the effect on rentals?

Question

will the addition of more foreclosures and homes on the market decrease rents in all areas, some or none? How soon and how drastic.  I am not in the business yet, but was looking to buy a couple homes this year.  Are my rent comps in jeapardy?

Dave P. · Answer

The failed bail out bill actually addresses tenants living in properties facing foreclosure. The plan alludes to the fact that the leases will be honored in spite of state foreclosure law.
            
            So, go rent your closest foreclosure for $50/month for 20 years!

Page 26 Line 3
            
            http://www.review-realestate.com/shortsaleblogger/BailOut2008.pdf

Brian Campbell · Answer

Krzystof:  I also saw the yahoo article, The thing is, he stressed renting apartments (cheaper) not homes unless you can rent for less than your mortgage payment.  But with the housing crunch prices are down enough where you can buy for a lesser payment than renting.

I know the answer is that these people don't have credit anymore, but wouldn't you think banks will start to look closely at victems and start financing those that truely can pay.  I'm sure the Government will encourage it.

Michael Rossi · Answer

Brian,
            
            Here's an interesting article about some of the things that happened to landlords in the Great Depression:
            
            http://www.workers.org/2008/us/anti-eviction_struggles_0221/
            
            Here's my favorite quote from the article:

Michael Shadow · Answer

Wow Mike, thanks for that link.  It's very interesting with how all the people began to revolt.  I hope that doesn't happen again.

-Michael

Jeff Tumbarello · Answer

Our rental demand is doing well in Cape Coral. With the foreclosures we are about to make 4,000 new tenanats in the next 12 months

Brian Campbell · Answer

interesting, I hadn't thought of the government getting involved with the rent.  My whole purpose of getting into real estate was to eliminate the lack of control over my investments.

With the luck I've had investing, I'll buy right then have Uncle Sam cap my rent putting me in the red.

Can anyone direct me/or fill me in on any precedents so I can be more aware of what "could" happen.  Are you just looking back at the Great Depression, or are there more recent examples?

Michael Shadow · Answer

There is a massively strong rental demand in my area right now too.  I have to agree with Mike that we don't know exactly what's going to happen.  
            
            I figure as long as I have upper low end apartments I should have a steady supply of renters looking for my units.  If things get bad then my steady supply should be higher quality because higher class people will be looking for more affordable housing that fits their budgets.
            
I"m hoping the government doesn't start trying to cap rental rates.  All they have to do is look at the history of NYC to see that this is a very very bad idea.  Only time will tell.
            -Michael

Brian Campbell · Answer

well then, isn't this a great time to be investing?  My thought was that because houses were cheap people would be buying and charging less for rent to keep them occupied.  Many people would be willing to take less than they should not knowing the proper way to manage rentals.

Michael Rossi · Answer

Brian,

In my area, there is a high demand for rentals but absolutely no pricing power yet.  Rents have not risen or declined, they're just plodding along (although expenses certainly are going up).

To answer your question, no-one knows what will happen.  We're living in unprecedented times.  If we enter a full blown depression, a lot of factors will be in play.  There will be more renters, but there will probably be more rentals also.  A bigger concern to me is what the government might do.  Will the government ban evictions?  Will the government cancel or decrease rent subsidies to people?   Will the government set rent rates?  These are all REAL risks.  On the other hand, the government may increase the number of subsidies; may increase rental rates (as inflation rears it's ugly head); and the government may provide incentives for rental property owners.

So, the answer is - NO-ONE KNOWS,

Good Luck,

Mike

Jason Becher · Answer

I would think that if anything it would increase rents.  There's probably the same number of people living in doors and if there's more demand for rentals and less supply because of forclosures that should make rents go up.