for stocks.

All the opportunities for receiving a return on your money compete with each other. In other words, the return on real estate will go up and down with all the other forms of investment. 10-15% return on rental property was very common a few years ago. But, with interest rates at rock bottom levels there is no way a person should expect this. That kind of spread between real estate and risk free bonds will always correct itself. My historical experience is that I could expect approximately 1.5 times the risk free return as compared to the 10 yr note. Problem today is that the demand for real estate has raised prices way beyond the corresponding available rent. In other words the return is very low or on-existent right now.

Rising interest rates should correct the current situation because the demand for buying will diminish while the demand for renting should increase. This is the way the market creates that level playing field... Real estate returns SHOULD always be higher that the 10 yr note because of the additional risk.

Also, keep in mind that if you purchase new property for rental purposes that you will receive a lower rate on rent as a percentage of your property cost than when you purchase older property. That's because some of your return will be in the form of increasing property value. Older property does not increase as fast ( if at all ) therefore will usually generate a higher rent compared to cost.

Your specific situation is impossible for me to evaluate since I know nothing about your market. But... in the longer term you should do OK provided rates continue to go up... There should be less buyers and more renters. My properties are in the upper 1/4 as far as rent goes in my area. My wife and I do a first class job as far as location,cleanliness, paint, carpet etc. Our presentation is very professional and our units have the appearance of a "model" like the builders use. We attract tenants that have a job and can afford the rent. We do not have to chase people down for payments. Lower price rentals tend to attract lower credit worthy clientele. Not my style. Good luck

Dick Milde