Jan

1

Prof. HaaveOn the margin, buying to rent should become a marginally more attractive investment going forward. A normal real estate decline, caused by a general slowdown in the economy, should affect buying and renting equally.

But in this case: Take a guy who makes 75k per year. He went in leveraged himself in a subprime to buy a 500k house. He can't afford that now, and he is being foreclosed on. But, he still has his job, and needs a place to live, and he will be entering the rental market to find a roof for his family.

James Lackey replies:

My sister is in that biz, and its amazing how far prices have to fall to make deals cash flow positive. Florida wasnt since 2001 and it's now near break even for investment rentals. Close, but not there yet. We are talking nice houses near towns, schools, shopping, roads to beaches etc. — a house a guy that makes 75k would rent. And any nice apartment complex was converted in 2005-06, so rentals are scarce.

Nigel Davies writes:

Professor Haave's point is a good one and I for one will certainly be a real estate buyer when UK rental income rises to decent levels. But I don't think that this necessarily signals a 'bottom' as demand will also be a function of the overall state of the economy and can contract considerably if push comes to shove.

A major argument in favour of a 'strong rental market' is that people need somewhere to live. But there seems to be an assumption that an individual's space requirements cannot possible contract, which is nonsense. It's worth remembering that 100 years ago extended families of 20 or more would live in a houses of the size that are currently occupied by singles, and you still get this in many countries.


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