Are you Proactive or Reactive?

Today I had a very interesting conversation with a man that called to ask me about one of my rental properties. The question that prompted me to write about it was “Why is your property still available when we found that all houses in the $900 rent range have already been rented?” Great question easy to answer. Primarily there are two reasons for which my rental has not yet been occupied. First of all, my previous tenants have just moved out a week ago and we just did the final walk through yesterday. Secondly, I am somewhat picky when it comes to pre-screening potential tenants. I will write more in a future post how and why I do such a “heavy duty” due diligence on this process.

My point with this article is that while the value of real estate has obviously gone down during the past 3 years the rental value has not. In addition, the market for rentals has increased as a result of people’s inability to buy and qualify for mortgage loans. Just think for a moment of the millions of people that have lost their homes due to foreclosures. These people all have families, kids, dogs – maybe mother-in-laws – so they most likely all need a roof above their heads. Need I continue to prove my point?

Now, fast forward to 2015. Yeah, you may say that’s far into the future but trust me, you’ll blink a few times and four years have gone by just like this. In 2015 I can guarantee you that either the dollar had collapsed or it’s close to collapsing. The four major world economic powers (China, India, Brazil, Russia) are working hard at making sure the U.S. dollar will seize to be the world reserve currency. Our government is also “working hard” at destroying it by adding unsustainable debt. In 2015 we won’t be buying a loaf of bread for $3. The $3/gallon gasoline price will be just in our dreams. In 2015 the middle class will be closer to the same standard of living of the poor class. What’s this got to do with real estate rentals? Just in case you haven’t yet figured it out, hard assets such as real estate may not be a bad thing for many to be invested in. You see, it’s all about positioning yourself TODAY for the future. And don’t be so sure the 401-K securities will be there for you when you need them the most!

There are three major needs that humans have: food, energy, and housing. Be invested in at least one group. Few of my friends including myself prefer real estate, it’s tangible and real, it’s a hard asset. You don’t want to be a landlord? Fine, you don’t need to but you can be an investor. That’s why there are property managers that will do just about everything for you. You want to place real estate in an IRA? Good, you can do that, too. You want to invest in Trust Deeds? Who says you can’t? Want to preview some ideas? Great, just click on my Amazing Deals tab and start thinking.

All in all, just do something, be proactive rather than reactive. Make sure you won’t be one of those people that will say “I wish I had done something about it but I didn’t”!

Advertisements

, , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

  1. #1 by Tom Walker on February 21, 2011 - 7:54 pm

    Carmen,
    Good points & questions. As to the irreversibility of the dollar’s slide…that the current trajectory is negative is undeniable, and that it would eventually lead to collapse seems probable. I am not ready to write off the US as a mostly-free country. Therefore, it seems reasonable to bet that the gov’t’s profligacy, relative to our GNP, will be arrested (albeit only temporarily). Furthermore, as to safe haven eight countries rank ahead of the US as freer. China, on the other hand, is #135 on the Heritage/WSJ list. This lack of freedom, or rather presence of oppression, either squelches growth of any sort or leads to sustained misdirection of economic effort, which ultimately leads to crashes. Even the most cruel & oppressive regime can’t change the laws of human nature or nature itself, although millions have perished in their attempts.

    In that sense, the potential for grave malinvestment in China may be greater than it was in Japan. As to the acquisition of “Western” habits; Japan was once like China, not very long ago.

    Of course, I am speaking off the cuff, one might easily cite of bevy of details contra my argument. But in economics, details can blind, one needs reason to sort them out. In fact, one uses reason to sort them out whether those a priori assumptions are recognized or not.

    Broadly, I welcome a competitive and slowly freeing China, as their entry on the economic stage (not to mention the 8 sovereignties that outrank us) by competition limit the shenanigans our politicians can resort to to strengthen their grasp on power & reward their friends.

    Singapore does outrank the US, so in terms of betting on the correlation between freedom and growth, Jim Rogers is placing himself very well.

    From my work on behalf of small firms in the field of economics, I am beginning to believe that we have adequate access to data to start to anticipate the affects of rogue Fed policy and by refusing to join the party also avoid the hangovers that inevitably follow. But that’s another subject…

    Best,

    Thomas

    • #2 by carmenalexe on February 22, 2011 - 2:18 am

      Thomas,

      Not sure I understand “I am not ready to write off the US as a mostly-free country.” Can you explain please?

