Results 1 to 15 of 15

Thread: Rent/price ratios insanely good in America?

  1. #1
    Veteran Member person's Avatar
    Joined
    Sep 2007
    Posts
    633
    Thanks
    33
    Thanked 34 Times in 23 Posts

    Default Rent/price ratios insanely good in America?

    Over here in Australia it's common for eg. for a $500k apartment to be rented out for about $500 per week, which is about 5%PA return (comparable to mortgage rates) so isn't a slam dunk winner (leaving aside the question of whether you want to be long housing, which is a national passtime). In the US, I read about things like Detroit homes for sale for $1 (which come with massive land tax plus some legal obligations?) and things like $100k homes being rented for $1k per month (12%PA return, mortgage rates 3-4%?). Is that sort of rent/price ratio typical? What other costs/risks (apart from valuation) am I unaware of, or are investment properties really that insanely profitable in America?
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

  2. #2
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Rent/price ratios insanely good in America?

    true, but not really a bargain. You can indeed buy a house in certain areas of Detroit for $1. But you must also A. pay current year and unpaid previous year property taxes, and B. repair the house to the point where it is considered 'inhabitable' by local gov't inspectors. After that you can move in. However, given that the city of Detroit has cut back on police, fire protection, even street lights, it's virtually guaranteed that the neighborhood the house is located in will be 'lawless'. It is also virtually guaranteed that every other house on the block will look like it sustained a bombing attack.

    On the flip side, home prices and rent prices in other US cities where economic prospects are very good ... example San Francisco ... are rising so fast that many existing homeowners / renters can no longer afford the increased costs, increased property taxes, etc. Thus they are selling out ( at a major profit ) and moving out to the 'suburbs' where home prices and rent prices haven't yet risen.

    Location location location !!!

    As to property investments, given that US stock and bond markets have been fairly 'stagnant' for the last few months, quite a few 'hedge funds' have chosen to start buying up 'distressed properties' with the intention of becoming corporate landlords. This contributed to firming up real estate price levels ... for a while. However, the financials coming out of some corporate landlord 'hedge funds' don't look as promising as their projections would have hoped. See

  3. #3
    Featured Member
    Joined
    Nov 2012
    Posts
    980
    Thanks
    14
    Thanked 1,287 Times in 510 Posts
    My Mood
    Aggressive

    Default Re: Rent/price ratios insanely good in America?

    lol detroit is not typical at all. just google detroit and you'll see how fucked up a city it is in every way.

    and no city in the us is typical of any other because the us is so geographically, politically, and culturally diverse. a low priced house may have other costs in taxes, weather related damage, or quality of life costs that you will have to supply (like private school or driving more than an hr to a dr).

    and of course you have to make sure that someone would want to live in your place and the only way thats guaranteed is if you invest $1mil min in a place downtown in a big city like ny la chicago boston etc. investing in the suburbs or rural areas is a huge risk and you need to know the area and demand.

  4. The Following User Says Thank You to charlotte. For This Useful Post:


  5. #4
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Rent/price ratios insanely good in America?

    investing in the suburbs or rural areas is a huge risk and you need to know the area and demand.
    ... and not only do you need to know what the area and demand are like today, you also need to have some idea what the area and demand are likely to be 5-10-15 years down the road. For example, 10 years ago, $1.60 / gal gasoline made it a whole lot less expensive to commute from a suburban / rural home than the $3.50 / gal gasoline of the past few years. Thus paying $50,000 less for a suburban / rural home - but paying $5-$10,000 more per year in higher gasoline and auto maintenance costs to support a longer commute - is no bargain. What is likely to happen when gasoline hits $7.00 per gallon in a few more years ?


    $100k homes being rented for $1k per month (12%PA return, mortgage rates 3-4%?). Is that sort of rent/price ratio typical? What other costs/risks (apart from valuation) am I unaware of, or are investment properties really that insanely profitable in America?
    I guess that I never really addressed this portion of your question. For a fact, price to rent ratios are changing rapidly in many areas of the US these days ... and are holding steady in most other areas. See The arguable reasons for this are ...

