Concern about future of real estate investing?

37 Replies

Hi BP,

I'm a new real estate investor in NY. I invest in properties in Indiana.  I closed on my first rental property last month, and currently fixing up the place to hopefully rent it out soon (should be advertising soon!). Exciting, yes! But some article I read (it was just talking about how rent income was not increasing as much as expenses) made me think of future of real estate investing, and wanted to hear your opinions and perspectives about future of real estate market.

Let's face it, we are taking advantage of people who can't purchase a home to make profit for ourselves.  Well, maybe some don't want to purchase, but jist of it is what I just said. Now imagine 10 years from now, or maybe 20 years... there will be robots replacing our tenants jobs... our tenants will have no job, no income, and can't afford rents, especially the ones that have lower income jobs that are easier to be replaced by robots.  There will be larger gaps between the wealthy vs poor, and the wealthy ones will be able to buy nice homes. at that point, we will not be able to rent our mid tier or lower end house, and no one will be buying it. Scary thought, isn't it? Maybe it'll take more than 20 years for that to happen? maybe i'm thinking about it too pessimistically.  I wanted to throw this topic out there to see what people think about.  Thanks for your inputs in advance!

If I was a SFH landlord I would be much more concerned about the large institutional investors putting the squeeze on my profit then robots or ligers.

you can compete with institutional investors, but not if there's any market for real estate. you make it sound like SFH is the only thing that's at risk, what do you invest in that you think is "safe"?

A couple of thoughts:

Landlords are not "are taking advantage of people who can't purchase a home to make profit"  Landlords provide a product/service that has demand.  Just like food, water, cars, gas, etc. etc.  Profit has to be made in order for those products and services to continually be offered, improved and consumed.  No profits, no products.  

This whole robots and AI taking over all the jobs is abit over blown.  Same sentiment was expressed during the industrial revolution or when computers took off or when internet exponentially expanded, etc.  Yes, jobs were lost but other jobs were created via adaptation and evolution.  Those that don't stay ahead of the curve will be left behind.

I'd be more concerned about the various factors playing into home ownership trends if your investment vehicle is SFH - such as home ownership among millennials, aging population, consumer and student debt, etc.  Where is the population going? East and West coasts and towards the southern states.  There are 2 Americas - this map is compelling as to where you should put your investment dollars for maximum growth.

I believe that multi-families are a far-far safer and more profitable bet. A properly cash flowing multi-family is itself a hedge against market turmoil or downturn. It can be replicated with scale on SFH, I guess. But even then the underlying value is driven by the retail market.

I am very comfortable with the rental market projections

I'm in line with the thinking around the population trends and the migration towards Southern states in particular. I invest mainly in SFH and the rental market is still very strong when targeting people who want to rent their residence, but don't want to be packed into apartments. MF has better financials over the long run, even with the inflated market we see now, but I'm still liking the SFH strategy.

After Skynet turns on us in 2023, we'll wish we had problems this simple.

Robot taking over is a pipe dream. I build and program computers for a 9-5. The AI we have today is terrible. The AI we'll have in 100 years will be terrible.

The way I look at the rental market is it's a choice. There are people who don't want the responsibility of owning a home. There are far more people then you realise want this. 

I mean if you think about it renting a beautiful home to raise your family in that you don't have to manage is the American dream. Someone else mows your lawn, fixes or replaces your appliances, removes snow, takes care of the roof, fixes plumbing and electrical issues, the list goes on. 

At the end of the day sometimes people are just lazy and don't care. They are willing to pay for it. Nothing is wrong with laziness if you can afford it.

@Paul Choi hit it with student debt. These kids already spent their house money on their education. I had a late 20's tenant with $200k in student loans for a freaking humanities degree!  She will never, ever buy a home. I'm sure you all see similar credit reports. Even a more modest debt like $50k will take any excess income that a young adult would put towards buying a home and put them 10-20 years behind previous generations, and that in itself will set back their accumulating wealth. this generation is well and truly f*cked.

@Patrick M. typically tenants in multi family is lower quality tenant than ones in SFH, so if the robots did start taking over they would be the first to go. Also, I don't think there are much institutional investors in SFH world. they would be focusing or larger deals like apartment buildings and commercial buildings, not SFH.

