patrick.net

DS,

My point was: if the landlord could squeeze harder, wouldn't they have done it already? If you're saying that landlords would take advantage of a tight rental market to jack up prices, I agree with you. I'm just not sure there will be a tight rental market in 2 year's time.

astrid Says:
My point was: if the landlord could squeeze harder, wouldn’t they have done it already?

i dunno. we're talking about a new wave of landlords here. we're talking about everyone who went to a seminar in the last 5 years and wanted to cash in on the boom. we're talking about 40% of new mortgages now being for investment for new landlords, a hitherto unheard of level... they've only been in this business for a short while... and they increaingly own and control all the rental stock, even if they've paid too much for it... and if they're hurting cos they didn't crunch the numbers, wouldn't the best financial advice for them be to try to jack up the rents to compensate? short of selling out of the market....

on the theme of niceness, remember that these are people operating in a completely atomised, individuated, selfish worldview, acting only for THEIR retirement and THEIR family and THEIR prosperity, at the expense of all else. the guru told them that buying property was the way to go. never mind the downside for others. never mind how it changes the economic landscape of the entire country, for good or for ill. never mind the flow-on effects. never mind that you are creating the same conditions that lead to the French Revolution. just look out for No 1...

Astrid,

Yeah....the WORST case would be for them to say "Show me your closing paperwork".

Talking to people on the street....business people in town.....to get a feel for how the game is played; most answer with a wink and a nod. County Tax Assessor is a locally elected office, so the assessor is in the position of having to keep the State off his ass.....and the voters in his ballot box. There's ALWAYS flexibility; I'm just trying to figure out how much. I'm thinking the BEST I could do is fly under the radar to the tune of 90%. Anything less and it's going to draw attention. These folks are good 'ol boys but they ain't dumb. In most of my dealings they just don't want anyone to try something stupid and draw attention to their office.

I've checked about a dozen houses in the market; closing/assessed value that's on the books now and it runs as much as 20% under FMV.

In the deal, my goal is to get a little from each line item and after hitting the total button; save around 5% off the negotiated purchase price. I've got a built in 3% so another 5 will add up.

DS,

You're hypothesizing a class of owners who would rather go vacant than rent at market prices, and assume a large enough group to influence the market.

I guess it could still happen. Though the evidence thus far seems to running strongly in the opposite direction. Those newly minted landlords have thus far charged rents below their carrying costs and flooding the market in a manner to depress rents in places like AZ, FL, and NV. It is in fact the experience landlords who are sold out in the housing bubble - those experienced landlords are the ones diligently chasing after every marginal dollar, not the newbie wannabe landlords. Furthermore, the newbie landlords are, as you mentioned, very stressed out. They can't afford to name their price and survive for very long.

Randy H has injected an alternative scenario that seems quite high probability. He notes that rises in foreclosure could lead to more bank repossessions that take out some of the rental/buying stocking. I concede that it's a logical possibility and I still owe Randy H a book report on the 1990's RTC on that front.

Doug H,

You're going into an area where your judgment will be paramount and I'm not in a position to comment. If you're relatively new to the area, do talk to some people on Ben Jones's blog. Some of the regulars are from that area and might give you additional suggestions about buying in the area.

In any case, good luck!

hmm, but rents ARE up. how do you explain this? and the new landlords aren't necessarily stupid or even particularly desperate. what's happening with supply/ demand right now? do rents experience the same stickiness as house prices? I have a couple ideas, but won't list them now due to pecking on the PDA at a caff... (with my antique mountainbike propped nearby, waiting for dad's trust cheque to clear...)

Peter P Says:

> BTW, I do think that rent is going up. I would say about
> 20% - 30% over the next two years. If this happens, the
> landing will be softer. However, if the economy is hit
> hard, a crash may become likely.

As an apartment owners in a family of apartment and rental home owners I would be happy as can be to see rents rise by 20% - 30% but I don’t think that it will happen (Other than the dot com bubble of 1999-2000 I have never seen rents move that much that fast in the 25 years that I have been actively tracking rents). Last time air came out of the real estate bubble in TX, AZ and CA (S. Cal more than N. Cal) rents dropped quite a bit…

Then Different Sean Says:

> I think there is a lot of elasticity in fixing rents —
> if a renter is paying 30% of their income into rent,
> and i decide to squeeze them a bit more, and they
> will bite the bullet and start paying 40%,

I wish this were the case, but in real life if you raise the rent by 10% the residents will probably move down the street and pay even less (and get a half month free and new carpet) and I’ll have to pay to turn over a unit and suck up the lost rent. It costs $2-5K every time a tenant moves out in lost rent and turn costs so despite all the talk about the evil landlord we really try hard to keep the tenants happy and keep them in the property…

> I dunno. we’re talking about a new wave of landlords here.
> we’re talking about everyone who went to a seminar in the
> last 5 years and wanted to cash in on the boom.

