Thought a few of you might enjoy this article. I’ve posted a link and also 2 paragraphs from the article about rental yield.
http://www.post-gazette.com/pg/05064/466986.stm
They found an analogy in the stock market: At the beginning of a bull market, it often makes sense to buy growth stocks, ones with rapidly rising earnings. But if the market looks expensive and could be heading for a dip, many investors prefer stocks with high dividend yields, which promise steady income. The housing equivalent of dividends is rent.
They decided to look for strong rental markets. Redbrick calculates what it calls “rental yield,” defined as the annual rent, minus all costs borne by the landlord, divided by the value of the house. In prosperous suburbs, Mr. Lee says, the yield would be about 3 percent or 4 percent, because rents are low in relation to home prices in such areas. In thriving working-class neighborhoods, though, yields can reach 6 percent or more, he says, because rents there are high compared with home prices.
Replies
Interesting article. I think there is always economy in larger scale operations but it can become inefficent after a certain point. But that sure is a large basket to hold your eggs in when the next real estate down turn comes, and it will.
I have to believe it must be a real chore to find management and repair folks in all areas of the country to manage these deals. When I was in the hotel industry we had hotels in areas that simply didn't have people with the right qualifications to maintain the buildings and we had to resort to importing them from other areas of the state. Thanks for sharing. DanT
THANK YOU for posting that - great article! It's a great way to think about this business - the funny thing is, this is exactly what I'm doing (buying single family houses) but wonder if I'll be one of those 'mom & pop' landlords 'worn down' by the business, selling out to a guy like this one of these days!
I found it interresting . They made some statements that are also interresting . With out pasting ;
They make comment about mom and pop lanlords not knowing what they are doing . They also say that they may be able to fix a door knob.
Yes there are folks that get into the rental business that have no knowledge of repair. I guess thats who their talking about . The truth is those people fail more often than not . I have a home now that has been trashed. It happens sometimes. Its a big undertaking for me . I could imagine it would be devasting for someone hiring it done. They would fail if it happened very much. For this board , the comments are more insulting since a great number of folks here are in the remodeling industry.
Also state that people dont know their true costs . That keeps ringing true as with contractors .
I noticed they took 3 million to buy 10 million dollars worth of realestate. At 30 percent , I could do that all day long , every day if I invested 30 percent. Bad numbers to me . I look for O investment. Mebbe I should raise my sights which I already have as I mentioned in an earliaer thread. Still , O works here sometimes.
During the stock market "slump" where people lost their savings over the past several years, realestate gained and held strong. It was totally uneffected here by negatives.
The increases noted were very interresting . We are barely hitting 2.5 percent and it held even for a couple of years. Other years saw a 1 percent gain. As noted in the article , depending on the gains is risky. Its better as a Christmas present that wasnt expected. Sooner or later the gains will happen , but its like watching your weight every morning. You keep going to the scalesd and see no loss in weight and then you forget to do it . The next time 5 lbs dropped.
I agree with buying in numbers if the price can be had. If I could geter done. The more rentals you have offers a buffer. Lets take the one rental that trashed. If thats all I owned it would likely come out of my pocket as a loss. With 20 rentals producing a profit , to drop one for a month isnt even a set back. So numbers are better odds like putting in the maximum bet on a slot machine . The pay back is greater on the win side, to cover the set amount of losses. Works the same .
The problem is hiring the right people on a spread like they mention.
Good read , thanks,
Tim Mooney
Good point on the 30% deal. You are right as usual, at 30% I can buy all day long. I too subscribe to the 0% method. That way I can always claim whatever number I want as a return because I started with nothing! DanT