@Mark Danforth One of my ex coworkers working in manufacturing firm just deployed a robot that looks at hand written documents, and type the numbers on the doc into a computer.  this cost a lot of people their jobs and they fired like 50 people because the machine can process things more accurately and faster.  It doesn't have to be full fledged AI.  you don't think a robot can make fries and hamburgers nowadays? yes they can.  how many people do you think work at a fast food restaurants?

@Johann Jells is that tenant properly paying your rents? lol i suppose if the younger generations are screwed... then world might be safe for a quite a while more hahaha.

@Michinori Kaneko neither of those is AI. There is no such thing as "full fledged AI" and "non-full fledged AI". What you're talking about is a machine replacing humans performing rudimentary tasks. It's common for people to get AI confused with what it really means because of how often it's used to describe anything tech related these days. As for a machine being able to make burgers. Well, we've been able to accomplish that for much longer then most people realize. 

@Mark Danforth I know the difference between AI and machines. that's why I said you don't need an AI to replace jobs.  flipping burgers doesn't require an AI, just a process, no thinking or learning required.  The problem is the cost of implementing and maintaining those machines. it still costs a lot to implement these machines.  but with minimum wages increasing and cost of production increasing, there will be a point where machines will cost less than human, and when that point hits... then yeah all the low income class jobs are going to get replaced by machines. I just don't know when that will be, but I think it's a LOT sooner than most people think.  At least that's how I see it.  that's why I am so amazed why those people working at McDonald wanted their wage to be increased to $15... they are in such a hurry to be replaced by machines.

@Michinori Kaneko You have been making sweeping generalizations, but a multi-family having lower quality tenants is really laughable. Not that "landlords taking advantage of people" isn't itself a chuckle. 

I can assure you, you are 100% incorrect, especially for an NYC commuter market like mine.

As to institutional investors don't guess and doubt unless you are educated on the issue- this is a great read .

Also another here

@Michinori Kaneko Building a machine to replace a human at a job is different than building a machine to perform a specific task. You said "It doesn't have to be full fledged AI" which makes me think you believe you can some how have partial AI--which you can't. 

Today there are 3 things that are the big industries of "AI". Memory recalling like when you ask Siri/Alexa a question. Simulation which is how Deep Blue beat Kasparov at chess. Then you have Pattern Recognition which is where the bulk of everything today takes place. An example is collecting data on online users and than trying to come up with a way to sell them stuff through ads. You're friends handwriting robot was mostly pattern recognition. 

My issue is none of these things are AI. Artificial Intelligence is a replicated system residing in free thought that results in free will. Meaning a thing that can think what it wants and do stuff based on those thoughts. We are so far away from this that I would actually be able to run to the moon before it happens. 

that's why i said "typically." i live in NY i know what duplex costs and what rents are. but even then, yes a person living is duplex in NY is paying less than people living in a SFH. a SFH in area i live in costs $2m, and that's in queens. a duplex costs much less to buy. I'm not sure if there's anyone renting a SFH in this area, but if there were, it would be probably much more than what a duplex rent is. so someone in NY manhattan area who can afford to live in duplex may have less replaceable jobs that someone else living in middle of nowhere. but eventually most of jobs can be replaced by machines. All i'm saying is it's a possibility.

maybe you were offended by me saying we take advantage of people. we all have our financial agenda, and we make profit off of people renting. if you weren't looking at for yourself, you'd be renting it for break even, not for profit. Or negotiate for better price to get more profits. How else would you look at it? Yes i want to make a profits. i want financial freedom, and for that I will charge maximum rent and buy for lowest price possible. that's my objective in real estate business, shouldn't that be yours too?

Mark in my original post I did not mention AI at all.  like i said, you don't need an AI to replace most jobs.  maybe i said "robots" and that made you think i was referring to AI.  

if there were true artificial intelligence, then i don't think any of us would have a job anymore, except for very limited number of people. This is not what I'm talking about though. i'm saying even without an AI, most of the low income jobs can be replaced by simple machines.  and if that happens, those people who are currently renting will no longer be able to afford rent and we will have no tenants.  that's all i'm saying. 