    - recently enacted income verification standards, higher credit rating requirements, cumulative debt load limits, etc. have 'disqualified' lots of working class Americans from obtaining mortgage financing. These regulations were an arguable attempt to prevent a repeat of the 2006-7 real estate 'bust' and resulting losses / taxpayer funded bailouts to mortgage lenders / investors.

    - the percentage of 'first time' individual home buyers is now at record low levels. This is arguably due to poor job prospects / poor starting pay rates for young Americans, in combination with the entry of 'hedge fund' investors into 'corporate landlord' investments ( supposedly offering higher % ROI than stocks or bonds )

    - there is still a steady stream of individual bankruptcy filings and/or 'walk aways' ... due to loss of good paying jobs, due to contractual 'resets' of older mortgage / home equity loan interest rates, due to rising property tax rates / new flood insurance mandates etc.

    - in particular regions, lack of insurance coverage, high cost of new building code compliance mandates etc. has resulted in large numbers of storm damaged homes not being rebuilt ( New Orleans, Jersey shore, Long Island shore etc. )

    Those Americans who lack the necessary income, the necessary credit, etc. to buy ( or continue to pay for ) their own single family homes have no choice but to rent.


    Not surprisingly, the Wall St Journal JUST released the following ... from

    (snip)"New-Home Building Is Shifting to Apartments

    Share of Housing Construction as Rental Apartments at Highest Level in at Least Four Decades

    Residential construction—a pillar of the economy and employment—is starting to ramp up again overall, but in previous years the growth was driven by single-family homes. Last year, according to census data, construction was started on a little less than one million new residential units, and about one in three of those was a rental in a multifamily building, the highest share since data began in the mid-1970s. Single-family homes accounted for about two-thirds of housing starts last year, down from their peak of 87% in 1993 and about 80% in the years leading up to the recession, the census data showed.

    The move toward apartment construction reflects the convergence of several trends. Mortgage credit is still tight. Also, Americans have seen muted wage gains, and others have high student-debt loads, forcing people who otherwise would have bought homes to rent instead."(snip)





    Beyond this, certain pundits would also point out that America's 'new normal' economy has disrupted the past housing paradigm of first renting, then buying a starter house, then buying an even larger house, then finally downsizing upon retirement. Today's 'new normal' now includes an additional 7-8 million Americans who have 'dropped out of the workforce'. As a result they will rent ( often with gov't assistance ), and most likely continue to rent throughout their entire lives. This has arguably replaced earlier policy where the gov't would willingly guarantee mortgage financing ( with certain conditions ) even though the probability of 'belly-up' mortgages was very high ( i.e. Fannie Mae, Freddie Mac, FHA etc. are still $50+ billion in the red from such losses ).

    Or viewed from another direction, where 10 years ago US taxpayers directly subsidized low income homeowners via poorly secured below market interest rate gov't guaranteed mortgages, today those US taxpayers are indirectly subsidizing 'corporate landlord' hedge fund investors who buy / build rental properties. In fact, some pundits refer to the present situation as a 'crony capitalist' version of the public housing projects of earlier decades ... but where the hedge funds now collect a share of taxpayer funded ( Section 8 ) rent subsidy money, in exchange for the hedge funds ( and not the gov't itself ) getting the blame for poor maintenance, poor security, etc.

    Of course the 'corporate landlord' hedge funds are also working the other end of the housing market, paying millions in cash for 'ultra-prime' rental real estate in San Francisco, Manhattan etc. Those Chinese multimillionaires fleeing the country one step ahead of a corruption charge have to live somewhere !!! And the hedge funds are also paying cash for 'distressed' housing in certain area with reasonably good economic growth projections i.e. certain cities in the Sun Belt, certain areas of the west coast, etc.

