If property doubles in value every 7-10 years, do rents double approx every 10 years?

[steveadl]

Next downturn I'll be in and it won't be academic anymore. If this forum is still going and you lot are still posting I will share the experience (especially if I get it at a rock bottom price .... I couldn't help but share that experience)

I hope you do YM, I really do. Although why can't you get in now if there are properties that meet your criteria already (ie. remember Alex had some for you last week in his own portfolio)?

Anyway, I'm sure SS will still be here when you do jump back in.

 

[alexlee]

I hope you do YM, I really do. Although why can't you get in now if there are properties that meet your criteria already (ie. remember Alex had some for you last week in his own portfolio)?

Nah, mine aren't good enough. I'm only valuing them at 5% yield. YM wants more. I'm just a mortal, not a market timing wizard like YM, though. So I'm actually quite happy to buy more IPs with what I see as potential at around 5% yield. Especially as rents are rising.

I'm going to go broke...... deary me.
Alex

 

[steveadl]

Put me in that basket. I wouldn't claim to be able to time the market or pick up bargains. I do know a fairly priced property with good potential when I see it - that'll do me.

 

[dave99]

NYC has fixed rental rises which appear to cap the rental yield growth significantly over the longer term.

60-70% of apartments in NYC are rent controlled (fixed rent) or rent stabilized (rent increases are capped), or are public housing. Not only does this depress the yields on these apartments, it causes the rent on the remaining 30% of unregulated apartments to be much higher than they would otherwise be. Because such a large part of the rental prices cannot move freely, the 5% yield I think is not comparable at all to any Australian market.

I think alex's point about the yield re-sets is key. Manhattan yields are where they are only because every block of land has changed use again and again to increase density. People will pay $20M for an apartment with 5% share of the land. This puts the land value at $400M. What's the yield for the rent on a townhouse on that $400M block? In the ridiculous territory which YM mentioned earlier.

-Dave99

 

[BayView]

Next downturn I'll be in and it won't be academic anymore. If this forum is still going and you lot are still posting I will share the experience (especially if I get it at a rock bottom price .... I couldn't help but share that experience)

What do you call a "downturn"? How far does the market have to drop before you walk the talk?

Not that it matters, as we have told you a large number of times now that the macro market is irrelevent to purchasing a successful property.

There is a funny little poster in many real estate agent's offices. It is a picture of a really old man, sitting in a chair, walking stick in hand.

The caption underneath says; "he's waiting for the real estate prices to go down".

You would do far better Yield to watch a particular area of interest, learn its values extensively, wait until a property comes on the market that represents good value, has add-on value potential, land content, position, rent demand, good cap growth prospects and then buy it.

Not very scientific or cerebral, but it works.

 

[BayView]

People have issues if they take advice from an anonymous poster on an internet forum anyway!

OK; so when the time comes for you to take action, who do you turn to for advice? It better not be here; what would we all know?

I would far more prefer to be on this forum, full of (mostly) like-minded people who have been there and done that, than listen to :
a) friends
b) family
c) media experts
d) theorists
e) doom and gloomers

People ask for advice here every day. Even the more experienced ones. They don't have to take that advice and act on it, but in most cases they will have a good number of opinions and can formulate a plan of action that I would say would be beneficial.

I wished I had had the use of it when I first started, I probably would have saved a few thousand from the mistakes I've made.

 

[BayView]

"And we're supposed to be the ones who don't understand opportunity cost?
Alex"

I remember being taught about "opportunity cost" in about year 9 economics, and I thought; "what a stupid concept".

I thought this because, if you always analyse the opportunity cost of any situation (regarding spending or investing money), then you would never do anything as there is always a better opportunity around the corner.

Women do it all the time when they shop; that's why they take all day to buy 2 things, and a week later the item is further reduced anyway

The opportunity cost of that shopping trip is more time at the restaurant for luch and a game of golf, or a visit to the beautician, or, or. If they'd just gone in the shop bought the damn item and left, they'd have the whole day clear.

Who cares about opportunity cost? It's irrelevent, your wealth is not measured in what you may have made if you'd done X; it's measured by what you've done.

It leads to paralysis by analysis and you do nothing.

Now there's an opportunity cost.

 

[Charlotte30]

I agree, Opportunity cost is a pointless excercise. You make your investment decisions with the knowledge you have at the time. When you know better you do better.
Charlotte30

 

[plusnq]

60-70% of apartments in NYC are rent controlled (fixed rent) or rent stabilized (rent increases are capped), or are public housing. the 5% yield I think is not comparable at all to any Australian market.



-Dave99

My point exactly. It is dificult to compare OS markets to local markets due to local level influences.