      • #3 by Tom Walker on February 22, 2011 - 4:57 pm

        Carmen,
        I’m sure I am not giving the topic or your question the time they deserve…I am arguably conflating the freedom of an economy and the soundness of its currency, but with logical defense and historical precedent. I think the total collapse of the dollar would be anticipated or attended by the severe curtailment of economic freedom. How’s that for short? I don’t want to pull the conversation too far from your intended topic.
        Tom

  2. #4 by carmenalexe on February 17, 2011 - 4:57 am

    Thomas, Regarding the dollar there is sufficient evidence pointing the south direction. I see its collapse inevitable especially after listening to Soros’ push to discredit it. Of course the main reasons are clear: unsustainable debt and a world that soon will start trading in a currency other than the dollar. China is looking at the possibility of backing its currency to specie. That’s going to be interesting if it happens. Then within closed doors they are discussing the possibility of a new currency, the bancor. China is in my opinion a different phenomenon. China is one of the emerging markets and is booming. But there are a few factors that we need to consider when talking about an eventual bust in their economy. First, they are a nation of producers unlike the U.S. for the last many decades. They are a nation of savers unlike the U.S. for the past few decades. They are a nation that invests in hard assets such as gold. They also do not get themselves into huge personal debt like we did. We are talking about two worlds and if they experience a bust I don’t foresee it happening in this decade. They are better prepared. Besides, why would Jim Rogers and other smart investors already living in Singapore?

    I have a difficult time believing their situation would resemble Japan’s. Japan somehow I see it having more of the the western habits, too little savings and too much debt. Maybe you can tell me why you think that way. Deflation was their problem, and ours it appears to be inflation.

  3. #5 by Thomas Walker, Jr. on February 16, 2011 - 8:38 pm

    Carmen,
    I agree with you that the rental market, especially the lower reaches of that market, may be a good play for some years to come. While I share your highly negative assessment of current US fiscal/monetary policy, I am not as ready to write the obits on the dollar. As to China, I am thinking their trajectory could resemble Japan’s since is fast rise through the 80s. Planned economies with their inevitable dose of crony-capitalism (like ours, but arguably worse?) are prone to the same bubbles and bursts. The dollar is weak, but our competitors currencies may prove weaker still. I wonder, too, if the dollar’s being supplemented as a reserve unit of choice may not be a good thing for the US–you know, hobble the Fed & the government’s ability to grow, overreach, tax, and spend into penury. Food for thought…
    As to rentals: like all centrally favored (read, soft mandate) “investments,” single-family tenant-owned residences have enjoyed decades of favor, I believe back to Eisenhower at least. This political favor does not change reality, it only masks it and guarantees an adjustment that only gets worse with the deferral–such as we’ve seen. I think people are rediscovering the advantages of renting at it may be some time before the government can successfully re-inflate the ownership bubble.
    Given the situation, the stock of houses in foreclosure or nearly so, and the weak employment numbers, I wouldn’t think that higher-end rentals have much room for improvement and in fact might in time feel downside pressure, but anything within the grasp of the newly penurious middle class ought to see some strong growth as people try to put a roof, any roof, over their heads–as you said.
    Longer term, I mean, beyond 5 years, I wonder. A place to live is a place to live, and with vast swathes of the housing stock having seen 30, 40, 50% or more in devaluation, any landlord who bought a property pre-2008 may find that fetching rents that match their investment an uphill climb.
    That said, Carmen, all economics are micro (fellow Austrians, right?). I’ve tracked some of the properties you’re listing, and they look wonderful both as investments (strong return on modest principal) and actually as places to live too. I may have to relocate south…

  4. #6 by carmenalexe on February 16, 2011 - 5:17 am

    Karen, to briefly answer your first question I look for returns at 13% or higher, some properties though are at lower ROI but there are other factors that may compensate for it. Good subject worth talking about in future posts, thank you. Your last question, not sure I am clear on it. Can you clarify it for me, please?

  5. #7 by Karen Rachford on February 15, 2011 - 8:57 pm

    Carmen,

    I have to add, I actually know a great stand up guy, who has been in property management for 15 years in Cincinnati.

    Also great topic for the future. What type of returns are investors looking for on their rental properties? As agents, how to get them there.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: