‘Neophyte Landlords Caught In Downturn’
The Herald Tribune has this update from Florida. “The Southwest Florida market for rental properties is all whacked out. In the affordable segment, the supply of apartments and rental houses is tight. But at the higher end of the market, there is a glut of properties aching for tenants. Observers say speculative fever, which gripped the real estate market during the past few years, is to blame.”
“Most of the neophyte landlords figured it would be easy to rent their properties at prices that would cover their costs until it was time to sell. But it is now dawning on them that the rental market is not a no-brainer, and selling out during the current sales slump is not an option unless owners are prepared to dump their properties at significant discounts.”
“‘Eventually, the market will adjust,’ said Al Holmes, the president of the Sarasota Landlords Association. ‘But during that time, low-end renters and landlords who bought properties at high prices are going to get their butts kicked.’”
“The problem, is that the new owners of the units want to cover their mortgages, taxes, insurance and maintenance costs. So they are offering units for as much as $200 more than the market will bear. As renters refuse to pay such high prices, the units remain empty.”
“‘There’s a six-month supply of condos on the market right now,’ said Scott Corbridge of Sarasota Management and Leasing. ‘That means that if no new rental units come to market, it will take six months to rent all the units we already have.’”
“One way to resolve the glut would be for owners to sell their properties and get out of the rental business. ‘But there’s no one buying,’ said Holmes. Sales have slowed sharply and the real estate market is flooded with inventory.”
“Sales have slowed sharply and the real estate market is flooded with inventory. ‘Owners will either have to drop their prices to a point where it makes sense for the next landlord to invest, or hang on until rents rise or real estate sales pick up,’ he said.”
“Another way to solve the oversupply problem would be for landlords to drop rents. ‘Instead of making money, landlords will see money going out.’ Holmes said. ‘It’s called an alligator, and it will eat you every month.’”
The Palm Beach Post. “For the past few years, the chatter has been about the torrid housing market. One Realtor we know says three waiters at a moderately priced restaurant were discussing their real estate deals when she lunched there recently. ‘And my doorman wants to know if he should hold on to three condos in a Boynton Beach development that he bought last year,’ she said.”
“But amid this frenetic buying and selling, eventually there needs to be an end user, a buyer who actually intends to live in the home, or someone will get caught holding the bag, in this case, the condo contract. Many of those pre-construction contracts signed at the height of the boom are now coming due. ‘It could get ugly,’ condo king Jack McCabe says.”
Some related links:
‘If you build it, they will come. Well, maybe not. At least not in Brevard County’s rapidly slowing housing market, which could stall or kill plans to build as many as 10 condo towers in Melbourne’s downtown shopping district.’
‘The rising cost of living in coastal counties along the Gulf of Mexico keeps some people away and pushes other people out. That’s apparently why roughly 500 fewer-than-expected young families moved to Sarasota County in the past year. School officials projected a student enrollment increase of 1,600, but the rolls grew by only 461. ‘I blame it on home values,’ said Al Weidner, the school district’s budget director. ‘It’s all the factor of the cost of living down here.’
‘Q: Aside from eight hurricanes in two years, why is Florida in a crisis? A: Two reasons. The first is its rampant coastal development. Every year it grows in billions of dollars, and basically every dollar of that is exposed to hurricanes.’
Q: Why did the hurricane cross the road?
A: Because it was Florida.
Ten -20 more years and Fl. will be a stub at the end of the continental U.S.
Shhhh…don’t tell the wingnuts. Science interferes with their magical thinking. Clap louder please.
I’m not sure which ambiguous unformed threat I should be more afraid of… is it the turrurists or the globul warming?
I need to make sure to vote for the right side to save me from the other side not saving me.
I’m between anxieties myself. Now that I’ve recovered from Y2K and SARS, I’m considering getting concerned about the impending bird flu pandemic, but I’m just not sure yet. I’ll probably close in on a decision sometime this month…
Every one of those quotes above needs a WTF?? response. What are these people thinking? A bellman has 3 condos ,and is clueless where the market cycle is? Inventory is exploding ,and people are standing around watching as there future goes up in flames…seemingly oblivious.