 

[alexlee]

OK; so when the time comes for you to take action, who do you turn to for advice? It better not be here; what would we all know?

People ask for advice here every day. Even the more experienced ones. They don't have to take that advice and act on it, but in most cases they will have a good number of opinions and can formulate a plan of action that I would say would be beneficial.

Many of us, in fact, aren't anonymous. We've met at the various meetings, exchanged emails, etc. At least most of us here actually walk the walk and own and continue to own properties. If you're like most people (including me) most of your friends and family don't own property and don't have a clue about managing money. The advice is free, and whether people take it or not is their choice. I like to think we have enough experts and experienced people that any truly incorrect advice (as opposed to just a difference of opinion) will be picked up and questioned by other experienced people.
Alex

 

[yieldmatters]

I think alex's point about the yield re-sets is key. Manhattan yields are where they are only because every block of land has changed use again and again to increase density. People will pay $20M for an apartment with 5% share of the land. This puts the land value at $400M. What's the yield for the rent on a townhouse on that $400M block? In the ridiculous territory which YM mentioned earlier.

I think alex's point is the key to making sense of it as well. People who think they will buy a place and sit on it and the CG will outstrip the rental price forever are kidding themselves. Something needs to happen in terms of development to improve the yields (whether this be conversion to a duplex or to a 50 story apartment block if the demand allows).

 

[JIT]

Actually, assuming you buy at all during the downturn (instead of lowballing too much and not getting a deal...

...which is what YM did in 2005, so his past history here isn't too good! - a shining example of what not to do .

 

[yieldmatters]

What do you call a "downturn"? How far does the market have to drop before you walk the talk? Not that it matters, as we have told you a large number of times now that the macro market is irrelevent to purchasing a successful property.

Macro conditions are irrelevant? Take California - a place you are familiar with. Would you rather be buying a place now or 1 year ago. Clearly you would choose now right? My buy target is macro prices at 2003 levels + CPI. People laugh but that is only a few years ago so not such a big step backwards for market conditions.

There is a funny little poster in many real estate agent's offices. It is a picture of a really old man, sitting in a chair, walking stick in hand.
The caption underneath says; "he's waiting for the real estate prices to go down".

These signs are still in California real estate offices?

You would do far better Yield to watch a particular area of interest, learn its values extensively, wait until a property comes on the market that represents good value, has add-on value potential, land content, position, rent demand, good cap growth prospects and then buy it.

The micro stuff is important - those tips above are good ones. But the micro stuff is always important. Selecting a good property within the context of a poor macro market is even better. I just have a different forward view on the realestate market so we won't ever agree on this. I think USA, UK, Spain, Australia, NZ have all overshot fundamentals by a big margin and the common driver in all of them is debt. USA is turning, UK is beginning to turn ... my opportunity will come. Many here though won't care though even if I am right - they are in it for the long term and have the servicing capacity to ride it out.

 

[yieldmatters]

...which is what YM did in 2005, so his past history here isn't too good! - a shining example of what not to do .

My lowball offer was early 2006 actually.

 

[BayView]

People who think they will buy a place and sit on it and the CG will outstrip the rental price forever are kidding themselves. Something needs to happen in terms of development to improve the yields (whether this be conversion to a duplex or to a 50 story apartment block if the demand allows).

Improve the yields for who?

When I bought my properties the yields were X. Now they are Y.

The yields on my investment dollars already in the game are continually going up. I don't care if the rents don't match the cap growth. They have both gone up, albeit at varying amounts, but the news is all good - for me.

If the cap growth goes mad and outstrips the rent, I am laughing. If the cap growth slows, or even stops, and the rents catch up, I am laughing.

And, I can re-develop the land and improve the yield even more.

This is the same for the the buyers of today; their yields are what they are at purchase; they are at point X, and in time, if they've bought well, the yields in their properties will improve to point Y.

The yields for the next lot of buyers will be at X again. And so on.

If I had decided to not buy because the yields were not at point Y in the first place, I'd still be sitting on nothing.

Should newbie investors buy at the moment with such poor rent yields and possible slowing cap growth on the horizon? Probably not.

But no-one forces them to buy a crap investment. They do it out of fear of inaction, or ignorance, or following the sheep, or criteria that I can't fathom such as $100+ p/w neg gearing etc.

They can easily elect to find another area with better returns (you know; micro markets), or use a different investment vehicle such as shares, or wait until the time is right

But there is no need to. Start at point X, progress to Y and then Z.

 

[yieldmatters]

"And we're supposed to be the ones who don't understand opportunity cost?
Alex"

I remember being taught about "opportunity cost" in about year 9 economics, and I thought; "what a stupid concept".