    Or stated another way ... 'insanely good' price / rent ratios mostly only exist in parts of the USA where people don't 'want' to live !!!







    -
    Last edited by Melonie; 03-10-2014 at 12:28 PM.

  6. #5
    God/dess Gia2608's Avatar
    Joined
    Jul 2004
    Location
    Miami/ Ft. Lauderdale
    Posts
    3,337
    Thanks
    4,235
    Thanked 3,664 Times in 1,451 Posts
    My Mood
    Cheerful

    Default Re: Rent/price ratios insanely good in America?

    """""recently enacted income verification standards, higher credit rating requirements, cumulative debt load limits, etc. have 'disqualified' lots of working class Americans from obtaining mortgage financing. These regulations were an arguable attempt to prevent a repeat of the 2006-7 real estate 'bust' and resulting losses / taxpayer funded bailouts to mortgage lenders / investors."""""


    This is starting to lax SLIGHTLY.. the privatization of Fannie/ Freddie IMPoI is going to likely cause a re-birth of exotic loan programs that Wall Street will tie even more exotic secondary market based products to over the next few years.... as it is there are already multiple national television ad campaigns for mortgages.... something no one has seen in awhile.

    But, the question was why doesn't everyone in America own instead of rent and I think it is a combination of lack of credit extension, HORRIBLE saving habits (many families couldn't even afford the 3.5%+ closing costs on most FHA loans if they could get approved), poor financial (and general for that matter) education and shit wages combined with astronomical student debt burdening what would normally be the largest market for first time home buyers with no end in sight.
    XoXo Gia
    Danielle Fishell (the Dish): "If the Super-Star thing doesn't work out, Gia makes a great stripper name"

  7. The Following User Says Thank You to Gia2608 For This Useful Post:


  8. #6
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Rent/price ratios insanely good in America?

    the privatization of Fannie/ Freddie IMPoI is going to likely cause a re-birth of exotic loan programs that Wall Street will tie even more exotic secondary market based products to over the next few years
    This sounds good on the surface ... but ...

    Under present fannie / Freddie / FHA gov't backed mortgage programs, the gov't ( = US taxpayer ) is the first 'loser' whenever guaranteed mortgages go belly-up. Under the 'new' gov't backed mortgage programs, it will be the private sector mortgage lender that becomes the first 'loser' ... with US taxpayers only being required to pay out guarantee money after the private sector mortgage lender has first absorbed X% of losses themselves. As the private sector mortgage lenders will now face immediate loss risk ( as opposed to near zero risk under Fannie / Freddie / FHA ) the 'qualification' requirements are likely to be tougher than ever.

    And in turn, with fewer people qualifying for mortgage financing, the demand for homes will go down while the demand for rental units will go up.


    the question was why doesn't everyone in America own instead of rent
    You'd get a very different answer from some pundits, who would cite the fact that since the inception of Fannie and Freddie 'mispriced risk' has allowed out-of-pocket costs of owning a home to appear far lower than they actually were for many borrowers. After 'eating' tens of billions of dollars in US taxpayer losses, the price level with risk included is now being increasingly factored into mortgage approvals and ( subprime ) mortgage interest rates. As such, many 'high risk' borrowers are no longer able to afford today's ( subprime ) mortgage payments if they can get approved in the first place. And, justified or not, camgirls and dancers are considered to present an elevated risk no matter what their personal financial situation may be.

  9. #7
    Veteran Member person's Avatar
    Joined
    Sep 2007
    Posts
    633
    Thanks
    33
    Thanked 34 Times in 23 Posts

    Default Re: Rent/price ratios insanely good in America?

    Hmm, http://www.globalpropertyguide.com/N.../Rental-Yields suggests that the 100k place renting for $1k per month is not typical, though their tables don't show properties in that price range. I would just have imagined that it's hard to charge more than $5k PA of rent for a $100k property because anyone that can afford that could afford to pay a mortgage. In Australia for the most part the rent tops out at around the equivalent rate, I believe for this reason. The only exceptions that I know of are when landlords are prepared to allow a large amount of tennants living together, so they can charge more in total, but that comes with risks.

