Yeah, real estate is no longer a good investment...people still need a place to live, and rents aren't really down much, and values are WAY down, which would seem to imply that this is a once-in-a-lifetime market opportunity for buyers, but it just seems so risky when you watch the news. Oh, and the overall population of the US continues to grow rapidly, plus the increasing urbanization means that more and more people are living in cities, but that whole real estate things is a house of cards, right? Hmm...and real estate has been making people rich for hundreds of years, but everything has changed now. Right?
I just looked into this here out of curiosity. I'm in Vancouver, and for a $300k apt downtown (~550sqft), it's rentable for ~$1300/month minus $200 in strata fees.
So, even if I don't pay anything to a bank for mortgage (i.e. I've just got 300k cash sitting around), I'm looking at ((1300-200)*12)/300000 = 4.4%. With a mortgage, or other incidental expenses, it looks pretty unattractive.
Am I missing something, or are the property values/rental market here just not suitable for rental income?
(Genuinely interested, 'cuz hey, I want passive income as much as the next guy)
1. Real estate is generally more attractive once you add the concept of leverage.
2. Buying single family homes retail and renting them out is typically difficult from a cashflow perspective, especially in desirable urban areas. You might be better to try multifamilies.
3. Many would argue that a wide disparity between the sale price of a property and the ROI for that property if rented has historically been an indication that the price is unsustainably high.
4. In general, investors also look for returns through appreciation, amortization, cashflow, and tax advantages.
5. In spite of all of this, the situation is worse than you imagine. The industry-wide operating expense ratio for real estate is close to 50%, something new investors often have trouble believing. Taxes, insurance, vacancies, management, maintenance, etc. all adds up. A good rule of thumb is to take your gross scheduled rent and divide it in half. This is what you'll have left to pay the mortgage.
There are tons of great books on real estate investing, by people who have built fortunes of millions actually doing it. It's definitely possible, but not easy.
So it does seem unreasonable here because there's not a lot of leverage possibility right now when the mortgage rate >= cap rate? (learned that term today ;) Or at least I'd be depending on other things (like appreciation) for value.
50% operating does sound crazy high, I was thinking strata + tax + a few % for maintenance, but I guess it all adds up.
Stuff like this is why I'm a contrarian investor.