I thought this because, if you always analyse the opportunity cost of any situation (regarding spending or investing money), then you would never do anything as there is always a better opportunity around the corner.

Women do it all the time when they shop; that's why they take all day to buy 2 things, and a week later the item is further reduced anyway

The opportunity cost of that shopping trip is more time at the restaurant for luch and a game of golf, or a visit to the beautician, or, or. If they'd just gone in the shop bought the damn item and left, they'd have the whole day clear.

Who cares about opportunity cost? It's irrelevent, your wealth is not measured in what you may have made if you'd done X; it's measured by what you've done.

It leads to paralysis by analysis and you do nothing.

Now there's an opportunity cost.

I think you are misunderstanding opportunity cost. The opportunity cost is at a point in time - its not about a future opportunity that comes up when circumstances change. Because as you say, there will always be a possibility of something better around the corner.

Imagine a guy who owns a block of land in Manhattan outright - lets say it was inhereted or something (highly hypothetical I know). He has the choice to start his bowling alley business on the block of land he owns outright or he can buy some cheap land in a regional city in Texas and build the bowling alley business there. Assume all other things are the same - expected business, customers etc.

In an accounting sense the Manhattan option is more profitable. The costs to set up the business is less. But what would you choose? You would choose the Texas option right? Why? Because the opportunity cost on the Manhattan option is too great. There is an opportunity on that site to build a 50 story apartment block which has far more value than a bowling alley.

 

[yieldmatters]

Improve the yields for who?

When I bought my properties the yields were X. Now they are Y.

The yields on my investment dollars already in the game are continually going up. I don't care if the rents don't match the cap growth. They have both gone up, albeit at varying amounts, but the news is all good - for me.

This thread really comes down to the sustainability of continued CG long term. Somebody has quite rightly said - hang on, if property doubles every 7 years then what about rent?

I think you might be saying that the question doesn't matter anyway because it's all good news for those already in the market. That's probably true but its still an interesting question.

 

[JIT]

This thread really comes down to the sustainability of continued CG long term. Somebody has quite rightly said - hang on, if property doubles every 7 years then what about rent?

I think you might be saying that the question doesn't matter anyway because it's all good news for those already in the market. That's probably true but its still an interesting question.

Is there a graph that shows realestate price trends over say 100 years?

I wonder what that looks like?

 

[BayView]

Macro conditions are irrelevant? Take California - a place you are familiar with. Would you rather be buying a place now or 1 year ago. Clearly you would choose now right? My buy target is macro prices at 2003 levels + CPI. People laugh but that is only a few years ago so not such a big step backwards for market conditions.
When I arrived 2 yars ago, the boom was almost at the top and the market started to head south about 4-6 months later. Now the market is almost at the bottom ; maybe by mid next year.
But, if I had bought in Watts 2 years ago when I arrived, I would have a property worth about 50% more. If I could have afforded to buy in Holmby Hills (near Bel Air) I would probably have achieved a similar result. Two different markets; Watts is a loser suburb that is being taken over and gentrified, and Holmby Hills is the elite of the elite, where price is almost irrelevent. BIG entry price to that market.
One of our friends lives in the Hollywood Hills. Nice, but modest house, smallish block, worth $2 mill two years ago when we arrived. Now worth $2.4 mill so he tells me.
Distance between the 3 areas is about 10 miles at most.


These signs are still in California real estate offices?
Yield, I have been in property transactions since 1985. What about you? That's a stupid comment.


The micro stuff is important - those tips above are good ones. But the micro stuff is always important. Selecting a good property within the context of a poor macro market is even better. I just have a different forward view on the realestate market so we won't ever agree on this. I think USA, UK, Spain, Australia, NZ have all overshot fundamentals by a big margin and the common driver in all of them is debt. USA is turning, UK is beginning to turn ... my opportunity will come. Many here though won't care though even if I am right - they are in it for the long term and have the servicing capacity to ride it out.

AAH... fundamentals. And again; I'm here to tell you that the macro market matters not a damn. You select each investment on its merits. There are still people making money from property in the USA I'm sure, despite what CNN or the fundamentals say.

 

[yieldmatters]

People ask for advice here every day. Even the more experienced ones. They don't have to take that advice and act on it, but in most cases they will have a good number of opinions and can formulate a plan of action that I would say would be beneficial.

I wished I had had the use of it when I first started, I probably would have saved a few thousand from the mistakes I've made.

I agree. My comment was singular .. I referred to an anonymous poster. If people see a single comment from a person on a chat forum and invest $500K on the back of it - that is probably not wise.