—
OT but I am a regular CNBC watcher ,and try to keep up on the days trends…But, Last time I looked Hansens naturals was over $150 at it’s peak early June ws over $200!.Today I see it’s around $38..Yet I never heard a mention.?? Where was I? I can see missing the day it dropped ,but in the last month never heard a mention..too weird.
http://www.google.com/finance?q=HANS
HANS did a 4:1 split last month.
Thanks Audet, Re: Hansens..Me stupid…I saw the stock dropping by $6 today ,and did a quick check before actually checking..remove foot~
If you build it, they will come
They will, if you price it correctly, and within “their” ability to pay.
clouseau
Ben, same thing happening up here in Tampa. Hillsborough county school district (which started school last Thursday…ugh!) is short of their forecast enrollment by 26,245 students. Can you say, “BAD FORECAST”? Sure, I knew you could!
Article in Tribune: http://www.tbo.com/news/metro/MGBZFYNGHQE.html
Hadn’t thought of this lately, but my school downsized by 4 teachers last year, and 3-4 more have to go this year (out of 120, or so). This is not a budgeting issue (directly, anyway) - boss says we have lower enrollment than expected.
It really makes you wonder why county commissioners are still approving re-zoning and developments. I think the word has gotten out what a mess Florida is. They can give kids all the F-Cat tests they want, it won’t hide the fact that many kids take their life in their hands each day they attend a public school in Florida.
I recall a story wherein a lady was leaving Florida because the schools sucked — scratch that, the children sucked. She said something about going where the kids are normal, or something about where ‘boys look like boys and girls look like girls.’
That just can’t be !!!!
Those bad people are lying !!!
Everybody knows that over a 1,000 people a day are moving here and property prices can only go up-up-up !!!!
_________________________________________________
This shocking shift in demographics doesn’t surprise me at all.
I personally know of three (3) families ( co-workers ) who sold at the top within the last nine months and moved “half-back”.
One man I worked with for the last 12 years sold his house here in Winter Haven for ~ $ 200,000 profit, quit his government job and moved to just outside of Knoxville, TN.
He and his wife took the $ 200,000 and put every penny into a marina / bait shop / bed and breakfast that they also live in.
I talked with him on the phone several weeks ago. All is well, the kids love their new friends ( not many gangsta / thug / illegal kids up there ) and they are filled up at the marina and booked up with reservations at the B & B.
He tells me I should consider moving up there. He proudly boasts that he’s already well into the black with his venture and is very cash flow positive since he only mortgaged an additional $ 150,000 to buy the entire compound his business sits upon.
The other two families moved up to VA and NC ( both in the Blue Ridge ) and are singing similiar songs.
The schools are better in VA / TN / NC , business is booming and everybody is happy.
I didn’t tell them about winter though. They will find out soon enough
SHHHH!! Don’t tell anyone! We don’t want it ruined!
We’re alreay wondering who all these people are who can afford $500,000 to $1,000,000 homes. Certainly not people who work for a living in the area.
BTW - Winters last 11 months in Knoxville. You don’t want to move there! Oh, and the one month that isn’t winter, temperatures are 120 degrees.
Even if someone bought in the last 1-2 yrs and put 20% down they will be hurting. There is just no way to cover your expenses in this environment, forget about if there is a leak or a tenant leaves (and then you really figure out you’re screwed).
These people did everything right and they will still go down. Well, everything except buying in the first place!!! Ok, ONE little mistake ………. WHAT WERE THEY THINKING?!!
ot but fantastic reading from hussman on the us markets and economy
from germany jmf
http://www.immobilienblasen.blogspot.com/
forget the link
http://immobilienblasen.blogspot.com/2006/08/fundamentalanalyse-hussman.html
from germany jmf
Nice post jmf;….HD, if your out there you will enjoy this post…
credit belongs to hussman.
he is great!
from germany jmf
http://www.immobilienblasen.blogspot.com/
I see neophyte “landlords” trying to cover their costs and even make money everywhere. I’ve become addicted to reading Craigslist ads around the country. DFW particularly cracks me up, as I see people trying to rent out “investment” houses in the most undesirable burbs like McKinney, Keller, Little Elm, etc. for prices that will get you something inside LBJ. Idiots. I hope every last one of them ends up puking these up and takes a hefty loss for their trouble.
As a long time renter, I know what the market will bear. I particularly get amused by the owners who want you to pay a couple of months rent up front plus a deposit, plus a pet deposit. Sometimes, you’re talking 5-6K out of pocket to move in, and you can almost take it to the bank that you’ll never see the deposit money again. In TX, a landlord is supposed to escrow that money in a separate account but of course none of them do. They take it right to the mall.
I will not pay anything but the first month’s rent plus a “reasonable” deposit (by reasonable, I mean $1k or less). If they don’t like that, good luck with it . . .
agree. so many places want a (refundable but most likely not) deposit, pet deposit, and a monthly pet fee. no thanks, just like you, i’ll put 1k max, i wont even do 1 month anymore after being screwed by my landlord 2 yrs ago
As a landlord myself the pet deposit is designed to do one thing:
Get rid of people with pets.
Now if only I could charge a toddler deposit.
There is a good reason there… this country would be depopulated. Might be pleasant in the short run, though.
Trust me. We don’t want to rent from people like you either.
I try to rent from corporate landlords. It does not seem fair to put some well-meaning entreprenuer through the emotional experience of having my small children live in his investment. Three year old humans can make feral animals look good.
And I have been told that we are well-behaved and relatively undestructive. I shudder to think what an undesirable tenant might do.
It sounds to me like there’s a market here for a bank service to hold onto escrow money where there’s an arm’s length between the landlord and the money. I would like to think that an excellent credit record and balance sheet should get rid of the need for a deposit. But if you’ve got a desperate landloard, they’d probably disagree.
I won’t give them a credit report either. No way I’m letting some bozo I don’t even know have access to my social security number.
Despite my inflexibility on all these matters, I have never had any trouble renting what I wanted.
Knowing that they can’t cover all their costs with rents alone, some try to charge a premium by furnishing their places. I’m not sure there’s a whole lot of people out there looking to pay an extra $800 a month to rent somebody else’s furniture as well. Those landlords are toast.
Want a stock market bubble? Allow anyone to buy stocks on margin. Result; 1920-1929 followed by 1930-1941. Allow anyone to by houses on margin. Result; 1996-2005 followed by 2006-2019. We may be better at controlling crashes but remember, the stock market in the 1920s was a miniscule part of the economy compared to real estate today.
whahhhhhhhhh ?
stocks were less of gdp than marginal housing in 1930 ?
No, stocks were less of GNP in 1929 than is the housing sector part of the GDP in 2006.
Robert,
That was a very very precise post and “houses on margin” is my new shout out. With your permission.
My pleasure. I’m here to share.
Robert Cote’
I can’t believe I’m even saying this! It’s cuh-razy! It’s INSANE!!!!!
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(That’s how you get a bubble)
That’s why it is a credit bubble merely expressed as a housing bubble. As usual you perceive the essence.
Oh, the only “catch” is that you have to hold the “portfolio” for TWO YEARS. I realize two years is a LONG TIME for me to stand between you and your rightful profits so if you need the money ahead of time just call our helpful assistant and he’ll arrange to get you out YOUR money in two weeks or less!
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It reminds me of that SNL skit with Eddie Murphy when he paints himself to be a white person, and goes to the bank and asks for a loan… The first loan guy says no way, but is replaced by the second manager…
The second bank manager is like “Well, Mr White, you have no assets, no identification, and no money, yet you want to borrow money? Go ahead! Take all this money, and pay us back whenever you like. In fact, DON’T pay us if you don’t feel like it. hahahahhahaah”
I remember when that was funny because it was so rediculous. Now it’s TRUTH.
Clouseau
ps: obviously the current real situation has nothing to do with race… it’s just that DinOR’s posts reminded me of the Eddie skit
Clouseau,
You know, I was thinking about Eddie the other day and what he’s been up to and such and why he hasn’t been in the news and stuff? This would be the “perfect” script for one of his skits! Anybody got Eddie’s number?
Great. Our economy has been reduced to a SNL skit.
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Robert Cote’
ABSOLUTELY!!!
Our eager staff is at the ready to fund ALL your expected future equity appreciation “needs”!
Think how the “SELOC” will actually help the stock prices - you borrow against the stocks, buy an H2, then watch the price of GM shares go through the roof!
Max,
“SELOC”
I LOVE it! Did I mention I’ll pay for the H2 also? (You just have to go to closing before Aug. 30th.)
SELOC! Priceless!
I’m waiting for the laws to change so that margin calls are OK for mortgages, HELOC, etc. The bubble would end real quick if margin calls are made on all those overleveraged homes….
At rates guaranteed to be 2% below current rates!*
*3% Service fee applies (in finer print)
I’ve seen numbers that indicate 2-10% of households owned stocks in 1929. Also, something like 50,000 new margin accounts were created in 1929!! How do those compare with either the 70% of households that own houses or the number of new buyers in 2005?
Maximum exposure, social engineering, preservation of the middle class, or eradication of the middle class through enticements leading to eventual foreclosure?
1200 $ on a golf course,brand new w utilsd\ and garge 1400 sq ft
sold $ 360k
I’m ready to seriously consider purchasing rental property anytime. Rental properties cost less than 120 times the rent. If you can get $1000/mo then my interest is piqued at arround $120,000. See the problem? These people don’t have rental properties; they have investment properties that have failed and they are trying to convert them to failed rental properties. No one cares what these units cost them as long as there are units out there that were bought pre-2000 with cost basises 1/3rd as much. I sold my last in April for 273x rent despite generating 10x in rent the annual expenses. I expect to use the proceeds after massive taxes to buy three of the same things in the same town in the next few years.
Cote;…I got a better idea “I think”…I am closely watching land deals…particularly, smaller “specflippers” that bought with leverage, got intitlements, and now want to flip…They are in trouble and I believe “real deals” are comming…
Raw land does generate rent. If you are looking to build then yes, an approved lot before construction starts is probably one of the sweet spots. Besides you can ignore all the bribes the previous owner had to pay to get it to that point and thus keep your blood pressure low.
BINGO !!!
you can ignore all the bribes the previous owner had to pay to get it to that point
“Bribe” is such a strong word (though sadly, 100% accurate). I like to call them “just because we can” fees, just so I don’t anger the local SMUG/NIMBY planning board too much.
This is similar to traders that buy stocks where things go wrong and where they don’t take a stop loss (you’re supposed to determine your stop before the trade). And then decide to hold out because the stock pays a 1.5% dividend.
As a young professional who has been, and continues to be, shafted by the speculation frenzy here, all I can say is that it’s good to see the shaft turning back onto the class of people who caused this mess in the first place…..people who think they can make money for nothing.
Right
Hey, we’re Entitled to that money!!
j/k
The stock of the managed apartment complexes has high rents priced in. What the investors in such stock don’t realize is that a migration out of thes places by tenants started in March and has been getting worse every month in So. Florida. The complexes try to hide their occupancy level in an attempt to keep the stock high.
http://today.reuters.com/stocks/overview.aspx?symbol=ASN.N&WTmodLoc=NewsArt-C1-ArticlePage1
Is the implication that the stockholders have no access to the income statements?
Question:
Have we built faster than population growth? Just about everyone lives in a trailer home, apt, condo, or house, right? Anyone have any clue as to how much inventory we had “extra” five years ago? I figure there had to have been a few more places to live than there were households even five, ten, twenty years ago (not considering homeless). With all of the false demand of recent years, we have clearly gone on a building spree; so, I am wondering if there are any numbers out there relating the number of households to the current number of dwellings in the U.S. I can guess, of course - but is there any data to look at?
We Rent,
So true. I’m having an exretremely difficult time wrapping my mind around the “excess”. How do we even go about figuring all of the wasted materials, resources and manpower that go into each and every failed specuvestment that goes unoccupied yet another day? How do we even go about calculating that? It’s cu-razy! It’s INSANE!
Call me TODAY for your ZERO DOWN IRA Portfolio Loan!