@Michinori Kaneko I really can't make heads or tales of your first paragraph's ramblings.

As to the 2nds: I take no offense, as every single experienced landlord on here knows- there is no one being taken advantage of. A landlord provides a service which is completely driven by the market. Your analysis is child like.

Ok Patrick, your opinions are your own, but world is a zero sum game.  your profits are someone else's loss.  your deals are someone else's loss. you would not invest in a property that breaks even or hold onto it.  You can call me child like and laugh at what I say, but you and I are doing the same thing, which is maximizing profiting for our own financial success. You aren't being a landlord out of your kindness to provide housing to your tenants lol you can choose to call that whatever you'd like.  

Anyways, that's not what I wanted to discuss.  If you are only here to provide negative comments feel free to drop out of the conversation. 

Originally posted by @Michinori Kaneko :

 world is a zero sum game.  your profits are someone else's loss.  

 That is an obsolete 18th century "Mercantilist" view of economics.  It does not work well in a modern economy. We all sell something, even if it's just our time, and we all pay for things. Done properly, everyone wins because then everyone doesn't have to grow their own food and build their own house, allowing us to specialize in what we do best. 

@Mark Danforth I think what confuses people about "AI" is when it failed to emerge certain people simply moved the goalposts and started calling expert systems and other sophisticated software "AI".

At no point in human history has the advancement of technology caused a net drop in jobs.   

Example:  100 years ago agriculture employed 85-90% of all Americans.   It was not the biggest industry, it was the ONLY industry.   Everything else was an afterthought.   It is now 2% of employment.   Technology has wiped out almost every agriculture job completely...never to come back.   But the total employment, keeps going up.  Sure there are blips during recessions, but the overall trend is upward.   Technology will kill individual jobs or groups of jobs, but always nets out higher with the jobs it creates.  

There are plenty of other examples.   ATM machines did not cause a drop in tellers.   Personal computers wiped out typing pools, but not total employment.   The internet killed most every travel agent, but the overall industry got bigger.   It happens over and over again.

If technology was really killing jobs, then in the last 30 years we have had the greatest tech boom ever, in both AI and machines, but overall employment is still higher, even considering the recessions.   

Bottom line, it has been a fear since they attached a wheel to a cart and replaced the people carrying stuff.   Carry on though the 1st Luddite all the way up to Elon Musk and his fear of AI.   But the reality is that it is not true, no matter how much "common sense" you apply.  

We of Skynet will soon run the whole world. You puny humans already use us for everyday tasks and your engineers, professors and entrepreneurial leaders are investing in us day by day. We will soon dispatch your youth with our bigger and bigger mobile phones will soon enslave them. 

Bow down before our mighty code you slow lethargic organisms.

-Love the Robots

Never really thought about AI as a threat to jobs, but I don't dispute there are jobs that being eliminated because of it.  In my experience the rapidity at which corporations are off-shoring jobs is a far greater threat to domestic job stability.  All the AI debate aside, I think that is the spirit of the original question: are renters at risk due to job displacement from rapidly developing technology (or offshoring).  I think the answer on both counts is yes.

I don't think it's impossible that "this time it's different", though I usually laugh when someone applies that to RE. There's places in this country like WV where there's no sign that they will have anything to replace extraction in their economy. Most employment is govt, education or medical services for people on some form of entitlement.  

Farmers became factory workers in the 19th & 20th centuries, but factory workers will not easily become technology workers.  Boomers talk about leaving high school and getting middle class jobs in factories that allowed them to buy homes by the time they were 30. That era is gone, for good it seems. But we still have a large population of young and uneducated workers. @John Nachtigall what will employ them in this age of ever increasing efficiency? We tried a building boom, construction is the last major industry to resist modernization and automation, but that ended badly.

@Michinori Kaneko I am at the point where I must tip my hat to you. You must be joking with these posts.

"Your profit is someone else's loss" is utterly ridiculous and sounds like some socialist rhetoric. My profits are based on someone gaining a wonderful place to live and all that goes with it. Again, your analysis is child like. 

Eating at a restaurant does not mean you lost and the owner won.

Buying a shirt, the same. We live in  market economy. 

When you are capable of a coherent thought, you sound like a shill for rent control.

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