Proper Fundamentals Trump Economy When Buying Your Rental Property

There has been quite a discussion over at BawldGuy as to the shape and direction of the economy.  Jeff maintains that the recovery is starting or at least poised to.  At least one experienced real estate investor and one investment banker disagree thinking we are at least one to two years away.  Both point to evidence supporting their suppositions.  Both sides making excellent points.  (Make sure to read the comments!)

I’m not here to sit in judgement.  But does it remind you a little of the upcoming elections?  So much of the way you behave has to do with the way you see the world. 

Getting back to the BawldGuy discussion the thing that seemed to be relatively ignored by the Bears of the argument (not saying they are Bears…merely that their arguments are Bearish) is that you can still buy real estate investment  property that makes sense with 10% down or 20% down.  But you absolutely have to work your numbers backwards.

“However, even at 50 percent off, he could not find anything that would pencil out when he worked backwards from what tenants could afford to pay.”

Obviously, if you work your numbers from either 10% or 20% down (heck, 50% down) and after your taxes, insurance, property management, reserves, repairs, etc. the numbers do not reflect what a tenant will be willing to pay for that rental property then you are not buying on proper fundamentals.

If you do buy on proper fundamentals then whether the economy has a short burst of appreciation, a long term stagnation or even a short term deflation you are going to be okay.  Because that property will pay for itself in good times and bad. 

This doesn’t have to be rocket science, people.  We all agree that over the long term real estate is a fantastic investment.  So why are we arguing over 6-24 months? 

The Answer:  Because from where I sit, in Kansas City, we’ve been relatively insulated.  Yes, we’ve experienced a slow down in all areas of real estate like everyone else.  But deflation in the neighborhood of 50%?  Thank God, no.  If we had, maybe I’d sound more Bearish.  🙂


Filed under Misc. Real Estate, Personal Real Estate Opinions

2 responses to “Proper Fundamentals Trump Economy When Buying Your Rental Property

  1. Chris-
    Good summary of the points that Bawldguy was making. It is a tough argument and like you said, each may be right.

    I suspect each market will come out of this at it own time and pace, depending upon the local economics and market pressures.

  2. Thanks. Local. Local. Local.

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