The landlords that wanted to “cash in on the boom should have sold” since most real estate in CA has not had positive cash flow without 50% down in years. Most of this “new wave of landlords” will lose even more money than the last “new wave of tech. investors”…

> hmm, but rents ARE up. how do you explain this?

Some rents are up by a little, but not much. I can explain it by lazy people doing rent surveys and just looking at quoted rents on line not getting data on actual leases. Overall in the Bay Area & Sacramento rents are up a little from 2004, but they are still lower now than they were in 2000 (actual rents for the properties my family owns and manages and all the properties of the people we know well and share signed lease data with). I’m up early to drive up to Sacramento to check on some work at an apartment (the glamorous life of the single successful apartment owner)…

P.S. I expect rents to drop quite a bit in Sacramento over the next couple years as properties go REO (and receivers cut the rents to fill the buildings). The brokerage firm Arroyo and Coates just sent me a great mailer showing that we are “over the top” with Sacramento price per unit falling and cap rates rising for the first time in 10 years…

spike66 (checking in from NY) Says:

> Astrid, Sorry, I didn’t make myself clear, I live in
> Manhattan, on the Upper West Side on Riverside
> Drive, near the park in the 80s (I think you’re thinking
> of Riverdale, which is an upscale part of the Bronx).

Any idea what homes in Riverside, CT are selling for today?

Riverside, CT is a nice residential area between Greenwich and Stamford that reminds me of Ross, CA. You can walk to the train station from most of the homes and be at Grand Central Station in not much more time than it would take to drive from Ross to Downtown SF (and you can drive from Riverside to Greenwich in the same amount of time it takes to drive from Ross to San Rafael). A girl I was dating grew up there and on a trip back to NY a few years ago I was amazed that homes in Riverside (and Greenwich and Stamford were about HALF the price of similar homes in San Francisco suburbs (it’s not like people working in Manhattan and Greenwich are making HALF of what people in SF and SR make)…

hmm, fair comment, FAB -- but rents are creeping up in sydney, and rental vacancies are at a low, for some reason -- and this seems to trigger the managing RE agents to decide to jack up rents for all the landlords they manage for -- and they operate in chains, of course... when every place in an area is at the same level, you cannot move in down the road where it is cheaper, unfortunately... it's as tho there's a near conspiracy among RE agents where they hear on the grapevine rents are going up, so that gives them permission to jack them up. it may not be sustainable, i don't know. and there's a net loss of 10,000 people a year from sydney due to high housing costs, so the popn is actually shrinking -- go figure...

and you're right, it's hard to make any money out of investment properties with less than 50% down these days, but what's going on with that 40% investment mortgage figure? and the ol' robert g. allen 'no money down' pitch, altho you would be underwater if you did it...

what about the riverside in 'new york state of mind'?

It comes down to reality
And it's fine with me 'cause I've let it slide
Don't care if it's Chinatown or on Riverside... etc

austingal,

How are your utility costs this summer. I heard that in addition to long hot summer Texas also has one of the higher utility rates.

spike66,

I'm sorry, my bad! I obviously don't read NYT's lifestyle sections closely enough. Thanks for sharing the information. Those co-op boards sound even more unrealistic than the sellers.

DS,

FAB obviously knows much more than I do about BA rentals, but my antecdotal experience agrees with him. Rent has gone up about 10% in each of the last two years and my boyfriend moved into slightly smaller digs after a rent hike last year (though he could easily afford the rent hike).

I didn't say BA rents haven't trended up thus far. Newbie landlords are still in the denial phase (as you said, pricing too high) and the job market has been good in the last two years. Thus, the current prices reflect supply and demand on the current market. My hypothesis (which means it's just put forward as a possibility) is for 1.5 to 3 years in the future, and hypothesize an increase in rental supply (rooms for rent and less greedy landlords) and possible decrease in certain parts of the rental demand (roommating and moving back home at the low end).

I don't think think the rental market will be nearly as sticky as the buy/sell market. Much of the rental market continues to be professionally managed by savvy people. Even for the newbie landlords, it'll be psychologically easier to rent out their property at a loss than admit permanent defeat by selling at a low price.

FAB,

Just guessing, but I think the different property tax structure and the slightly higher utility costs have something to do with it. Also, NE folks are not quite as optimistic as west coast folks and that's reflected in less exuberant price jumps.