    Reading all your replies, would I be correct in saying that a dominant factor in being able to charge high rent in the US is that, despite the low mortgage rates, it is hard to qualify for a loan now even if you can afford it?
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

  10. #8
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Rent/price ratios insanely good in America?

    I would just have imagined that it's hard to charge more than $5k PA of rent for a $100k property because anyone that can afford that could afford to pay a mortgage
    As Fannie / Freddie / FHA fade from the scene, thus yesterday's 3% down payments become 20% down payments, thus yesterday's 4% interest rates become 5% ( prime ) or 7% ( subprime) interest rates, etc., this conclusion becomes less and less the actual case. Now tack on the additional costs of new flood insurance mandates, rapidly rising property tax rates, limitations on the home mortgage interest tax deduction ( AMT ), etc., and the imputed costs of home ownership only continue to increase.

    Since you're probably not acquainted with some of these uniquely American 'mispriced risk' issues, allow me to elaborate. Prior to the extensive storm damage to properties in New Orleans, Jersey Shore, Long Island etc. the US gov't operated a flood insurance program which set premiums strictly based on home valuation throughout the country, thus not considering localized risk of flood damage. After the gov't ( = US taxpayers ) took huge losses bailing out the flood insurance fund, flood insurance premiums were reset to more accurately represent actual flood risk region by region. Thus today it's possible to buy a house in certain parts of New Orleans or the Jersey Shore for 1/2 of it's supposed true value ... but the mandated flood insurance coverage in those 'high risk' areas now costs say $ 6-10,000 per year. And unlike mortgage payments flood insurance premiums never stop - unless the owner's property is 100% paid for, and the owner is willing to 'work without a net' taking full personal responsibility for covering future storm / flood damage repairs out of his own pocket. The latter was actually often the case in the 'richer' parts of NY and NJ ... leaving many property owners in those particular areas without the means to repair / rebuild after the recent storm damage.

    From another direction, the US gov't recently solidified regs for the Alternative Minimum Tax ... which, above certain levels of income, disallows tax deductions to assure that 'high earning' Americans actually pay some amount of income tax. For many years, the cost of US mortgage interest was 100% deductible against taxable income ... meaning that the US gov't was de-facto subsidizing monthly mortgage payments via reduced income tax bills. Now that the AMT is settled, single Americans earning as little as $45k per year may have deductions limited by the AMT. And for Americans earning, say $100k per year ( i.e. the typical home buyer ), the AMT may now eliminate $100-$200 per month worth of former 'gov't subsidies' stemming from mortgage interest deduction based reduced IRS bills. And this is disproportionately 'painful' to new home buyers, since the interest component of monthly mortgage payments is very high during the first few years of the mortgage.

    Also, as mentioned previously, even though a person may be able to pay $1k per month for either rent or mortgage for a ~$120k property in an area of high rent 'ratio', there's still a big difference between that person having saved up $2k for first and last, versus a person having saved up $30k for down payment and closing costs.

    Or put another way, being able to afford a $1,000 per month payment is NOT the only factor in the rent versus buy equation. Thus it is / will be possible for 'elevated' rents to be charged ... based on the fact that a large ( and arguably growing ) segment of Americans don't have the favorable financial history, the credit rating, the documentable income level, the probable long term income potential, the 'cash' savings etc. to obtain 'affordable' mortgage financing.

    And, as pointed out by the OP, the elevated level of 'local market' rent prices in certain American markets do offer a very decent earnings potential for hedge fund investors, for 'prime' individual investors etc. who have both the 'cash' and the credit rating to buy selected properties with the intention of generating rental income.
    Last edited by Melonie; 03-12-2014 at 11:42 AM.