I was explaining the housing bubble and investment properties to my mom yesterday. her reaction was basically:
“what? no, you do the calculations and collect rent to pay your mortgage and a little extra. that’s how you do it.”
she couldn’t believe people would not do the calculations and buy a property that lost money. I explained it and she was amazed. I told her it was a bubble, it’s not supposed to make sense.
I guess she’d have a hard time with internet stocks that went up even as they were making bigger losses.
First time poster here.
I’ve lived in SW Fl for 36 years (i’m 42) and this area has been notoriously a tourism and wealthy retiree, gated golf course community (construction and services) economy for just about all of it.
I’ve seen alot of new developments that are working class lately, meaning that the typical buyers aren’t independantly wealthy and they have purchased fairly expensive homes on credit.
I don’t see retirees living in these cramped projects anytime soon.
As our credit economy slows down it is going to get very ugly around here.
like struggle to the financial death! heheh
I predict empty houses galore and declining rents as people flee for better prospects.
maybe Cuba opens up?
wages will just go down with the rents imo
I mean that’s what will cause the rents to go down in the first place, low wages.
The Lee and Collier County property appraisers have been at work lately,, raising taxable values alot just as the economy slows and insurance rates go up
And mortgage payments too and gas wow
“Many of those pre-construction contracts signed at the height of the boom are now coming due. ‘It could get ugly,’ condo king Jack McCabe says.” ”
Could???
It IS ugly, and it wants to die.
Problem here in FLA. is that rental properties taxes are not capped at 3% like your primary residence. Plus insurance will double this year. So even if you broke even on a rental property last year you probably won’t next year. Unless homes are going up year-on-year in value it’s not a great way to make money.
“One Realtor we know says three waiters at a moderately priced restaurant were discussing their real estate deals when she lunched there recently. ‘And my doorman wants to know if he should hold on to three condos in a Boynton Beach development that he bought last year,’ she said.”
Man, did I ever have a ‘Joe Kennedy and the bootblack’ moment with that quote! Drop the pretense, turn around slowly, and flee.
Alright, put down the pen, step away from the loan document and nobody gets hurt.
That should be a bumper sticker.
today’s waiter/doorman is the equivalent of yesteryear’s shoe-shine boy!
Any other stories about hearing of “investor” discussing his/her real estate holdings?
My neighbors (very good friends of mine) bought an up down duplex about 2 blocks from our neighborhood 2 years ago.
they did a FANTASTIC job renovating the upper half. The lower half was occupied the last 11 years by a single woman so they didn’t renovate that part yet. They rented the top half out to 2 guys (a couple). And it totally penciled out well for them.
Unfortunately, the lower tenant decided to move out this weekend.
My neighbors are now very depressed and freaked out about the situation. They now are going to gut out the lower unit (like they did with the upper unit) to make it really nice, but they’re worried they won’t get their ROI on the deal. Very stressed.
it’ll probably take them 3 months to renovate the bottom half (it needs it) and then another 1-2 months to rent it out. Thus, they’re looking at the proverbial “alligator” the next 1/2 year at least.
I know it’s all “their fault”, and yes I know there is no other way… but it just reminds me again and again at how personal this housing bubble is to ALL of us, and how ALL of us will be affected, either personally or through those we love.
Sad.
Clouseau.
House Inspector Clouseau,
I have clients that have been in commercial RE since WWII. They’re great guys and you really have to have sense of humor (and humility) to do business with them. What you describe above is sadly a common observation of theirs. Many of their competitiors come in and commit this same error. I know they’d be shaking their heads on this one b/c the founder is fond to remind me that you have to have DEEP POCKETS to play this game. ASSUME everything will go wrong in terms of maint. taxes and occupancy and you’ll never be dissapointed!
Closeau, I’m looking for a rental in Mpls, with at least 2 br. If your friends’ apt. is that way, could you get us into contact? Peter (to_pe_ro@yahoo.com = address is spam infested but occasionally read)
Sorry, it’s a 1 BR. It’s large (950 sq ft I think) with it’s own cute little private patio off the eat in kitchen, but NO second bedroom.
It also needs updating severely. I’m thinking it will take them at least 1 month.