Last time air came out of the real estate bubble in TX, AZ and CA (S. Cal more than N. Cal) rents dropped quite a bit…

Cool!

New thread: What is “real” about real estate?

OK, some non-speculative data on BA rents. Moved from DC (McLean) to Foster City (near San Mateo) in July 05. Rented a place -- 2br, 2ba 1100 sqft with a garage, pools etc. -- $1805. One year later, renew the lease -- mgmt asks 10%, I offer 5% and they accept. The asking price for a new tenant is (I think) 15% higher, but there are MANY vacancies, and incredibly high turnover. So, yes, rents are going up, but there are also many places in the area for rent. If I needed to, I could rent a place for $500 less (not as nice, but still, it's a place to live). I guess that they are at about the limit of prices since there are many choices (in the mid-Peninsula area, there are many 2/1 that can be had from 13/1400 to 3000+)

If we figure a sale value = 100 to 120 gross monthly rent, these places are worth between 180K and 230K. Problem is, a comparable condo is 500k to 600k. So I don't see rents increasing enough to support housing; rents would need to go to 3X what they are today (e.g. 4K/month).

And on the rental price, comparatively, this was about 50% more than I was paying for a place in McLean but where I am now is substantially nicer than what I rented. I'd guess that a comparable place in McLean would be priced within 10% of the Foster City rent. Wages are probably a bit higher here than in DC, but taxes are higher as well. So rents are generally in line with income, as would be expected.

I think we shouldn't feel too much of a satisfaction in seeing FBs suffer, that's not the point. We should definitely feel good for staying rational during the craze of 2004-2005. But most importantly instead of declaring a moral victory we should stay calm and focus on how much can the prices decline and at what price it's optimal to buy. I'm personally shooting / hoping for 50% decline in BA, which currently doesn't seems to be a realistic expectation, but anything less won't make the prices in BA attractive to me.

Hmm, I am Facing Foreclosure .com has been shut down but you can still find the original content cached by google: http://tinyurl.com/gc3vp

Rents are up markedly -- 5%-10% range -- for a specific classification of rentals (which I know well being a renter in that classification). Those are "fence-sitter" rentals. Exclusively SFHs, usually 2500+sqft, and big enough to accommodate families that have sold out of similar homes and wish to rent equivalency (so as to not store/sell furniture, keep pets, room for kids, etc.)

One could find 4BR SFHs to rent in south Marin in early 05 for about $3500/mo. It is difficult to find anything now for under $4500/mo; and even those are usually of low quality. Newer McMansion homes are renting for well over $5K now.

The squeeze now is that, as rents in this category continue to climb, but rents of condos & apt bldgs don't, at what point does it make sense to just sell most of your furniture and rent a couple of adjacent units in a bldg? As of July it was still slightly better to pay the SFH rent for us.

Randy,

I think there will be some lagging supply issues in those segments. That traditionally been a small market (many going as bridging homes for short term contractors or new move ins intent on buying) so any uptick in demand is quickly going to constrain supply. However, given that renting is still only 1/3 or 1/2 of the ownership costs for the same properties, rent will probably go up for this segment.

I think unless the apartment or condo option is much cheaper than SFH, it's still better to go SFH for families. Noisy upstairs neighbors and lack of parking is a constant challenge for apt living, and most of the places are not child friendly and in lackluster locations. And if you're dealing with individual condo landlords, one refusal to renew/foreclosure can force you to move all over again.

I've been seeing 10-15% rent increases in tri-valley apartments this year. As late as 14 months ago, my boyfriend got first month free as a move-in bonus to his current apartment. When he looked into renewal v. another move this year, the equivalents were renting $100 to $150 more than last year and no move in bonuses in sight. He ended up staying put for about 8% increase and no renewal bonus.

In the long run I think this segment is vulnerable to softening rents in time since the renters are more flexible and substitutes are easier to come by. But right now, people are getting squeezed in this segment too.

My boyfriend mentioned that he hopes his noisy upstairs neighbors will move due to the uptick in rents.

Me: But you're living in one of the cheapest nice apartment in the area! ABF: yeah, but maybe they'll move to Tracey or Livermore to save $150 or $200 a month.
Me: Gas?
ABF: Most people don't think about that when they sign a lease.

Casey Serin says:
I misused my ambition.

is that like misunderestimation? (yeah, i had to bring up GWB, as though we don't have enough problems already...)

I have damaged my reputation and I have damaged many good relationships through this. I never meant to hurt anyone. So to stop any further damage I am shutting down and laying low.

and my posts never got out of his moderation queue :cry:

the 'being nice' thread didn't last long -- is that a sign of the times?