  11. #9
    Featured Member
    Joined
    Nov 2012
    Posts
    980
    Thanks
    14
    Thanked 1,287 Times in 510 Posts
    My Mood
    Aggressive

    Default Re: Rent/price ratios insanely good in America?

    re: rent vs buy- culture has changed a lot too and people aren't all "settling down" in their early 20s. people who are say 25 might be job searching in a new city, in a temporary job, in grad school in a city they might move from (including to go to another grad school before moving again), doing the whole "young person in a big city before settling in the suburbs" thing, or might just not feel so attached to their city that they want to buy. they also might be in the beginnings of a new profitable career that they know will lead to major money in 10 years (for ex a doctor with a ton of student loans) and not want to deal with the hassle (and potential money loss) of buying and selling every 5 years as their income increases.

    not to mention being a homeowner has so many annoying maintenance costs to deal with that can easily push people over their monthly income. if you rent and your fridge breaks then your landlord has to fix it asap but if you own a house and your fridge breaks not only do you have to buy a new fridge and pay for installation but in some cities you will also have to pay to have a building inspector come and fill out paperwork to make sure your new fridge is installed properly and if regulations have changed since your last fridge was installed you pay have to pay for structural changes. god even typing that out stresses me out. more and more people like me are realizing that homes are not for everyone!!

  12. #10
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Rent/price ratios insanely good in America?

    ^^^ agreed that the 'culture' has changed ... although I would argue that the change is actually economic with any 'cultural' change actually being an unavoidable result of the 'new normal' economics ...

    - indeed the 'new normal' is younger Americans spending their 20's and 30's repaying student loan debt which has become a major issue. But the heart of the issue is that between stagnant or falling 'starting' pay rates, and being forced to make large monthly student debt payments, there simply isn't enough money left to take on additional debt or to save up a down payment.

    - the 'new normal' for job security does indeed raise major questions in regard to 'committing' oneself to live in a certain area for the 15-30 years required to pay off a mortgage. Indeed Detroit versus Kentucky auto plant history provides a perfect example of job 'migration' effects ...which left Detroit autoworker homeowners with a huge problem of no good local job opportunities plus large remaining mortgage debt plus declining home value plus extremely few willing buyers. But the heart of the problem is that outsourcing, automation, 'imported' low cost competition ( H1-B visa professionals ), business migration to lower tax rate states etc. has rendered the typical 'lifespan' of a secure job with a decent pay rate to now be significantly shorter than the term of a typical mortgage loan.

    - the 'new normal' for suburban single family homes involves the negative budgetary effects of rising property taxes, rising gasoline prices, rising utility bills, rising insurance costs etc. potentially tipping a suburban family's ability to continue to afford the suburban lifestyle into the 'red'. Again, with stagnant gross incomes, with rising income taxes, and with a 'fixed' monthly mortgage payment, the rising costs of these other 'necessities' must directly cut into all other areas of family spending even though job security may not be in question. Or put another way, suburban homeowners who were in fact able to afford the suburban lifestyle a few years ago may be hard pressed to continue to afford it today, and may not be able to afford it in the future.

    Circling back on topic, these 'cultural' changes all provide incentive for 'average' Americans to rent instead of own.
    Last edited by Melonie; 03-13-2014 at 12:58 AM.

  13. #11
    Featured Member
    Joined
    Nov 2012
    Posts
    980
    Thanks
    14
    Thanked 1,287 Times in 510 Posts
    My Mood
    Aggressive

    Default Re: Rent/price ratios insanely good in America?

    im not saying that there are no economic factors (obviously its mostly economic) but the culture has changed a lot. 50 yrs ago women rarely went to college, pursued careers and there was a huge pressure to "land" a good husband and start a family early. now, not only is there much less of that pressure, but since women are now going to college at the same rate as men and working almost as much, both sexes are likely to be in different stages of their life and not ready to marry/settle/buy even if the person they are dating is. I don't date (and neither does anyone I know) with the intention of finding someone to settle (and quickly discarding the ones that don't cut it), I date because it feels right at the moment even if I know one of us is moving in a few months or whatever. recent advances in ivf and more social acceptance for adopting also makes the biological clock much less of an issue. I don't have a timeline to marry and settle like my parents generation did.

    and then of course there are people who delay buying for both reasons! not being in a personal state to buy until mid 30s and then finding out all of these extra costs they didn't prepare for!