If still interested, let me know, and I’ll get more details from ya.
clouseau
Edina sucks!!!
I had to write it.
That article says it all, it’s definitely amateur hour in the rental market here in Florida. Craigslist Tampa Bay rentals are pretty much a complete joke, except for Pinellas County, which has more realistic rents. But, because of the congestion and vulnerability to hurricanes, I wouldn’t rent there. The only thing more ridiculous than Tampa/Hillsborough County rental prices are the people who are asking them. Many honestly believe they can command California prices. The kind of sub-literate, verbal diarrhea that comes out of the mouths of some of these amateurs is incredibly pathetic. Truly, they deserve to take it in the shorts.
Palmetto, I didn’t see you post on thread for percentage drop for your area, I have a home in Palmetto but want to move up and can and will wait until prices are in line again. Your thoughts about north Manatee county?
“my doorman wants to know if he should hold on to three condos ”
My Lord , does history not repeat itself!
early 2001 -a New York City cab driver heard me talking on the phone about the market and asked me what the ‘whisper number’ was for yahoo’s upcoming quarterly. I knew then that it was most likely all going to end badly. At one point NASDAQ dropped some 75% from its highs remember. No reason I can think of that it can’t happen in certain RE markets.
‘It’s called an alligator, and it will eat you every month.’
Alligator? They have alligators in Florida? Breeheehee!!
Alligator news from Atlanta: The friend who tried to sell his house last year but couldn’t. He dropped the price a whopping 3% and got many lookers and no offers. Well, in early spring he decided to rent it.
Unfortunately, at the price he’s asking, all the regular folk are renting other houses cheaper. It seems that all he’s got looking at his are those who can’t get into normal-priced rentals, meaning he gets deadbeats and scammers who might not pay anyway, or sometimes people who won’t pay anywhere near the rent he’s asking — and he won’t bargain down (much) because he says he needs to make his PITI, at the least.
The house has now sat empty since… oh, sometime in winter, while he pays upkeep and utilities, but he is still considering this his “retirement fund” — perhaps because he has no other money left to save for retirement after covering that massive empty house cost. What an alligator. It’s perhaps actually sad that he CAN afford to keep feeding it because that only lets him lose money for years and years before forcing his hand (i.e. selling) instead of months.
I saw the scariest ad I’ve even seen yesterday. It was in United Airlines in flight magazine. It was a real estate/investment company specializing in investing 401k assests into housing! Oh god… I didn’t know that was possible/legal. The same people who lost on Yahoo! and pet.com will not lose on homes…
This won’t even begin to get ugly until this winter when the rents for vacation properties crash. I’m predicting a YOY drop of 33% to 50%. Anyone want to differ? At that point… watch out below.
Neil
Neil — that makes me wonder what snowbird condo rents will be along the coasts of Florida this winter. On the surface, there does not seem to be enough competition yet to drive prices down in my area (central Florida), but I’m wondering if the budgets of the intending snowbirds are tight enough that they’ll have to cut back on time in Florida. The season begins in about 60 days — will be interesting to watch. Tourism so far this year has been a bust.
Stopped by the outlet mall in Ellenton (manatee county) on the way to Tampa this weekend and every corner on the way in was plastered with for rent or for sale signs. One had recycled a for sale sign and turned it into a for rent sign…
Sh***y neighborhood unless all you want to do is shop and listen to the drone of I-75…
For some reason I am daydreaming of relocating to Honduras or Nicaragua….
I have to say, out of all the housing bubble casualties this may be my favorite: arrogant/stupid property owners who thought they could stick it to a tenant when they got in over their heads getting CREAMED.
And I say that as a former landlord who made SURE I bought well enough within my means so I could always rent at below market to insure keeping a good tenant.
Give a tenant a great deal on a great home and you’ve got a good , headache free situation for everybody. Good energy all around.
These jerks disgust me. Total users who deserve every headache and trauma they get. Ouch!
Funny, but I haven’t seen any posts regarding the Boston rental market here. Rental property owners here have for years bought for appreciation, knowing that the rents collected wouldn’t come close to covering PITI + expenses. What is the general consensus of the rental market here in Boston? Anyone have any thoughts?