  14. #12
    Featured Member
    Joined
    Nov 2012
    Posts
    980
    Thanks
    14
    Thanked 1,287 Times in 510 Posts
    My Mood
    Aggressive

    Default Re: Rent/price ratios insanely good in America?

    that all being said, of course buying to rent out is purely economic haha.

  15. #13
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Rent/price ratios insanely good in America?

    ^^^ yes it is, but actually needs to be viewed from the same perspectives of any other investment. What is the expected rate of return on the principal invested ? What is the potential gain or the risk of loss of principal value ? What is the cost of annual 'overhead' ( i.e. property taxes versus 'load' percentage ) ? How 'liquid' is this investment if it suddenly becomes necessary to sell ?

  16. #14
    Veteran Member person's Avatar
    Joined
    Sep 2007
    Posts
    633
    Thanks
    33
    Thanked 34 Times in 23 Posts

    Default Re: Rent/price ratios insanely good in America?

    Quote Originally Posted by Melonie View Post
    ... After the gov't ( = US taxpayers ) took huge losses bailing out the flood insurance fund, flood insurance premiums were reset to more accurately represent actual flood risk region by region. Thus today it's possible to buy a house in certain parts of New Orleans or the Jersey Shore for 1/2 of it's supposed true value ... but the mandated flood insurance coverage in those 'high risk' areas now costs say $ 6-10,000 per year.
    Yep, this is the sort of thing I'm interested in - obligations and risks that come with American home ownership that would not be obvious to people in other countries. I'd hate to think there was free money lying around that the wrong person might pick up off the ground
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

  17. #15
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Rent/price ratios insanely good in America?

    ^^^ also, as an 'investor' intending to rent out the property, there is another whole aspect which has yet to be discussed. This falls under the heading of 'renter's rights' ... which varies quite a bit from state to state. What happens to your return on investment equation when it takes 3 months and several thousand dollars worth of legal fees to actually evict a non-rent-paying tenant versus ( bogus ) claims of inadequate property maintenance on the property owner's part ? What happens when you discover that your rented property has been stripped of its copper wiring and plumbing, but you can't prove that the delinquent tenant was actually responsible for the 'theft' ? What happens when a local gov't enacts 'rent controls' that won't allow you to pass on increased costs of property taxes via increased rents ? What happens when a gov't 'home visitation' inspector stops in to check on your social welfare recipient tenant, discovers the presence of mold ( which may be 100% attributable to tenant's housekeeping practices ), and orders you to replace all of the sheet rock wallboard + repaint ?
    Last edited by Melonie; 03-19-2014 at 10:01 AM.

Similar Threads

  1. What is a good price to charge for licensing content?
    By Djoser in forum Industry Insight
    Replies: 3
    Last Post: 11-07-2013, 04:07 AM
  2. America's solution to the oil price problems
    By Deogol in forum Political Poo
    Replies: 51
    Last Post: 07-11-2005, 07:25 PM
  3. What are some good movies to rent,Old or New?
    By tiamaria in forum The Lounge
    Replies: 60
    Last Post: 02-09-2005, 09:56 PM
  4. Free - Is a very good price
    By smurfalicious in forum Stripping (was Stripping General)
    Replies: 17
    Last Post: 01-28-2004, 04:43 AM
  5. MOVED: Free - Is a very good price
    By GirlFriday in forum Recycle Bin
    Replies: 0
    Last Post: 01-28-2004, 01:23 AM

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •